AUTHORS: Naomi O’Higgins is a Solicitor and Elizabeth Barclay is
a Trainee Solicitor at Harcus Sinclair in London
This article provides a practical guide to Part 36 of the
Civil Procedure Rules 1998 (CPR) for the trust law
practitioner, focusing particularly on two recent decisions of the
Court of Appeal, C v D
and Howell and others v Lees-Millais and
others. These cases provide
further assistance in interpreting the practical implications of
Part 36 of the CPR (Part 36).
CPR 1.1 sets out the ‘overriding objective’, which is ‘to enable
the Court to deal with cases justly’. A crucial element of the
overriding objective is that cases should be dealt with
proportionately in terms of the amount of money involved, the
importance of the case, the complexity of the issues and the
financial position of each of the parties. As a result, parties
are encouraged to attempt to negotiate disputes without recourse to
the courts and, ideally, to settle them before embarking on costly
litigation.
One way of precipitating such resolution is by making an offer
to settle which is accepted by the other party to the dispute. The
tactical use of offers is a valuable tool in any litigator’s
armoury, and can be put to good effect to bring complex trusts and
probate litigation to a successful conclusion. However, it is
important that the litigator understands the finer points of the
CPR and does not get caught out by potential pitfalls.
Such an offer can be in any form and, to encourage this
approach, CPR 44.3 requires the court to consider offers to settle
which have been made by either party when making an order as to
costs.
What are Part 36 offers?
A Part 36 offer is a formal offer to settle an action or part of
an action. Part 36 provides ‘a statutory procedure for settlement
which is complete in its own right and by itself’. It is a code that sets
out a system for making and accepting offers of settlement in a
prescribed form which encourages the resolution of litigation on
reasonable terms. Although an offer can be in any form, Part 36
affords significant costs, interest and tactical advantages if used
correctly. It is both a carrot and stick, as it rewards an offeror
who makes a sensible offer which is rejected, while penalising the
offeree for rejecting that sensible offer.
Although the Court of Appeal has made it clear that Part 36 is
not contractual in nature, contractual principles
need to be taken into account when considering the effect of an
offer.
What sort of claims can Part 36 be used to
settle?
Part 36 offers can be made in most types of dispute or
proceedings. Trust practitioners should note that this includes
Part 8 claims and non-money claims. The offer can be constructed so
as to relate to part of a claim only. It can also be made in
relation to counterclaims and third-party claims.
Requirements of a valid Part 36 offer
The requirements of a valid Part 36 offer are contained in CPR
36.2. For an offer to be valid, it must:
abe in writingbstate on its face
that it is intended to have the consequences of Part
36cspecify a period of not fewer than 21 days within
which the offeree may decide to accept it (‘the Relevant
Period’)dstate 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 of issue; andestate whether it
takes into account any counterclaim.
A Part 36 offer by a defendant to pay a sum of money in
settlement of a claim must be an offer to pay a single sum of money
and should state that the sum will be paid at a date not later than
14 days following the date of acceptance.
Where the claim at issue is a non-money claim, the offer will
also need to contain sufficient information to enable the offeree
to consider it adequately. It should also be
noted that an offer which deals with a money claim will be treated
as being inclusive of all interest.
An offer which fails to comply with Part 36 can nonetheless be
taken into account by the court when considering
costs. These requirements
were considered in the recent Court of Appeal case of
Howell v Lees-Millais. That case involved an
appeal by the appellant trustees against a costs order in relation
to an unsuccessful application they had made in the Chancery
Division. The trustees had made an application seeking the
permission of the court to pursue various claims for breach of
trust and professional negligence. When this application came
before Lindsay J in May 2008, he did not consent to the trustees
pursuing the proposed claims (except the negligence claim). The
Judge commented that the claimants had acted in ‘an inappropriately
partisan way’.
Following the handing down of that judgment, there was a
protracted costs dispute in relation to the costs of the Chancery
application. The first instance hearing of the costs dispute was
held in May 2010 before the trial judge (by then Sir John Lindsay
as he had retired).
One of the key questions for the court was whether an offer made
by the claimants in April 2009 (the ‘April 2009 letter’) was a Part
36 offer, so that the trustees would be entitled to their costs in
respect of the period from the beginning of May 2009 (when the 21
days referred to in the letter expired).
At first instance, Sir John Lindsay held that the April 2009
letter was not a Part 36 offer, inter alia because it
failed to comply with Part 36.2(c). This was appealed by the
trustees so that the Court of Appeal, which handed down its
decision on 6 July 2011, had to consider whether the April 2009
letter was a Part 36 offer. In his judgment, Lord Neuberger, the
Master of the Rolls, said that the April 2009 letter was not a Part
36 offer (because it specifically excluded the possibility of the
respondents recovering all of their costs and only gave them the
option of recovering a fixed percentage contrary to CPR 36.10).
Furthermore, it was time limited (contrary to CPR 36.2(c)).
However, in light of the overriding objective and the recent
judgment in C v D, discussed in further detail
below, the Court of Appeal took the view that the April 2009 letter
should, if possible, be treated as a Part 36 offer.
Lord Neuberger pointed to the fact that ‘both the trustees and
respondents (a) treated the offers contained in the April 2009
letter as having been made under Part 36 and (b) said in terms that
those offers were still in force well after the 21 days therein
referred to had passed’. Lord Neuberger went
on to say that ‘an offer which is expressed to be a Part 36 offer
and otherwise appears to comply with the requirements of Part 36,
should, in the absence of good reason to the contrary, be given
substantially the same effect as a Part 36 offer, when it comes to
deciding costs issues’.
Reasons to use Part 36
Given the numerous conditions that must be fulfilled for an
offer to comply with Part 36, and the fact that the Court may, in
its discretion, consider an offer that does not comply with Part
36 in any event, what
are the advantages of using the Part 36 procedure?
The primary advantage of making an offer in accordance with Part
36 (as opposed to an offer that does not have all the features set
out above) is that it may confer a significant costs advantage on
the offeror. The costs implications are discussed in detail
below.
The other key advantage is that, subject to limited exceptions
set out in CPR 36.13, Part 36 offers are ‘without prejudice save as
to costs’, which means that the offer is not admissible in
evidence nor can it be
disclosed to the trial judge. This ensures that
neither party can refer to the fact or details of the offer until
the case has been decided.
When is the right time to make a Part 36
offer?
A Part 36 offer may be made at any time, including before issue
of proceedings, during trial and during appeal
proceedings. An offer is deemed
to be made when it is served on the offeree.
As set out above, as the punitive costs will run from the expiry
of the Relevant Period, it obviously makes sense for a claimant to
make their offer as early as they can to exert as much tactical
pressure on the defendant as possible.
That said, practitioners should be aware that if a pre-action
offer is accepted before the issue of proceedings, Part 36 will not
apply as it refers specifically to ‘costs of the
proceedings’, and at this point
proceedings have not yet been issued. The best way to ensure that
pre-action costs are covered is to make this explicit in any
pre-action offer.
When can a Part 36 offer be accepted?
Pursuant to CPR 36.9(1), a Part 36 offer is accepted by serving
written notice of acceptance on the offeror. The rule makes it
clear that an offer can be accepted at any time (even where the
offeree has subsequently made a different order) unless the offeror
has withdrawn the offer by serving notice of such withdrawal on the
offeree. Part 36 offers must be accepted in writing and, provided
that the acceptance is not within 21 days of the commencement of
the trial, the offer can be accepted without the permission of the
court. The general rule is that Part 36 offers should be made not
less than 21 days before the start of trial.
Clarification of an offer to settle can be sought within seven
days of service to enable the offeree to consider the offer
properly. If a Part 36 offer
is accepted, the claim will be stayed.
The question as to whether a Part 36 offer can be time limited
was considered by the Court of Appeal in the recent case of
C v D. At first instance,
Warren J concluded that a Part 36 offer cannot be time limited and
this was upheld by the Court of Appeal. Rix LJ said: ‘The essence
of the matter is that a Part 36 offer, to have effect in terms of
costs consequences after trial, has to be an offer which has not
been withdrawn, but has remained on the table… there is no room for
an offer, which is neither withdrawn before or after the expiry of
the relevant period, but lapses as a matter of its own
terms’.
With this in mind, the Court then considered whether the offer,
as expressed in that case, was, in fact, time limited and, in
particular, the interpretation of the meaning of the words ‘open
for 21 days’. The Court of Appeal applied the general principle of
construction that ‘words should be understood in such a way that
the matter is effective rather than ineffective’. On the basis of this
approach, the Court concluded that the express time limit contained
in the offer letter in question was not the equivalent of a Part 36
withdrawal and that on the contrary, the parties had all been
concerned with the extension of the 21-day period.
Rix LJ, bringing some much needed clarity to the question of
time limited offers, went on to say: ‘Ultimately
it is important for the security of the Part 36 scheme… that it
should be clearly understood that if a claimant wishes to make a
time limited offer, in the sense that the offer is to lapse of its
own accord at the end of the stipulated period, then such an offer
cannot be made a Part 36 offer, and that and if an offeror wishes
to bring his Part 36 offer to an end, so that it cannot be
accepted, then he must serve a formal notice of withdrawal.’
Costs consequences of Part 36 offers
The costs consequences of Part 36 offers are complex and will
vary depending on the timing of the offer and of its acceptance.
These are set out in CPR 36.10 and here follows an attempt to
summarise the position below by reference to whether:
- the offer is accepted within the Relevant Period, or
- the offer is accepted after the Relevant Period but is accepted
before judgment, or
- an offer is made but is not accepted before judgment.
Where an offer is accepted within the Relevant Period, the
following costs consequences will flow.
Offer by a claimant
Defendant accepts offer within 21 days.
Where the offer has been made pre-action and no proceedings have
been issued:
- the defendant will pay the amount offered within 14 days,
and
- the defendant will pay the claimant’s costs on the standard
basis (to be assessed if not agreed).
- Where the offer is accepted after proceedings have been
issued:
-
- the defendant will pay the amount offered within 14 days
- proceedings will come to an end, and
- the defendant will pay the claimant’s costs on the standard
basis (to be assessed if not agreed).
Offer by a defendant
Claimant accepts within 21 days of offer by filing written
acceptance at court and serving a copy on defendant’s
solicitor:
- proceedings are stayed
- defendant pays money to claimant within 14 days, and
- defendant pays claimant’s costs up until acceptance on the
standard basis (to be assessed if not agreed).
Where an offer is accepted after the Relevant Period but before
judgment, the following costs consequences will flow.
Offer by a claimant
- Offer accepted by defendant after the Relevant Period,
- unless costs are agreed by the parties, defendant will pay the
claimant’s costs of the proceedings up to that date.
Offer by a defendant
- Offer accepted by claimant after the Relevant Period,
- pursuant to rule 36.10, the court will usually order that:
-
- the defendant pays the claimant’s costs of the proceedings up
to the date on which the Relevant Period expired, and
- the claimant pays the defendant’s costs from the date of expiry
of the Relevant Period to the date of acceptance of the offer.
The costs consequences following judgment where an offer has
been made but not accepted are set out in CPR 36.14. In essence,
these can be summarised as follows:
Offer by a claimant
Claimant makes an offer which is not accepted by defendant and
the case goes to trial:
(i) Claimant wins the action and is awarded same as or more than
their offer. Claimant will receive:
- the damages awarded by the court
- interest at the court’s discretion on the damages awarded
(provided these are claimed in the Particulars of Claim) (normally
from when the loss was sustained to and the end of the Relevant
Period)
- enhanced interest on the damages at a maximum rate of 10 per
cent over base rate from the day after the end of the Relevant
Period to judgment
- costs on the standard basis potentially from when first
incurred by the claimant until the end of the Relevant Period
- costs on the indemnity basis from the end of the Relevant
Period to judgment
- interest on the indemnity basis costs from the end of the
Relevant Period to the date of judgment at a maximum of 10 per cent
above base rate.
(ii) Claimant wins the action and is awarded the same or less
than their offer:
- The judge will usually award the claimant the costs of the
claim on the standard basis.
(iii) Claimant loses the action:
- Claimant ordered to pay the defendant’s costs from the Relevant
Period on the standard basis.
Offer by a defendant
Defendant makes an offer which is not accepted by claimant and
the case goes to trial:
(i) Claimant wins the action and is awarded more than
defendant’s offer:
- claimant awarded the costs of the claim to be paid by the
defendant on the standard basis.
(ii) Claimant wins the action and is awarded the same or less
than the defendant’s offer:
- The judge will make two orders as to costs:
-
- costs in favour of claimant to a date within 21 days of the
Relevant Period, and
- costs in favour of the defendant from the Relevant Period plus
interest.
(iii) Claimant loses the action:
- claimant ordered to pay the defendant’s costs from the Relevant
Period on the standard basis plus interest from the date of
judgment.
In the Howell v Lees-Millais decision
discussed above, the appeal was rejected on the basis that the
respondents ‘beat the offer’. As a result, the allocation of
liability for costs for the period between expiry of the 21 days
for which the offer was stated to be open and acceptance was a
matter for the discretion of the judge without the presumption in
favour of the trustees (as offer-making claimants) inherent in CPR
36.10(4) and (5). As a result, the Court ordered that each party
should pay its own respective costs.
‘Beating a money offer from a defendant will not
always result in a judgment more advantageous to the
claimant’
It is also worth noting that beating a money offer from a
defendant will not always result in a judgment more advantageous to
the claimant. In the case of Carver v BAA plc, Ward LJ said that
‘more advantageous’ was ‘an open-textured phrase’ which ‘permits a
more wide-ranging review of all the facts and circumstances of the
case in deciding whether the judgment which is the fruit of the
litigation was worth the fight’. This was a personal injury case
where Miss Carver, who had injured her ankle when she fell into a
defective lift on premises for which the respondent was
responsible, only succeeded in beating the respondent’s offer by
GBP166.26.
Miss Carver submitted that a claimant did not fail to obtain a
judgment more advantageous than the defendant’s Part 36 offer so
long as the judgment was for a penny more than the offer. Ward LJ,
in rejecting this argument, said: ‘The Civil Procedure Rules and
Part 36 in particular, encourage both sides to make offers to
settle. Compromise is seen as an object worthy of promotion for
compromise is better than contest, both for the litigants
concerned, for the court and for the administration of justice as a
whole. Litigation is time-consuming and it comes at a cost,
emotional as well as financial. Those are, therefore, appropriate
factors to take into account in deciding whether the battle was
worth it. Money is not the sole governing criterion.’
The decision in Multiplex Construction (UK) Limited v
Cleveland Bridge makes it clear that
the rationale expounded in the Carver case is not confined to
personal injury actions and that decision sets out ‘how the court
ought to approach the matter in circumstances where: (a) one party
has made an offer which was nearly but not quite sufficient, and
(b) the other party has rejected that offer outright without any
attempt to negotiate’.
In Ford v GKR Construction
Limited, Lord Woolf made it
clear the Court may take into account bad conduct on the part of
the litigants, such as, for example, late disclosure, and said that
this would be a material factor for the Court to consider when
making an order in relation to costs.
Read the small print
Part 36 is a useful device in the negotiation of disputes but to
use it, it is important that practitioners ‘read the small print’
and understand the detail of how it works. The recent decisions in
Howell v Lees-Millais and C v D
have assisted in clarifying the interpretation of Part 36 and
provide useful assistance for practitioners. These decisions add to
the growing body of case law which demonstrates the Court’s
somewhat pragmatic approach whereby it will try to construe an
offer as complying with Part 36 and/or as having its consequences
with regard to costs. In both decisions, the Court of Appeal was at
pains to point out that in interpreting the application of Part 36,
the court will not only consider the facts of the case before it
and the wording of Part 36 itself, but will also give a great deal
of weight to ‘the overriding objective, and indeed common
sense’.