Jan-Jaap Baer
Partner, Travers Smith
Emma Reynolds
Associate, Travers Smith
In April this year, CPR 36 underwent the latest in a series of amendments. These amendments did not amount to a root-and-branch overhaul of the regime but rather to a reorganisation and codification of existing principles, largely designed to address issues which have been thrown up by recent court decisions. The changes were generally welcomed as providing a greater degree of clarity for litigants when navigating their way through what remain complex and densely drafted rules. However, there remains a question as to whether a more radical overhaul of the rules is desirable.
Getting on the front foot
A small number of amendments introduced in April were both preventative and pre-emptive in nature, such as addressing the issue of high claimant offers and providing guidance on cost budgeting matters relevant to CPR 36. However, the majority of the changes were reactive in that they sought to remedy, by codification, certain practical difficulties that have cropped up repeatedly in the courts. By way of illustration:
(i) In the context of split trials, the introduction of a new exception to the rule restricting disclosure of a Part 36 offer until the case has been decided was suggested by Eder J in Ted Baker plc & anor v Axa Insurance UK plc & ors [2012]. Eder J was at pains to reject the defendants’ contention that the question of costs should be reserved until the case had been decided in circumstances where the claimant had been the successful party at the preliminary issues stage. He emphasised the ‘urgent need’ to reformulate CPR 36 in order to avoid running the risk of adverse costs orders being made at the preliminary issues stage in ignorance of whether any Part 36 offers have been made. This echoed Henderson J’s sentiment, when faced with a similar predicament in AB v CD & ors [2011]. Henderson J went so far as to ‘hazard the suggestion’ that the wording of CPR 36.10 (as it then was) could be construed to permit the communication of the existence of a Part 36 offer at the conclusion of the preliminary issue, thereby avoiding the seemingly unjust consequences of an alternative construction.
(ii) Following a number of inconsistent cases dealing with Part 36 offers made in a counterclaim, the issue has finally been clarified in CPR 36.2(3). The new provision makes clear that a Part 36 offer made in a counterclaim will be treated as if such an offer was made in a claim and references to a claimant or defendant will include references to a party bringing a counterclaim. It is evident that the CPR Committee (CPRC) bore in mind Lloyd LJ’s reasoning in the case of AF v BG [2009] and preferred his interpretation of the operation of Part 36 offers in counterclaims than that adopted in later cases such as F&C Alternative Investments (Holdings) Limited v Barthelemy [2012]. It was held in AF v BG that it was appropriate and legitimate for a Part 36 offer made by a defendant in a counterclaim to be treated as a claimant’s offer and therefore capable of having the costs consequences afforded to such offers rather than the comparatively limited cost benefits associated with a defendant’s offer.
These clarifications, and others introduced in April, are undoubtedly helpful. However, they have been piecemeal and incremental and there is a question as to whether a more radical overhaul is desirable. Such an overhaul would not only allow the structure and drafting of the rules to be simplified, but might also give the CPRC the opportunity to consider from first principles, and in light of the evolution of Part 36 cases in the courts, whether any further improvements can be made to the regime on a pro-active basis. There is, of course, an inherent element of complexity and prescription necessary if Part 36 is to operate effectively, and there will always be issues relating to the regime which the courts will have to address on their own particular facts. But there is a case to be made for considering a more fundamental overhaul to bring about rules which are simpler and more user-friendly.
CPR 36 v CPR 44
An overhaul of CPR 36 may also provide the CPRC with an opportunity to clarify the interplay between CPR 36 and CPR 44 (general rules about costs) in circumstances where such clarity does not always pervade. The courts have emphasised on a number of occasions that CPR 36 and CPR 44 are two separate regimes and operate independently of each other (for example, Coward v Phaestos & ors [2014]. However, it is not always clear how certain provisions of CPR 36 should be construed in light of CPR 44’s general rules on costs.
While the controversial decision of Carver v BAA Plc [2008] and the subsequent introduction of CPR 36.14(1A) is perhaps the best known example of the occasionally fraught relationship between CPR 36 and CPR 44, a less-publicised example concerns the acceptance of pre-action Part 36 offers.
It remains to be seen whether the April amendments to CPR 36 will help bring about a meaningful reduction in the volume of case law in this area.
There is some debate as to whether a Part 36 offer which has been accepted before proceedings have been commenced will give rise to the usual Part 36 consequences, or whether the overarching provisions of CPR 44 will in some way override these rules.
Pursuant to CPR 36.13(1) and as confirmed by the Court of Appeal in Solomon v Cromwell Group plc and Oliver v Doughty [2011], it is possible for a party who accepts a Part 36 offer before proceedings have been commenced to reap the benefits of the usual Part 36 consequences. However, changes to CPR 44.9(2) in 2013 providing that a deemed costs order may not be made where a Part 36 offer is accepted before proceedings have been initiated have raised the question as to whether the intention underpinning CPR 44.9(2) was to prevent costs from being recoverable in such circumstances. While the most reasonable interpretation of CPR 44.9(2) would be to infer that the draftsman was merely preserving the court’s position as to its lack of jurisdiction over the determination of costs before proceedings have been issued, the position is not altogether clear.
In the event that CPR 36 is reformulated in the future, guidance as to how both regimes should be applied in circumstances where there is potential cross-over between corresponding provisions would remove this uncertainty.
Conclusion
It remains to be seen whether the April amendments to CPR 36 will help bring about a meaningful reduction in the volume of case law in this area. Given the significant cost protection afforded by CPR 36, and its importance in the settlement strategies of litigants, it is vital that the rules in this area are as consistent and coherent as possible, and a radical overhaul of the rules should not be discounted to achieve this if necessary.
Jan-Jaap Baer is a partner in the dispute resolution department at Travers Smith. He is experienced in a broad range of contentious commercial matters, generally involving high-value and complex claims, often with an international dimension. He has particular experience of acting in disputes in the financial services sector and in contractual, M&A and shareholder disputes. Jan-Jaap has a strong focus on international arbitration and is a member of the firm’s pensions dispute resolution group.
Emma Reynolds is an associate in the dispute resolution department at Travers Smith. She has a broad general commercial litigation practice, advising clients in relation to fraud and professional negligence claims, regulatory investigations and competition litigation with a focus on follow-on damages claims.
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