Andrew Parker considers the practical implications of the new part 36 regime following the 44th update of the Civil Procedure Rules


On 6 April 2007, important changes came into force abolishing the requirement to pay into court under part 36. Instead, defendants will be able to obtain automatic costs protection by making an offer to settle under part 36. This follows a review of part 36 provoked by the Court of Appeal decision in Trustees of Stokes Fund v Western Power Distribution [2005] EWCA Civ 854.



The background



In Stokes, the Court of Appeal approved and expanded its previous decision in Crouch v King's Healthcare NHS Trust [2004] EWCA Civ 1332. Crouch had decided that a public authority, in this case an NHS trust, ought to be able to make an effective offer to settle without having to lodge funds in court to back it up, allowing the funds instead to be used for providing patient services.



The argument was taken a stage further in Stokes, where the Court of Appeal expressed a view that a defendant who was 'good for the money' ought to be treated in the same way. The guiding principle under part 36 was that a party who did not accept an attempt to settle proceedings and then achieved an outcome no more favourable than the offer should be penalised in costs.



The Rule Committee undertook a consultation in early 2006, concentrating on the Stokes decision, but also reviewing other aspects of part 36, which it considered ready for an overhaul. Respondees were broadly in favour of implementing the 'good for the money' concept, but there were conflicting views on how it would work in practice. Any draft wording appeared to be inherently discriminatory: in effect, a defendant who could afford to pay in might be able to avoid doing so, while defendants who would have difficulty raising the funds would still have to pay in.



Following a further short consultation process, the committee concluded that the appropriate solution was to remove the need to pay in altogether. From 6 April, all defendants simply make offers to settle under part 36, without needing to make a payment into court in support. This applies equally to the need to support pre-issue offers as to offers made in proceedings.



Offers to settle

A valid offer must be in writing and contain the following:

l It must state that it is intended to have the consequences of part 36;

l It must specify a period of not less than 21 days within which the defendant will be liable for the claimant's costs if the offer is accepted (the 'relevant period', which can be longer than 21 days); and

l It must state whether the offer relates to the whole of the claim or to a part of it, and whether it takes into account any counterclaim.



Unlike the old regime, there does not have to be specific reference to interest because all offers will be deemed inclusive of interest.



There are other significant changes. Claimants will now be able to automatically accept offers out of time without needing the consent of the court, as long as they also accept the default position on costs - that is that the defendant is entitled to costs from the end of the 'relevant period'. Where a claimant does not accept the default position but wishes to accept the offer anyway, an application can be made to court for an alternative order as to costs. That said, recent decisions such as Matthews v Metal Improvements [2007] EWCA Civ 215 show that the court will rarely depart from the default position.



A claimant now only has to match their own offer to obtain enhanced interest and indemnity costs. This minor change brings the positions of claimant and defendant into line and may have important implications in practice because both parties and judges tend to think in round numbers.



Withdrawal of offers

The new rules give the parties more freedom to withdraw offers than the current system permits for payments in. After the 'relevant period', an offer can be withdrawn without permission, but a withdrawn offer loses the automatic costs protection of part 36. This is designed to prevent defendants from withdrawing offers as a matter of course. In practice, withdrawn offers ought to be as rare in the future as applications to withdraw payments into court in the past.



Implications for claimants

Some have argued that the new system gives claimants less protection than before: the 'security' of knowing that the money is available and sitting in court has been removed. However, the committee felt strongly that a claimant accepting an offer should not be better off than a claimant with judgment at trial. The rules therefore simply provide that, when an offer is accepted, the defendant must pay the sum offered within 14 days, otherwise the claimant can enter judgment. The parties can of course agree to extend that period, but in practice there should be little excuse for failing to meet the 14-day limit.



There is no separate mechanism provided for pre-issue offers. It is assumed that claimants who have not been paid within 14 days will issue proceedings on the basis of the offer and then seek judgment. The committee expressly rejected the idea that a claimant could in some way opt to continue with proceedings if payment was not made.



Transitional provisions

These are set out in the practice direction. While they may appear complex, the intention is that neither party can gain any advantage by applying the new rules to offers/payments made before 6 April.



Non-conforming offers

To achieve the automatic costs protection and consequences of part 36, an offer must comply in all respects. An offer that, for example, specifies a period longer than 14 days for payment following acceptance will not itself be a valid part 36 offer, although the parties can agree following acceptance to extend the period for payment.



Residual discretion

Practitioners should, however, remember that there remains an overall discretion on costs beyond the automatic provisions of part 36. Offers can still be made in a form that does not comply with part 36 and the court can still consider such offers when exercising its discretion as to costs under part 44.



It is always easy to criticise change when the old system works tolerably well, but in time these amendments ought to be seen as a significant step forward. The object of part 36 is to promote effective settlement of disputes and the removal of payments in will make that process significantly simpler and quicker.



Andrew Parker is a partner at national commercial law firm Beachcroft and a member of the Civil Procedure Rule Committee