UK: No Need To Part 36 With Your Cash

Last Updated: 26 January 2007
Article by William Jensen and Angela Pentland

Changes to Part 36 of the Civil Procedure Rules remove the requirement for defendants to make payments into Court

The Department for Constitutional Affairs (DCA) consulted on their proposed changes to Part 36 of the Civil Procedure Rules last year and the responses to that consultation were published in August 2006 (see Angela Pentland’s previous article "Settlement Offers: Proposed reform of Part 36 of the Civil Procedure Rules" dated 16 October 2006).

Legislation has now been laid before Parliament amending various parts of the Civil Procedure Rules (The Civil Procedure (Amendment No. 3) Rules 2006) and is due to come into force on 6 April 2007. The most notable changes are those relating to Part 36 and, in particular, the removal of the requirement for defendants making Part 36 offers after proceedings have commenced to also make corresponding payments into Court in support of their offers.

Part 36: a brief overview of the current rules

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 it puts pressure on the other side to accept because there can be adverse costs consequences if the offer is not ‘beaten’ at trial.

Part 36 can be a very useful weapon in a litigator’s arsenal.

As the rules currently stand, a defendant wanting to make an offer to settle a claim by the payment of money under Part 36 after proceedings have commenced must pay the amount offered into court to support his offer. Where a defendant does make a corresponding payment in but the claimant does not accept it, if the claim proceeds to full trial and the claimant wins but is not awarded more than the defendant’s Part 36 offer, the Court will usually order the claimant to pay the defendant’s costs from the last day the claimant could have accepted the offer. A defendant who does not make the corresponding payment into court will not automatically receive the costs benefits of Part 36 in these circumstances.

In a number of recent decisions the courts have allowed certain ‘qualifying’ written offers from particular categories of defendant who were deemed to be ‘good for the money’ to be treated in the same way as a Part 36 payment into court even though no payment into Court, in support of the offers, had been made (see 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). Consequently the DCA proposed a number of changes to Part 36 to bring the Civil Procedure Rules in line with case-law. The relevant proposals were generally supported by those who responded to the consultation.

The key changes relating to Part 36

  • The requirement for defendants to make payments into court in support of their Part 36 offers has been removed in its entirety – the changes are not limited to those defendants deemed ‘good for the money’. Defendants wishing to offer to settle a claim after proceedings have commenced by payment of a sum of money will now simply have to make a written offer to settle (this will, however, need to be in the form prescribed by the rules).
  • A Part 36 offer can now be accepted at any time, even after the expiry of the 21 day offer period (unless, of course, the offering party has already served notice of the withdrawal of the offer) and even if the parties cannot agree liability for costs, without the permission of the court. The Court will make an order as to costs once the offer has been accepted if they cannot be agreed between the parties.
  • Both the claimant and defendant can now withdraw a Part 36 offer made to the other or change it so the terms are less advantageous without the permission of the Court where the offer has been open for acceptance for 21 days or more. Whilst this was always the case for offers made by the claimant, a Part 36 payment by the defendant could previously only be withdrawn or reduced with the permission of the Court.
  • A defendant who has made a Part 36 offer to pay the claimant a sum of money must now pay the claimant within 14 days of acceptance (or such other period that has been agreed between the parties in writing) otherwise the claimant can enter judgment for the unpaid sum. No guidance is given on how to ‘enter judgment’ but it is expected that there will be no need to issue a new claim or for a full hearing in these circumstances.
  • Guidance can be found in the new Practice Direction B supplementing Part 36 regarding how the new rules will apply to offers and payments into court made before the new rules come into force on 6 April 2007.

Comment

The decision to abolish the need for defendants to make payments into Court is surprising. The DCA apparently conducted a further (unpublished) follow-up consultation during Summer 2006 and a slight majority of respondents agreed to the further proposal to completely remove the requirement for payments in.

Part 36 was well overdue for an overhaul, particularly following on from the decisions in Crouch and Stokes. The thinking behind the changes was based upon a desire to simplify the Part 36 procedures and consequently to further encourage parties to make pre-trial settlements. The removal of the need for defendants to make payments into Court in order to support their Part 36 offer may, in some instances, encourage more defendants to make such offers (so long, of course, as they can actually pay the amount offered) and now that parties will less frequently need the Court’s permission to accept and withdraw offers this may also prove to be an incentive for parties involved in litigation to make greater use of Part 36.

Now that parties can accept Part 36 offers at any time without the permission of the Court there will also be increased pressure on a party making an offer to keep their position under constant review and, if there are any developments which worsen their opponent’s case or better their own, then immediate action may need to be taken to withdraw or amend the offer before it is accepted.

No provision seems to have been made to further protect claimants in the absence of a defendant making a payment in – the original consultation only envisaged that the removal of the requirement for payments in would apply to those ‘good for the money’ e.g. NHS trusts and insured defendants. Insolvency does not arise for NHS defendants and a claimant faced with an insolvent, but insured, defendant is protected by the Third Parties: Rights Against Insurers Act 1930. However, the new provision which allows the claimant to enter judgment where a defendant fails to pay the sum he has offered within 14 days of his offer being accepted should, at least, enable claimants to gain a swift and enforceable conclusion to the case without having to go to trial.

One could argue that the new regime will be fairer, putting claimants and defendants on a more level playing field. However, it is interesting to note that the DCA’s proposal that defendants (like claimants) should be entitled to indemnity costs and enhanced interest if an offer was not ‘beaten’ at trial has not been incorporated despite the majority of those responding to the consultation being in favour (although it was noted in the Response to the Consultation paper that the judiciary and government departments were not in favour).

Footnote

1. Explanatory Memorandum to The Civil Procedure (Amendment No.3) Rules 2006 at 7.3(a)

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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