It has long been possible for defendants to protect their position on costs by making a payment into court to settle money claims in England and Wales, and the Civil Procedure Rules ("CPR") appeared to introduce an additional layer of protection in the form of Part 36 offers.
The general rule is that the claimant will be liable for the defendant’s costs (from the date of the offer) if the claimant fails to ‘beat’ the defendant’s Part 36 offer at trial. The dilemma for defendants has been whether a Part 36 offer provides any costs protection where it is not supported by a Part 36 payment.
Part 36.3(1) provides that "an offer by a defendant to settle a money claim will not have the consequences set out in this Part unless it is made by way of a Part 36 payment." Furthermore, Part 36.1(2) provides that "nothing in this Part prevents any party making an offer to settle in whatever way he chooses, but if that offer is not made in accordance with this Part, it will only have the consequences specified in this Part if the court so orders."
However, a failure to make a Part 36 payment may not completely deprive a defendant of all costs protection since Part 44 of the CPR requires the court to take account of any admissible offer of settlement in the exercise of its discretion on costs (alternatively, the court may exercise its discretion under Part 36.1(2)). Nevertheless, the tendency of defendants has been to make a Part 36 payment so as to avoid any dispute on the effectiveness of its offer.
This approach has led to litigation on whether an offer should be given the same weight as a Part 36 payment in circumstances where the defendant stipulates that (a) it is good for the money; (b) the money is available; and (c) the money will be paid (if the offer is accepted). Such arguments were raised by the NHS Trust in the case of Crouch v Kings Healthcare NHS Trust (2004). The Court of Appeal held that the form of the offer was as "sound as a payment in, and, unless there is some factor about the circumstances of the case, a court should treat such an offer in the same way as a payment in."
This decision was considered beneficial to health and local authorities, where the fundamental argument was about the deprivation of resources, but its implications remained less certain for other defendants and their insurers. That uncertainty has to some extent been removed by the Court of Appeal’s decision in Trustees of Stokes Pension Fund v Western Power Distribution (South West) Plc (2005). This case concerned the validity of a Part 36 offer which had not been supported by a payment into court (the offer had also been withdrawn). At first instance, the trial judge failed to take account of the offer, but the Court of Appeal held that it should be given the same weight as a payment into court provided that the offer was (a) expressed in clear terms; (b) open for acceptance for at least 21 days; (c) genuine; and (d) that the defendant was good for the money.
The consequence of this decision is not that it necessarily avoids any requirement to make a Part 36 payment - which will still be subject to scrutiny - but that defendants should now be protected on costs from the date on which they make a written Part 36 offer. This is a potentially important form of costs protection in cases where there may be practical difficulties in achieving a timely collection of funds to support a Part 36 payment, e.g. where contributions must be obtained quickly from a large number of insurers in a subscription market.
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