Part 36 offers in costs proceedings

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The new CPR introduced Part 36 offers into detailed assessment proceedings and I am now starting to see the first Part 36 offers coming through.

(I’ll ignore for the moment the fact that a number of these don’t count as detailed assessment proceedings had already been commenced before 1 April 2013.)

I’ve never seen so many wholly defective Part 36 offers in such a short period of time. Most of these don’t even come close to being valid Part 36 offers.

I see an opportunity for Professor Dominic Regan not to offer his usual masterclass in Part 36 offers but rather an idiot’s guide for beginners. But then, I suppose those drafting these documents don’t (yet) realise they are defective and don’t know they need remedial help.

Reversal of Carver v BAA

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The 57th Update to the Civil Procedure Rules (who remembers the good old days of the 16th Update?) introduces changes in a number of areas. Most of these come into force on 1 October 2011.

The first one relevant to costs law is the amendment to Part 36 formally reversing Carver v BAA. The change being:

In Part 36, after rule 36.14(1) insert—“(1A) 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.”.

Carver v BAA – Winning at any cost?

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A recent comment on a LinkedIn discussion forum raised the issue of whether the proposed changes to the Part 36 rules and the formal reversal of Carver v BAA were sensible.

The proposed changes will make clear that where a money offer is beaten at trial, by however small a margin, the costs sanctions applicable under CPR 36 will apply.

It will be remembered that this was one of Lord Justice Jackson’s main proposals.

But wait a moment. LJ Jackson also believes that recoverable costs should be limited to what is proportionate to the amounts at stake. Surely this should apply equally when there is an offer on the table. In the case of Carver, even if we accept that a claimant who beats a defendant’s offer by £51 has achieved a more advantageous outcome, surely the question should still be asked as to whether the further costs incurred to recover the extra £51 are proportionate.

What additional costs would be proportionate to throw at a case to get an extra £51?

Gibbon v Manchester City Council

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The legal press has started to catch up with the importance of the Court of Appeal’s recent decision in Gibbon v Manchester City Council [2010] EWCA Civ 726) but I doubt all civil litigators have done so.

This decision makes clear that basic contract law principles do not apply to the Part 36 regime. 

A Part 36 offer remains open for acceptance until written notice is served withdrawing or changing the terms of the offer (CPR 36.9(2)). (Although see CPR 36.9(3).)

This means that an offer remains open for acceptance regardless of express or implied rejection of the offer by the other side and regardless of any counter-offers made and regardless of the fact that the offeror has subsequently made a different offer.  It goes without saying that the offer also remains live despite material changes in the claim – such as fresh medical evidence becoming available.

Now, if there are any practitioners who have not acted on this decision: ACT NOW!

Review all your cases to see what Part 36 offers were made during the claim but have not been withdrawn or changed.  If it is the other side’s offer, considering whether to accept it now. If it is you own offer, consider whether you wish it to remain live.

Going forward, it is crucial to keep at the front of your mind any Part 36 offers that have been made during the life of the claim and to review carefully on every occasion there is a development in the claim.

The scope for a professional negligence claim if you fail to accept/withdraw an offer, possibly made several years earlier, is frightening.

There are a couple of other points to bear in mind.  An offer that is expressed to be open for acceptance for only a limited period is not treated as a Part 36 offer.  If a Part 36 offer is withdrawn it will be treated as though it was never a Part 36 offer.

This second issue raises its own problems.  Suppose a defendant makes a Part 36 offer of £500,000. Offer remains open for two years. Subsequently the defendant obtains surveillance evidence showing clear exaggeration, withdraws the offer and makes a fresh Part 36 offer for £25,000.  A year later, at trial, the court awards £30,000.  The first offer has no automatic consequences and the second offer has been beaten.  The court must “have regard” to the first offer under CPR 44.3(4)(c) but no more.  What costs order would it be appropriate to make?

If this doesn’t lead to endless satellite litigation I’ll eat my hat.

It does also create a dilemma as to whether to withdraw a Part 36 offer, that is now considered to be too generous, if the protection the offer had given will disappear at the same time.  A very careful balancing act is likely to be required.