11 June 2015

Let us never negotiate out of fear…' — changes in rules governing offers in litigation

JFK famously said 'Let us never negotiate out of fear. But let us never fear to negotiate.'

We have seen significant reform of the Civil Procedure Rules over the last few years, most notably the Jackson reforms which came into effect on 1 April 2013, aimed primarily at reducing the cost of resolving disputes at court. This year, the Civil Procedure Rules committee has focused on written negotiations, with a full re-write of one of the most used, and possibly most misunderstood, rules – Part 36.

We all know that it is crucial to consider negotiating when embarking on litigation, whether by formal mediation, informal roundtable, or in correspondence. Making a written offer under CPR 36 is an important tactical step, as it will trigger prescribed cost consequences if the offer is not accepted and the offeree fails to do better at trial. Thus it can be used strategically to encourage early settlement, and can afford protection on costs.

The new CPR 36 came into force on 6 April 2015 and applies to offers made after 6 April 2015. Transitional provisions mean that some of the new rules apply to offers made before 6 April 2015 where the trial of any part or issue starts on or after that date.

So what has changed and how does it impact?

Many of the changes are clarificatory:

  • The new Part 36 describes itself as a 'self-contained procedural code'. This codifies statements made by the court that Part 36 displaces the common law in relation to contractual principles in some respects (for example a subsequent offer does not revoke an earlier offer unless specifically revoked).
  • There is no longer any need to state that the offer is intended to have Part 36 consequences – it is sufficient to make it clear that the offer is made pursuant to Part 36.
  • It is now explicit that entitlement to costs under Part 36 will include recoverable pre-action costs – a helpful clarification.

Some changes are substantive:

  • An offer can now be time-limited ie expressed to lapse automatically on expiry of the relevant period, provided it has been accepted. Previously a term to that effect exposed the offeror to the argument that the offer was not a Part 36 offer.
  • Where an offer is varied to the advantage of the offeree, it is not treated as withdrawn but treated as a new offer. Provided it is effective, it can still carry the cost consequences of Part 36. This suggests a party can make more cautious offers as time passes, whilst potentially retaining the cost benefits from earlier offers.
  • In considering whether it would be unjust to make the usual Part 36 order, there is an additional factor for the court to take into account, namely “whether the offer was a genuine attempt to settle the proceedings”. This is to deal with the situation where claimants make derisory offers to secure the cost and interest benefits of Part 36, but have no genuine intention to settle.
  • The new Part 36 creates an escape route for those limited to the recovery of court fees only through failure to file a budget on time. Such a party may, by making an effective Part 36 offer, recover 50% of costs.

There are further changes, including relating to split trials, appeals and interim decisions that are not elaborated on in this note.

Those working in the contested legacy sphere have always been aware that Part 36 was not written with succession disputes in mind. However, on balance, the new Part 36 leaves less questions unanswered and is clearer and more navigable than the previous one. It should assist parties who genuinely wish to settle, to make sensible strategic decisions to reduce the costs risks and put pressure on opponents to bring an end to litigation.

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