The New Part 36

Parties to litigation will be familiar with the principles of Part 36.  This key provision in the Civil Procedure Rules is designed to encourage settlement, by entitling litigants who make reasonable offers of settlement to the benefit of enhanced costs and interest if they make an offer which their opponent declines to accept, but which their opponent then fails to better at trial.

However, the current Part 36 has some grey areas and it has received inconsistent treatment in the Courts.  Accordingly, in the first major review of Part 36 in eight years, the Civil Procedure Rule Committee has sought to address some of the key problems faced by litigants, and to clarify those grey areas.

The new Part 36 comes into force on 6 April 2015 and will apply to all Part 36 Offers made on or after 6 April 2015.

Some of the most notable changes are as follows:

1.         Counterclaims

In the past, there was some uncertainty as to how a Part 36 offer would operate in respect of a counterclaim, and whether making an offer in these terms would expose the party with the counterclaim to liability for the Claimant's costs.

The new Part 36 removes such issues by stating that a Part 36 Offer may be made in respect of a claim, counterclaim or other additional claim.

2.         Technicality

The existing Part 36 is very tightly worded and in some cases, offers which the parties clearly intended to have the consequences of Part 36 have failed on technical grounds.  For instance, the requirement that the offer must state on its face that it is "intended to have the consequences of Section 1 of Part 36", has caused Judges to hold that offers which failed to use that precise wording were not Part 36 Offers.  As such, the new Part 36 is less stringent and the new rule is only that the offer "must make clear that it is made pursuant to Part 36".

3.         Time limited offers and "sunset clauses"

The question of whether a time limited offer can be a Part 36 offer has posed difficulties for the Courts in the past and the current position is that an offer which is time limited from the outset- for example, an offer which states it is open for acceptance for 21 days and is then automatically withdrawn- is not a valid Part 36 offer.  The Courts have, however, dealt with various cases on the interpretation of offers as time limited or otherwise, and the authorities are not clear cut.

In order to remedy this uncertainty, the new Part 36 specifically deals with the withdrawal and variation of offers.  In particular, the new rules state that after expiry of the minimum period of 21 days, a Part 36 offer may be automatically withdrawn in accordance with its terms.  As such, a Part 36 Offer may now include what is being described as a "sunset clause" providing for its own automatic withdrawal at the end of a specified period.

It is questionable that parties making Part 36 offers would want to use "sunset clauses" with much frequency, as in most cases litigants will want their offers to remain active, so that they are still on the table at trial and can attract the enhanced costs and interest provisions which flow as a result.  However, if a party feels that it is in a strong position, a well timed Part 36 offer incorporating a "sunset clause" could be used as a bargaining chip at an early stage of litigation; the rationale being, "do the deal now, or press on to trial."  An offer which an opponent knows will not be available for acceptance after a certain date could therefore become more attractive, allowing the new Part 36 to be used, more than ever, as a tactical tool.

4.         Improving the terms of offers

The new Part 36 also clarifies the position in respect of more advantageous offers.  Under the current regime, there may be confusion as to whether an improved offer replaces, or stands in addition to, the original offer.  Similarly, the Courts have grappled in the past with the question of whether the usual contractual principles of offer and counter-offer apply to Part 36.  The new rules clarify the fact that an improved offer does not act so as to withdraw the original offer, but is instead a new Part 36 offer on improved terms, with a further period for acceptance.  Litigants and practitioners are therefore reminded that Part 36 is its own distinct code, with different rules to get to grips with.

It will be interesting to see how the new Part 36 is applied in practice and in particular how the transitional period between the old regime and the new pans out.  Some may say that the changes to the rules actually make Part 36 more complicated and that its operation as such a self-contained code make its harder for litigants to understand, particularly those who do not have the benefit of legal advice.  It is safe to say that you dabble with Part 36 at your peril, and we will therefore be keeping a close eye on the way the new regime develops so as to minimise the potential pitfalls.

Posted on: 24/02/2015

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.

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