For a fistful of tenners

Part 36 of the Civil Procedure Rules 1998, which was comprehensively overhauled with effect from 6 April 2007, is aimed at encouraging litigants to make formal offers to settle their differences, with costs consequences if unreasonably refused.

This is rule 36.14(1): 'This 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.'

If either situation follows from a judgment of the court, provided a formal part 36 offer has been made in accordance with rule 36.2, the loser will pay unless the court considers this unjust. All the circumstances of the case will be taken into account including those specified in rule 36.14(4). The costs consequences can constitute a formidable risk in litigation and, as such, it is unsurprising that the interpretation of rule 36.14(1) has been the subject of much legal argument and satellite litigation.

Clarity at last

From 1 October 2011, rule 4 of the Civil Procedure (Amendment No.2) Rules 2011 SI 2011 No 1979 (L 17) seeks to introduce clarity into the meaning of the words 'more advantageous' and 'at least as advantageous' in the context of rule 36.14(1) in relation to money claims or the money element of a claim which are the subject of a part 36 offer.

The rule change inserts an interpretation paragraph that reads: 'In part 36, after rule 36.14(1) insert '“ (1A) For the purposes of paragraph (1), 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 amendments apply to offers to settle made in accordance with rule 36.2 (prescribing the form and content of a part 36 offer) on or after 1 October 2011.

The difficulties in interpretation arising from the wording of rule 36.14(1) were brought to the fore by the Court of Appeal in the case of Carver v BAA plc [2008] EWCA Civ 412. The court held that 'more advantageous' was an open-textured phrase which permitted a wider ranging review of all the facts and circumstances of the case in deciding whether the judgment was worth the litigation.

In Carver, the claimant had beaten the part 36 offer by only £51 and the court found that the judge at first instance was entitled to take into account that the extra £51 gained was more than offset by the irrecoverable cost incurred by the claimant in continuing to contest the case as long as she did and the added stress to her as she waited for the trial and the stress of the trial process itself. Litigation was time consuming and it came at a cost, emotional as well as financial. These, therefore, were appropriate factors to be taken into account in deciding whether the battle was worth it. Money was not the sole governing criterion.

Resolve injustice in other ways

The impact of this decision became momentous, particularly in cases where the claimant beat the offer by only a small amount, as it enabled the losing party to raise issues of conduct against the successful party in attempts to persuade the court that those issues should override the fact that the monetary offer itself had been beaten. An unintentional consequence of the decision in Carver was that offerors tended to make lower part 36 offers as the element of risk to offerees, brought about by uncertainty, increased. That led, following criticism from many quarters, to a clamour for further clarification of the law.

Lord Justice Jackson addressed Carver in his reports on civil litigation costs. The final report quotes a number of pleas for the decision to be reversed. And he recommended that the effect of Carver should be reversed either judicially (if an early opportunity arose), or by rule change. It should be clear that in any purely monetary claim 'more advantageous' in rule 36.14 (1) meant better in financial terms by any amount, however small. There is clearly a striking similarity between those words and the change in the rule now introduced confirming that Lord Justice Jackson and the members of the Rules Committee were of the same mind. The Civil Procedure Rules Committee believes that the statutory clarification now provides for a greater degree of certainty to be restored.

The change, while appearing minor, should refocus attention upon monetary offers put forward under part 36 by emphasising that no matter how small the margin of success it should trigger the prescribed costs consequences for the loser unless there truly is another injustice to be addressed.