UK: Keep The Cash: Defendants No Longer Need To Pay Into Court Under Part 36

From 6 April 2007, defendants no longer need to pay a sum into court to support an offer to settle a money claim. The Civil Procedure Rules are to be amended so that either party can obtain the costs protection awarded by Part 36 by making a formal offer.

CPR Part 36 allows parties to make formal offers that, if not "beaten" by the other party at trial, can attract favourable costs consequences for the offeror.

Historically, under CPR Part 36 a claimant simply needed to make a formal offer; a defendant, once proceedings had commenced, had to make a payment into court.

Part 36 will be replaced in its entirety but the key changes are:

1. Both parties obtain the potential benefit of Part 36 by making a formal offer. A defendant’s offer is no longer required to be supported by a payment into court.
2. New formalities. Most importantly, a defendant’s offer must (nearly always) be for a single sum payable within 14 days of acceptance.
3. Previously, after the expiry of 21 days a party needed the court’s permission to accept an offer. Now, subject to limited exceptions, an offer can be accepted any time before trial without the court’s permission.
4. Offers are now considered open until formally withdrawn, after which they no longer have Part 36 consequences. A counter offer or rejection will not automatically terminate an offer.

Following the Court of Appeal’s decision in Trustees of Stokes Pension Fund v Western Power Distribution (South West) (2005), a court could consider a written offer by a defendant to have the same effect as a payment into court if it was made without prejudice, was a genuine offer, clearly expressed and open for 21 days and if the defendant was "good for the money".

The new rules recognise this decision and promote a simplified and more flexible procedure. The rules reduce the need for the parties to obtain the court’s permission to accept, amend and withdraw offers (see below), in the hope of encouraging parties - especially defendants - to make offers, to make more offers and so to achieve settlement before trial.

Without the requirement to pay money into court, defendants can avoid tying cash up in court for significant periods of time. Like claimants, defendants can also now withdraw and amend their offers after the offer has been open for 21 days or more. Previously, defendants could only withdraw or reduce a payment in with the permission of the court.

In the majority of cases, an offer will only attract the costs consequences of Part 36 if expressed to be payable 14 days after acceptance. If an offer is accepted and not paid within that period, the claimant can enter judgment in that sum. Defendants therefore must ensure that their internal procedures are set up to allow quick payment. Defendants can negotiate delayed payment or payment by instalments with the claimant once an offer has been accepted but cannot rely on this when making the offer.

Although the new rules provide a more level playing field for the parties, there is still no provision for defendants to be awarded indemnity costs or penalty interest if the claimant does not beat their offer (as there is in relation to a claimant’s offer).

Claimants are awarded some protection against impecunious defendants by the 14- day payment rule. If an offer for a single sum is accepted and not paid within this period, a claimant can seek judgment in this sum.

In essence, a claimant will be in no worse a position suing an impecunious defendant who makes an offer but is then unable to pay than if the claim went to trial and the claimant won. One exception is in relation to foreign defendants, where the difficulty of enforcing a judgment could be significantly greater than arranging a payment out of court.

Factors both parties need to consider The new rules about withdrawal mean that parties will have to consider if and when formally to withdraw outstanding offers and to review carefully any outstanding offers (which will remain open for acceptance) every time new evidence emerges or the parties’ positions change.

If an offer is withdrawn before it is accepted, it no longer attracts the benefits of Part 36 but can be taken into account by the court in its discretion as to costs under Rule 44.3.

Defendants considering making an offer should balance the benefit of waiting for the new rules to avoid the need for a payment in against the risk of delay.

Offers and payments made, but not accepted, before 6 April will continue to be valid. The court's permission will still be required, even after 6 April, to accept any pre-6 April offer/payment which would have required the court's permission under the old rules. There will be no need therefore to withdraw existing offers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.