Key Reforms to CPR Part 36

Part 36 is a crucial tool in litigation. Most claims end in a settlement and the incentives and penalties within Part 36 help to encourage parties to make/accept sensible offers.

Part 36 was introduced 15 years ago. Over that period a number of anomalies in the rules have come to light and there has been considerable satellite litigation seeking clarification of the meaning and intention of certain parts of it.

Some of that uncertainty should end this week. On 6 April 2015 a new Part 36 comes into force. This is a positive move towards clarifying some of those difficult areas of interpretation. The changes are too numerous to list here, but I will point out the key areas where I think the amendments will be most welcome.

One of those areas of clarification is how an offer should be treated where the trial is split, i.e. there is an initial trial on liability and a subsequent trial on quantum.  Previously a judge could only see a Part 36 offer once the case is "decided", which meant after the quantum trial. The new rules enable a judge to be told of the existence of an offer after the liability trial, which will be material to the liability costs outcome and may assist defendants who have made an offer to settle yet were unsuccessful at the liability stage.  

The new rules also provide that a Part 36 offer can be withdrawn automatically after a set period of time.  Under the previous rules the offering party would need to send two letters, one with the offer, and one subsequently withdrawing the offer. Now the initial offer letter can contain a deadline following which the offer will be automatically withdrawn.  Whilst this is a helpful clarification, I do wonder how often it will be used by parties. Once the automatic deadline passes and the offer is withdrawn, the offering party would not be able to rely on Part 36 to claim enhancements if the offer is beaten at trial, which is of course the reason for making a Part 36 offer. 

One way in which Part 36 has been open to misuse in the past is that it permits a Claimant to make a Part 36 offer just below the full quantum of the claim, and go on to seek the benefits under Part 36 if the offer is beaten at trial. The criticism here has been that such an offer is not really a genuine attempt by the Claimant to reach a compromise before trial. Under the new rules a judge can take such conduct into account when reaching a decision on costs and enhancements, which is a useful revision for defendants.

Time will tell whether the new rules will curtail the amount of time and costs incurred by litigating parties in relation to Part 36. My own view is that the rules are likely to remain open to interpretation and argument given their technical nature, although hopefully to a lesser degree.