UK: Settlement Offers: Proposed Reform Of Part 36 Of The Civil Procedure Rules

Last Updated: 18 October 2006
Article by Angela Pentland

Part 36 of the Civil Procedure Rules provides a means of encouraging early settlement of cases. Although a settlement offer does not need to comply with Part 36, an offer or payment made in accordance with Part 36 puts pressure on the other side to accept because there can be adverse costs consequences if the offer is not "beaten" at trial. Steps taken under Part 36 are often some of the most important tactical steps that parties will make in a case.

If a defendant wants to make a settlement offer under Part 36 after proceedings have commenced, the current rules provide that he must pay the amount being offered into court to support his offer to settle the claim. Without the corresponding payment into court, the defendant will not automatically receive the costs benefits of Part 36 if the claimant refuses his offer, the claim proceeds to a full trial and the claimant is not awarded more than the defendant’s Part 36 offer.

Consultation Paper

In two recent judgments (Crouch v. King’s Healthcare NHS Trust [2004] EWCA Civ 1332 and The Trustees of Stokes Pension Fund v. Western Power Distribution (South West) plc [2005] ECWA Civ 854) the Court of Appeal allowed ‘qualifying’ written offers from certain categories of defendant to be treated in the same way as a Part 36 payment into court. Consequently, the Department for Constitutional Affairs (DCA) issued a Consultation Paper proposing the removal of the requirement for defendants who can be assumed to be ‘good for the money’ to make payments into Court.

The objectives behind the proposed changes were to make it easier and more attractive for parties to use Part 36 by removing unnecessary burdens and processes. Particularly the DCA had in mind public sector defendants such as government departments and the NHS who have to tie up money for potentially long periods of time during litigation which means that their resources cannot be used elsewhere. It was also proposed that insured defendants should also be deemed ‘good for the money’. This captures a large proportion of defendants who make Part 36 payments into court.

The DCA argued that there would be no disadvantage to the claimant as the issue of insolvency does not arise for public sector defendants and were an insured defendant to become insolvent the claimant should be protected by the Third Parties: Rights Against Insurers Act 1930 as the Act transfers the defendant’s right to claim on his insurance policy to the claimant in the event of the defendant’s insolvency.

Other proposals regarding Part 36 were also put forward in the paper.

Response To Consultation

A summary of the responses to the consultation was published at the beginning of August 2006.

There was broad support among those who responded for the main proposal of removing the requirement for certain categories of defendants who can be assumed to be ‘good for the money’ to make payments into Court in support of their Part 36 offers. Therefore a qualifying written offer from certain defendants would be treated as if a payment into court had been made. There were also few objections to the proposed approach to defining categories of defendants who can be deemed good for the money.

Responses to the other proposals which were put forward were as follows:

  • The majority of the respondents were in favour of giving the court the power to extend the period of time that an offer is said to remain open for acceptance and allowing a party making an offer to set a period longer than 21 days for acceptance when first making the offer.
  • It was proposed that the requirement to obtain the court’s permission to accept a Part 36 offer after the expiry of the time limit should be removed – the majority of respondents agreed with the proposal although the margin was quite narrow.
  • The proposal that parties refusing an offer be required to give reasons for doing so was clearly rejected.
  • A large majority favoured the proposed option that parties wanting to withdraw an offer or payment during the 21 day acceptance period should only be able to do so with the court’s permission and thereafter by simply serving notice on the other party.
  • On the issue of whether defendants (like claimants) should be entitled to indemnity costs and enhanced interest if an offer was not beaten, the majority of respondents were in favour (although the proposal was rejected by most of the judiciary and other government departments!)

Next Steps

The Civil Procedure Rule Committee is currently considering the comments received. It is intended that the Committee will make changes to Part 36 in December 2006, and, subject to their approval by ministers, the revised rules will come into force in April 2007.

Comment

It appears likely that, at the very least, the main proposal for removing the need for a payment into court by defendants in many cases will be incorporated into the redrafting of Part 36 so that it will now be consistent with the recent cases mentioned above. It will remain to be seen whether only Government departments, public bodies and insured defendants will be able to avoid making payments into court or whether, for example, large companies and high net worth individuals will also be allowed to make Part 36 offers without a corresponding payment into Court. In the meantime, defendants looking to take advantage of the benefits that Part 36 provides should adhere strictly to the existing provisions of Part 36 or, where appropriate, ensure that a written offer intended to replace a payment into court is a ‘qualifying offer’ that meets the criteria set out in the Crouch and Stokes Pension cases.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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