With the cost of litigation rising and the potential damage to reputation from the publicity of a trial, parties increasingly want to settle their disputes before they get to court. Making an offer under Part 36 of the Civil Procedure Rules (CPR) is one option for settlement. However, Part 36 has attracted criticism as being too technical and confusing. Thankfully, a much heralded reform has taken effect. It is important to be aware of some of the key changes, which apply to Part 36 offers made on or after 6 April 2015, as well as the alternatives for settling property disputes.
Getting caught out on a technicality
Previously, a Part 36 offer had to comply strictly with the requirements of Part 36 and – crucially – had to state that it was “intended to have the consequences of section I of Part 36”. Judges interpreted this provision strictly and a letter which did not include these magic words would not have been a Part 36 offer.
The requirement to include the magic words was abolished on 6 April. However, the remaining formalities in Part 36 still apply and a technical defect alone will invalidate a Part 36 offer.
To avoid being caught out on formalities, a Part 36 offer can always be made using the form provided in the CPR.
A genuine attempt to settle?
Under the new Part 36, the judge must consider whether the offer is a “genuine attempt to settle the proceedings”. This is aimed at preventing so-called “cynical claimant offers”, which are intended not to settle the dispute, but to put the defendant at risk on costs if the offer is not accepted. The requirement for a “genuine” offer is controversial – the judge must assess genuineness on the facts of each case. An offer of 100% may not be a valid offer, but what about an offer of 95% in a large claim, where the claimant has a strong case?
Time-limited offers
Post 6 April 2015, it is possible to make a Part 36 offer which expires after a set period. Previously, Part 36 offers remained open for acceptance until they were withdrawn. This new provision may encourage acceptance of the offer, before the time limit expires. However, the costs consequences in Part 36 do not apply to a withdrawn offer; although it is possible that the withdrawn offer may be taken into account by the judge at the end of the hearing.
Other changes
Improving the terms of an offer
Under the new rules, a party can improve a Part 36 offer, rather than having to withdraw it and serve a new one. The offering party may want both offers to remain on the table, so that it can claim the benefits of Part 36 for either the original offer or the improved one.
Appeals
The changes to Part 36 clarify the possibility of making a Part 36 offer in an appeal. However, an offer made in a lower court will not be relevant on appeal.
Pre-action costs
The new rules clarify that a Part 36 offer can be made at any time, including “before commencement of proceedings” and a party will be entitled to recover pre-action costs.
Alternatives to Part 36
Although Part 36 usually works well for general commercial disputes, it is not always suitable for property disputes, where the claim is for a non-monetary remedy, such as a new lease, or where the parties want to wrap up several issues in the settlement document. Rather than Part 36, parties should consider a Calderbank or without-prejudice offer, mediation or referring the dispute to PACT.
Calderbanks
A Calderbank offer is made “without prejudice except as to costs”. This means that the offer can only be shown to the judge when he or she is deciding the allocation of costs at the end of the hearing. A Calderbank offer gives the parties complete freedom to make an offer on any terms. This makes Calderbanks suitable for lease renewals or rent review disputes. The downside of this flexibility is that the Part 36 rules about costs don’t apply and it is ultimately at the judge’s discretion whether to award costs to the winning party.
Mediation
In mediation, an independent third party – the mediator – helps both sides try to come to an agreement, by facilitating communication between the parties. Mediation is a confidential process – nothing discussed in the mediation can be revealed to any third party. This can encourage parties to make concessions and compromises which facilitate settlement. Mediation is voluntary and can only take place if both parties agree. Indeed, a mediation will usually only work effectively if both parties are committed to the process. Solicitors have a duty to advise their clients about mediation and there can be costs penalties for a party which ignores an offer to mediate or unreasonably refuses to participate.
PACT
PACT is a dispute resolution scheme for property professionals, designed specifically for business lease renewals. The advantages of PACT over court proceedings include flexibility and the quality of the final decision. The decision maker will have specialist property knowledge, whereas a judge is unlikely to have the same expertise or experience, and the parties choose whether the professional is a solicitor or surveyor, acting as an arbitrator or an expert. The parties also choose which aspects of the dispute will be referred to PACT – interim rent, new rent or other terms of the lease. PACT also has the benefit of lower cost, but, unlike in court proceedings, the fees of the PACT arbitrator/expert are payable together with the client’s own surveyor’s fees.
Sarah Moore is a professional support lawyer in the real estate dispute resolution team at Nabarro LLP
