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As of 6 April 2015 the Provisions of Part 36 underwent a significant update. This summary attempts to provide a run-down of the key changes from a costs practitioner’s perspective.
• According to the sub-committee responsible for the Part 36 changes, the new 36.17(5)(e) represents an effort to prevent any abuse of the old rules through cynically placed Claimant Part 36 offers aimed at securing the benefits of indemnity costs, penalty interest and the Jackson additional amount. There had apparently been a growing trend of Claimants making unreasonably high offers following an unfortunate decision in Huck v Robson  EWCA Civ 398,  3 All ER 263. In order for a party to benefit from the costs consequences of Part 36 the Part 36 offer must now be ‘a genuine attempt to settle’. The sub-committee also reassured Claimant lawyers that where very high offers are appropriate, given the relative strength of the claim in question, the Claimant will not fall foul of this new provision. It remains to be seen how the courts will exercise their discretion and whether any further guidance will be forthcoming.
• The old Part 36 rules were effectively rendered impotent by CPR 3.14 and the budgeting process. Parties who had been limited to a court fees only recovery were not incentivised to settle at an early juncture nor were offerees under any pressure to treat their offers seriously. The new rule, CPR 36.23(2), allows that where an offeror in this situation beats their own Part 36 offer they may recover 50% of the costs.
• The new CPR 36.9(5) provides that a Part 36 offer can be varied so as to be more advantageous to the offeree and that this variation would not represent a withdrawal of the original offer. The benefit of this to offerors is that they may retain the costs consequences of the earlier offer. The variation takes effect as a new Part 36 offer with a new relevant period and the original offer remains on the table open for acceptance.
• Time-limited Part 36 offers, or ‘sunset clauses’, were invalid under the old rules - that is no longer the case. A Part 36 offer can now be automatically withdrawn if not accepted within the specified period (CPR 36.9(4)(b)).
• The court's permission is now required to accept an offer where a trial is in progress (CPR 36.11(3)(d)). It follows that the same permission is now required at detailed assessment hearings.
• It had always been the case that a Part 36 offer would automatically be treated as ‘without prejudice except as to costs’ but there are now additional circumstances under which a judge may be informed of the existence, but not value, of a Part 36 offer that can be found at CPR 36.16.
Below is the relevant new rule on the form and content of a Part 36 offer.
(1) A Part 36 offer must—
(a) be in writing;
(b) make clear that it is made pursuant to Part 36;
(c) specify a period of not less than 21 days within which the Defendant will be liable for the Claimant’s costs in accordance with rule 36.13 or 36.20 if the offer is accepted;
(d) state whether it relates to the whole of the claim or to part of it or to an issue that arises in it and if so to which part or issue; and
(e) state whether it takes into account any counterclaim.
Fortunately, there are no real substantive changes here. The only significant point of note is that offers made on or after 6 April now no longer need to state that they are ‘intended to have the consequences of Section 1 of Part 36’ and instead must ‘make clear that [they are] made pursuant to Part 36’. This requirement under the old Part 36 was widely criticised when it led to a string of unfortunate and excessively technical judgments (e.g. Thewlis v Groupama  EWHC 3 (TCC) and Shaw v Merthyr Tydfil County Borough Council  EWCA Civ 1678 ) wherein offers that were plainly intended to have the consequences of Part 36 were deemed to fall outside of the scope of Part 36. Whilst this change represents a marginal broadening, and perhaps a slight relaxation, of the old rules – it is still the case that Part 36 offers must follow a rigid formula, must address the costs consequences of acceptance and refer to the new provisions of CPR 36.5(1)(c), 36.13 and 36.20.
It remains that if a party attempts to make an offer that is inclusive of costs of assessment the offer will not meet the requirements of Part 36 and therefore will be subject to the court’s discretion with respect to costs consequences.
Part 36 offers were designed to encourage early and sensible settlement. The hope was that a well measured Part 36 offer would allow the offeror to apply tactical pressure in a manner which would not otherwise be available. When deciding a party’s entitlement to costs the courts may take into account offers that rest beyond CPR 36 - the impact of those offers are a matter for the court’s discretion. The pertinent question is whether those offers can hold the same weight as a Part 36 offer and, if they can, why we would need Part 36 at all? Fortunately, the CPR and case law on this point is quite clear - offers that fall outside the realms of Part 36 will not be afforded its full weaponry. ‘If the offer is not made in accordance with rule 36.5, it will not have the consequences specified in this Section.’ (CPR 36.2(2))
The general rule is that if a Part 36 offer is accepted within the relevant period the Claimant is entitled to their costs of the proceedings up to the date of acceptance on the standard basis. With the April changes, the wording of the relevant rules relating to the acceptance of an offer out of time have been modified so as to effectively fetter the court’s ability to exercise its discretion.
Under both sets of rules the general approach is that:
(a) the Claimant be awarded costs up to the date on which the relevant period expired; and
(b) the offeree do pay the offeror’s costs for the period from the date of expiry of the relevant period to the date of acceptance.
Where the court was previously free to make any other order it should see fit, under the new CPR 39.13(5), the court must now make the above costs order unless unjust to do so - taking into account the factors at 36.17(5).
The position is slightly more complicated where a party achieves a judgment that is at least as advantageous as their own Part 36 offer. Fortunately these provisions have not been substantially changed in this most recent update save a similar narrowing of the court’s discretion.
Where a Claimant achieves a judgment against the Defendant that is at least as advantageous to the Claimant as the proposals contained in a Claimant’s Part 36 offer the court must, unless it considers it unjust to do so, order that the Claimant is entitled to:
(a) interest on the whole or part of any sum of money (excluding interest) awarded, at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired;
(b) costs (including any recoverable pre-action costs) on the indemnity basis from the date on which the relevant period expired;
(c) interest on those costs at a rate not exceeding 10% above base rate; and
(d) provided that the case has been decided and there has not been a previous order under this sub-paragraph, an additional amount, which shall not exceed £75,000, calculated by applying the 10% of the first £500,000 and (subject to the limit of £75,000) 5% of any amount above that of the sum awarded to the Claimant by the court.
Where a Claimant fails to obtain a judgment more advantageous than a Defendant’s Part 36 offer the court must, unless it considers it unjust to do so, order that the Defendant is entitled to—
(a) costs (including any recoverable pre-action costs) from the date on which the relevant period expired; and
(b) interest on those costs.
There remains some argument that these provisions favour the paying party in that the receiving party is doubly penalised for failing to accept a reasonable Part 36 offer whilst the receiving party is not comparably rewarded. The unreasonable Claimant loses both his entitlement to costs from the expiry of the relevant period and is also required to pay the Defendant’s costs whilst the unreasonable Defendant is liable for penalty interest, an additional amount and costs of the assessment on the indemnity basis. Under the old rules there had been reports of cases wherein the courts had previously been neglecting to grant successful Claimants the additional entitlements under Part 36 so as not to further punish unsuccessful Defendants (see Elsevier Limited v Robert Munro  EWHC 2728 (QB)). Whilst Defendants were discovering that the consequences of Part 36 were of no consequence at all, unsuccessful Claimants were routinely feeling the full brunt of the Part 36 penalties. One hopes that the more uncompromising wording of the new Part 36 will serve to redress any imbalance with respect to the application of Part 36 in the courts.
A further important change to note with respect to the consequences of Part 36 is the reference to entitlement to “recoverable pre-action costs”. One would assume that in the context of assessment proceedings the Claimant is therefore entitled to the costs of any informal negotiations undertaken prior to the service of a formal Bill of Costs.