Update on settlement offers under Part 36 of the Civil Procedure
It seems hardly a week goes by without the court providing clarification on the meaning of settlement offers under Part 36 of the Civil Procedure Rules but the latest update is a change to the rule itself rather than a new interpretation by the court. The amendment applies in relation to offers to settle made on or after 1 October 2011 and has the effect of overturning the Court of Appeal decision in Carver v BAA  which has since caused some confusion.
Part 36.10 sets out the costs consequences which the court will impose on judgment when a Part 36 offer has been made and not accepted. The rule applies where upon judgment being entered:
"(a) a claimant fails to obtain a judgment more advantageous than a defendant's Part 36 offer; or
(b) judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant's Part 36 offer."
This rule, which was introduced by the Civil Procedure (Amendment No.3) Rules 2006 with effect from April 2007, seemed on its face to be simple enough. However, scope for confusion was introduced following the court's decision in Carver v BAA . In that case the Court of Appeal found that the court was entitled to look beyond mere monetary value when considering whether an offer was "more advantageous" or "at least as advantageous" and could take into account the irrecoverable cost and stress involved in pursuing a case to trial. It decided that the amendment to the rule permitted:
"a more wide−ranging review of all the facts and circumstances of the case in deciding whether the judgment, which is the fruit of the litigation, was worth the fight".
In the case Ms Carver beat BAA's Part 36 offer by £51 but the Court of Appeal agreed with the judge at first instance that she had failed to obtain a judgment which was more advantageous than the offer. The offer had been made nearly a year before the trial and the court concluded that "no reasonable litigant would have embarked on this campaign for a gain of £51." BAA was ordered to pay Ms Carver's costs on a fast track basis up to November 2005 when BAA had made an initial, slightly lower offer but one which was also not far off the mark (£680.26 short). From November 2005 when that offer was made up to June 2006 when the increased offer was made the judge made no order for costs. From June 2006 he decided that BAA was the "winner" and ordered Ms Carver to pay its costs. The Court of Appeal upheld the decision.
In part it seems the court's decision was a reflection upon its frustration that Ms Carver had incurred legal costs of approximately £80,000 plus VAT in connection with a claim for which she was eventually awarded £4,686.26. However, the case left open the question of how wide a margin the court would require when assessing whether a Part 36 offer had been beaten making it very difficult to advise clients in circumstances where an offer was very close to what might ultimately be awarded by the court.
Three and a half years after the Carver decision a further amendment has been made to Part 36.10 to clarify the rule and to remove the uncertainty caused by the Carver decision. The amendment was recommended by Lord Justice Jackson in his Review of Civil Litigation Costs, in which he concluded that:
"Carver introduces an unwelcome degree of uncertainty into the Part 36 regime and also that it tends to depress the level of settlements. I recommend that the effect of Carver should be reversed either judicially (if an early opportunity arises) or by rule change."
The Civil Procedure Rule Committee therefore took the opportunity to implement Lord Justice Jackson's recommendation in the 57th update to the Civil Procedure Rules.
The amendment which applies to offers made on or after 1 October 2011 provides that:-
"... 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."
The amendment is simple and to the point and reverses Carver. It is now clear that by beating an offer by just 1p a party can rely on the costs advantages of Part 36.
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