James Hall, guest blogger and Barrister at Cornwall Street Chambers in Birmingham, writes about the wealth of recent court decisions as to the correct interpretation of Part 36 of the Civil Procedure Rules.

There has been a wealth of recent court decisions as to the correct interpretation of Part 36 of the Civil Procedure Rules which, if complied with properly, allows both claimants and defendants to make offers to settle cases which can have profound costs consequences, such consequences being principally that:

• if the claimant fails to beat a defendant’s offer, the defendant will get their costs from, usually, 21 days after the offer was made;
• if the defendant fails to beat a claimant’s offer, the claimant may get extra interest and indemnity costs, rather than costs on the usual, standard basis (where part of a claimant’s costs are usually irrecoverable even if successful at trial).

It is therefore crucial that lawyers understand the finer points of CPR Part 36 and keep abreast of the frequent case law developments in the area.  Here are two examples of areas in which there have been important recent developments:

1. Wording the offer correctly.  To avoid any ambiguity or potential non-compliance, in drafting the offer letter it is best to stick to the wording of Part 36 itself.  In Gibbon v Manchester City Council [2010] EWCA Civ 726, the Court of Appeal confirmed that Part 36 was a self-contained code that had to be followed closely and which was separate to the law of contract, which would otherwise govern settlement agreements.  Two recent cases show how lax wording in letters, that at first glance might appear to reflect the spirit of part 36, can be interpreted in different ways and/or fail to be compliant with Part 36:

a. In C v D [2011] EWCA Civ 646, the Claimant’s offer was stated to be a Part 36 one but also stated that “the offer will be open for 21 days from the date of this letter”. Initially, the High Court held that this was not a valid Part 36 offer because it was to be interpreted as being time-limited (whereas under CPR 36.9(2) a true Part 36 offer can be accepted at any time unless the party making the offer has served a notice of withdrawal). However, the Court of Appeal held that the offer was valid under Part 36 because the reference to the offer being open for 21 days was simply a reference to the ‘relevant period’ under CPR 36.3(c); it did not state that it would automatically come to an end at the end of the period (only implying that this was a possibility) and, therefore, was not in fact time-limited to just 21 days.  One wonders what the real intent of the person drafting the letter was, however, and this case can be seen as introducing some flexibility(or uncertainty) into what was meant to be a prescriptive code;

b. In Thewlis v Groupma Insurance Company Limited [2012] EWHC 3 (TCC), the claimant had made an offer to settle back in a letter dated 24 September 2008. The defendant rejected the offer on 1 October 2008. However, the defendant subsequently tried to accept the offer on 17 October 2011, after the proceedings had started. The claimant maintained that its offer was no longer open for acceptance. The Court held that the statement in the offer letter that the offer “remained open for acceptance for 21 days, after which it [could] only be accepted if [the parties] agree liability for the costs or the Court gives permission” did not comply with CPR 36.2 in that the offer was not open to general acceptance by the defendant after 21 days. Furthermore, whilst the offer letter did refer to some of the Part 36 consequences, it did not refer to all of them and, as such, was not a valid Part 36 offer.  The drafting may have been a reference to a previous (pre-April 2007) version of part 36, which has changed over time since the inception of the CPR in 1998.  Part of the wording was near-identical to the letter in C v D, but the person drafting the letter (again, perhaps unintentionally) went too far and the Court was less flexible/forgiving than in C v D; 

c. In Howell v Lees-Millais [2011] EWCA Civ 786, the Defendants offered the Claimant 75% of her costs of an application in lengthy and complex trust proceedings. The Court held that the offer was not a valid Part 36 offer because it “specifically excluded the offeree from recovering all her costs, as it gave her the option of recovering only a proportion of her costs or a fixed sum in respect of her costs.”  CPR 36.10 specifies the costs consequences of acceptance of a true Part 36 Offer, which the parties are not able to oust or vary.  An offer such as that in Howell v Lees-Millais could validly be made on a simple ‘without prejudice’ basis, though it is difficult to see how it could ever have an effect on costs of the action as to ‘beat’ such an offer would requires a comparison with already-assessed costs!  The only costs it might affect are the costs of detailed assessment.

2. What counts as ‘beating the offer’?  Up until October 2011 the most recent version of Part 36 provided, in CPR 36.14 that a claimant would benefit from the special costs consequences in Part 36 if they “obtained judgment against the defendant [which was] at least as advantageous...as [their] offer”; and a defendant would so benefit if the claimant “fail[ed] to obtain a judgment more advantageous than [the] defendant’s Part 36 offer”:

a. In Carver v BAA Plc [2008] EWCA Civ 412, the Court of Appeal considered that ‘more advantageous’ could include broader circumstances and was not restricted to the monetary value of Part 36 offer.  The claimant succeeded at trial and was awarded £4,686.26 in damages and interest, only £166.26 more than the defendant’s offer.  At both first instance and on appeal it was found that, given that Part 36 concerned offers in both money and non-money claims, whether a result was more advantageous than an offer had to be considered in the light of all the circumstances including, for example, how much extra stress and irrecoverable cost had been incurred in order to obtain a very small monetary advantage;

b. Unfortunately, Carver v BAA created a good deal of uncertainty as to by how much margin a given offer would have to be beaten in order to qualify under CPR 36.14.  For example, if the claimant obtains damages of £20,000 but the defendant had offered £19,500, would the claimant have obtained a judgment ‘more advantageous’ than the defendant’s offer?

c. However, Carver v BAA has effectively been overruled by the new CPR 36.14(1A), which came into force as part of the 57th update to the Civil Procedure Rules in October 2011, and states:  “For the purposes of paragraph (1), in relation to any money claim or money element of a claim, ‘more advantageous’ means better in money terms by any amount, however small, and ‘at least as advantageous’ shall be construed accordingly.”  This has introduced some much-needed certainty on the interpretation of 36.14. 

Of course, even if an offer does not comply with CPR Part 36 the court can, under its general discretion on costs in CPR 44.3, still take it into account when considering where costs should lie and on what basis they should be assessed.  Some disputes, particularly those involving claims other than just for money, will be more amenable to a ‘without prejudice save as to costs’ (or Calderbank) offer instead.  Deciding which form of offer to make, and wording that offer carefully is a key part of any effective settlement or costs protection strategy.

James Hall specialises in commercial and real estate litigation. James spent six years practising in Chambers, after a mixed common law pupillage, regularly advising and appearing in multi-track commercial and property disputes. Having then spent four years at international law firm as an employed Barrister, developing and leading a specialist team of lawyers, James rejoined Chambers in March 2011 to continue his commercial and chancery practice.

For more information please contact James on 0121 233 7500 or email james.hall@cornwallstreet.co.uk