Lawyers Briefing Notes

Fri, 16 Dec 2011

Part 36 Developments

This recent case attempts to clarify the complicated differences between an ‘old’ Part 36 offer, a ‘new’ one, a quasi-Part 36 offer and a Calderbank offer. It also sheds some light on how a pre-litigation offer to settle should be treated taking into account the case of Stokes Pension Fund Trustees v Western Power Distribution (South West) Plc.

Background

The claimant, appellant in the appeal proceedings, commenced litigation in 2009 for a breach of contract she had with a defendant insurance company for reinstatement of her home following subsidence.

Throughout the earlier period of her complaints, the claimant acted as a litigant in person.

After a trial in 2010 the judge held in favour of the claimant awarding her £132,247.41 inclusive of interest. The defendant relied on an offer (rejected by the claimant) of £115,000 to cover the entirety of the claim including costs and interest made in letters dated 22 December 2006 and 15 February 2007. The judge decided that when allowance has been made for the additional damages that she continued to suffer in the meantime, she would have been some £20,000 better off had she accepted the offer.

The judge held as well that the letters were always open correspondence despite of the fact that the solicitors of both sides agreed prior to trial that the letters were privileged but could be referred to after judgement in relation to costs.

The judge applied the judgement in Stokes and ruled that even though neither one of the letters was an offer within CPR Part 36, the second letter, which had allowed 21 days for acceptance, met the conditions for a quasi Part 36 offer. Therefore the claimant ought to recover no costs but instead pay the whole of the defendant’s costs.

The Stokes Case

This case was decided in the context of the original Part 36. Under the ‘old’ Part 36 the defendant was required to pay money into court upon the service of the proceedings. The question was how to treat the offers not accompanied by a payment.

This situation arose in Stokes. The offer was clearly intended as a Part 36 offer however there was no payment made.

The judge decided that the court had discretion to treat the offer as having the same effect on costs as a payment into court and that it should do so provided four tests were met:

The offer must be expressed in clear terms;

The offer should be open for acceptance for at least 21 days and otherwise accord with the substance of a Calderbank offer;

The offer should be genuine;

The defendant should clearly have been able to pay at the time of the offer being made.

It was however emphasised that the judge has discretion in that respect.

The Appeal in French v Groupama Insurance Company Ltd

The decision has been appealed by the claimant.

It was held that the letters failed to meet the requirements of the ‘old’ Part 36 in a number of ways: it was commenced before proceedings began; it was not supported by a payment into court; it was time limited to expire after 21 days so that it was not available for acceptance thereafter, but had effectively been withdrawn. In the circumstances there was no requirement that the court would even take the offer into account, let alone apply the cost consequences.

The letters were not Calderbank offers since at the time they were written they were not privileged save as to costs. The parties subsequently agreed that the letters were privileged and only later, after the offers expired, then waived that privilege for the assessment of costs. Because of that neither of the letters fulfils the second requirement in Stokes.

Moreover, the offer was not very clear on whether it included costs, which goes against the first requirement in Stokes. Even if it is interpreted as cost-inclusive, which was the position insisted upon by the defendant, it was not a quasi Part 36 offer, for such an offer must not include costs as per Mitchell v. James.

The ‘new’ Part 36 offer came into force in April 2007. It made substantial changes to the regime: the need for payment into court was dropped, the Part 36 offer has to be identified as such and it cannot be time limited, it can only be withdrawn formally and if withdrawn it doesn’t attract the cost consequences. Of course the parties are free to make all kinds of offers to settle but if they don’t follow the Part 36 requirements, their offer will not have the effect of Part 36.

That said, according to Rule 44.3 the court has discretion to take into account all the circumstances, including any admissible offer to settle that is not a Part 36 offer . Considering that the offers failed the Stokes test and in the light of the ‘new’ stricter Part 36 regime the defendant did not stand a chance that it would be interpreted as Part 36 offers, the judge fell back on the general discretion provision of Rule 44.3.

Considerations in favour of the defendant:

The offer came from a managing director of the company and was made in the light of a QC’s advice. It was obviously meant to be treated as serious and genuine.

The defendant was certainly in the position to pay if the offer was accepted.

The claimant would have been better off if she accepted the offer when it was made. The whole process of litigation was therefore completely unnecessary.

The reasons given by the claimant for rejecting the offer were based on a vast and unrealistic overestimation of her claim (about 10 times).

Considerations in favour of the claimant:

The claimant was at the relevant time a litigant in person.

The offer was time limited to 21 days. It goes against the ‘new’ Part 36.

The offer was not expressed as a Part 36 offer.

The value of the offer was difficult to determine since it was made to cover the claimant’s claims that were subsequently not advanced as well as her costs.

The defendant always had the opportunity of making a formal Part 36 offer and for some reason they decided against that.

The particulars of claim were straightforward. The defendant‘s 21 pages defence and counterclaim with 50 pages of appendices complicated the litigation and led to a 6 day trial.

The claimant won the case.

Taking all of this into account, the judge held that there should be no order as to costs other than that the claimant should have her costs down to 21 days after the making of the February offer.

Conclusion

This case is very interesting because it includes interpretation of both ‘old’ and ‘new’ Part 36. In the light of the new Part 36 code, the case of Stokes will have to lose its significance.

The courts won’t be easily prepared to treat offers that don’t follow the regime as quasi Part 36 offers. The requirement of making the payment into court is now gone and there is no good reason for a party not to make a formal Part 36 offer if they want to rely on its cost consequences later on.

That said, there are circumstances when making a Calderbank offer ‘without prejudice save as to costs’ can be beneficial.

Those include:

When a party wants to include terms as to costs that are different to those in Part 36.

When the defendant wants to make an offer but is not certain if it will be able to pay within 14 days of acceptance or it would prefer to pay in instalments.

In arbitration proceedings where Part 36 doesn’t apply.

In respect of the costs of detailed costs assessment proceedings, where the Calderbank procedure has been retained.