This is a short note which explains, briefly, the implications of three technical and complex areas of legal procedure which can have major implications for how a case is run-in other words, the tactics that might be used. Please do get in touch if you would like to know more.
Part 36 offers
The Civil Procedure Rules are, as the name implies, a set of rules that governs how cases in Court are run, and which also govern the parties to those proceedings and their solicitors. The Civil Procedure Rules (or “CPR” as they are known for short) encourage the parties to settle a claim by negotiation before and during the proceedings. Both the Claimant and the Defendant may make offers to settle under part 36 of the Civil Procedure Rules, which are not disclosed to the Judge until after the trial is held and judgment is given, and the Court is considering who should pay the costs.
Part 36 states what will happen if an offer is made and accepted, or made and rejected.Normally the winner of a trial has their costs paid (although the Court has complete discretion to award costs). A part 36 offer can affect the decision of the Judge as to who should pay those costs, and how much those costs should be. These offers are made by formal letter and are automatically withdrawn after a certain period (which cannot be less than 21 days after they are made). After that date they can only be accepted if the parties agree or the Court orders it.
However, part 36 of the Civil Procedure Rules also states that, if the Claimant accepts the offer, the Defendant must also pay the Claimant’s “reasonable costs” up to the date the offer is accepted. It is not therefore possible to make a part 36 offer inclusive of costs. The other point to bear in mind is this; the amount offered under a part 36 offer (if accepted) must be paid within 14 days of acceptance unless the Defendant is prepared to extend the timetable.It is therefore essential that any offer to settle is made as early as possible. If the offer is accepted, the Claimant’s costs that the Defendant must then pay will be minimised; if rejected and the Claimant fails to beat it, the amount of costs that the Defendant will be able to recover from the Claimant will be maximised. It is also essential to be certain that if you are making a part 36 offer you can afford to pay the offer within 14 days and to pay the costs of the Defendant once they are either agreed or assessed by the Court.
Tactically, part 36 offers are very significant when a case gets to trial. Both Claimants and Defendants can make offers, and they have different consequences when the case comes to Court. For a Claimant, if the Court awards the Claimant more in damages than his or her offer, then the Court may in addition award the Claimant indemnity costs, interest on those costs, and also interest on the damages. If the Claimant doesn’t beat their own offer then they will just get the amount ordered and interest plus their reasonable costs.In contrast, if the Claimant fails to beat a Defendant’s offer then they will get the amount ordered plus their costs up to the date they could have accepted the Defendant’s offer, but they will have to pay the Defendant’s costs after that date plus interest on those costs and their own, and they will include the costs of the trial.
To take an example, suppose a claim is worth £10,000. The Defendant could offer to settle the claim for that amount together with the Claimant’s reasonable costs even before proceedings are issued but let’s say the Claimant rejects it. If the amount finally awarded at the trial is £10,000 or less, the Defendant will have to pay the Claimant the £10,000 but the Defendant can then ask the Court to order the Claimant to pay all of the Defendant’s costs from the last date on which the Claimant could have accepted the Defendant’s part 36 offer. The Claimant will only get his or her reasonable costs up to that date. If the parties have each spent £10,000 in legal costs getting the case to trial, then in this example the Claimant will get £10,000, but will have to pay £20,000 in costs. The Defendant will only have to pay £10,000 plus the Claimant’s costs up to the date the part 36 offer expires-if made early enough, these costs are likely to be minimal.
For a Claimant the effect is even more dramatic; suppose the Claimant makes an offer to settle of £10,000 before the proceedings start and the case takes 3 years to get to trial, at which point costs are £10,000 on each side. If the award is £10,000 the Court can be asked to order the Defendant to pay interest on the £10,000 at up to 10% above base rate from the date of the Claimant’s part 36 offer. If the base rate is 5%, then the total interest could be as much as £4,500. In addition the Claimant will be able to claim costs on an indemnity basis plus interest on those costs at a rate not exceeding 10% above base rate. The Defendant would have to pay £14,500 plus £20,000 costs plus interest on the Defendant’s costs.As a result of these potentially draconian consequences, a part 36 offer early in the proceedings or even before them can be very effective.
Alternative Dispute Resolution
The Civil Procedure Rules positively encourages (but does not require) parties to resolve their differences without the Court process, either before the proceedings start or during them using a process known as Alternative Dispute Resolution. There is recent case law in which a party-though successful-did not get its costs because the Court concluded that it had unreasonably refused to attempt ADR. ADR may be a very informal meeting between the parties, a rather more formal discussion between them assisted by a professional mediator, or even what amounts to a mini-trial at which a professionally qualified expert makes judgments on the issues between the parties who are represented by Counsel and by solicitors.Statistics show that most cases that go to ADR are either settled then and there, or shortly afterwards. There are several benefits to a party to litigation suggesting ADR;
- It is likely to be cheaper: the costs of a professional mediator are around £1,500 a day, which are split between the parties. Many forms of ADR are significantly cheaper than this. Usually each side bears their own legal costs unless the settlement includes a contribution towards them.
- It is likely to be quicker: a complex trial can take months or even years to come to trial. ADR can be arranged in a matter of weeks or even days.
- It is likely to give a better result for both parties: because it is a process of negotiation, each side has some input into the final result so that it can be customised to suit the parties’ individual requirements. This can, for example, preserve a trading relationship between two organisations so that both benefit. A judgment from the Court is simply imposed on the parties as the Judge sees fit.
- It can be very effective as a litigation tactic: a party that a Court thinks has unreasonably refused an offer to attempt to settle a case by ADR can be deprived of some or all of its costs at trial, even if they win. It is therefore almost always a good idea to suggest it.
- You may not have any choice: some Courts require the parties to confirm that they have considered ADR, and to explain why they haven’t or why they have refused. The Court may also stay proceedings to allow ADR to happen if a party requests it.
- It is conclusive: if a settlement is achieved, this is embodied in a Court order which can be enforced but cannot be appealed. A judgment can be the subject of an appeal.
Legal expenses insurance
It is possible to obtain insurance against the costs of bringing or defending a legal claim, either before the need to do so (before the event insurance or BTE) or after it (after the event insurance or ATE). If it is available, it can have major implications.
Often BTE is available as an add-on to a household or motor policy, and many people may have it without realising it. It is not usually available to commercial organisations except for employment disputes for instance. The terms of the policy vary widely between insurers: some cover only certain types of dispute and exclude others, commonly boundary disputes. Some policies also limit which solicitors can be instructed, requiring one of the insurer’s own panel solicitors to be used. All will impose a limit on the total costs cover available, for example £50,000, which will include the policyholders costs and their opponents, and any disbursements incurred such as Court fees, and those of counsel and experts. If BTE is available, a claim must be made under the policy as soon as possible by notifying the insurer as many are time-limited from the date on which the policyholder is or should be aware of the potential claim.
Usually the application needs to be supported by documentation and a preliminary view of your Solicitor as to the basis of the claim and the probability of success. If cover is granted the terms of the cover usually require that your Solicitor will send bills direct to the insurer, but also require your Solicitor to keep the insurer fully informed of the position. If as the case develops the prospects of success change for the worse, or you behave unreasonably in refusing to follow the advice of Counsel for instance, the insurer may withdraw cover. BTE cover may also (dependent on and subject to its terms) provide you with protection from the legal costs of your opponent if you lose the case at trial, and also from the consequences of your making a part 36 offer which is accepted.
ATE insurance is slightly different in operation; as the name implies, it may be available after the reason for the claim arises, such as an accident or a breach of contract. Again the application will require input from your Solicitor, but the cost is very much higher-often prohibitively so for many people. The policy will not cover your own legal costs, but will protect you from picking up the other side’s costs up to the limit of the policy if you lose your case. Following the Jackson reforms of 2013 however, even if you succeed in your claim, you will not be able to recover the costs of the policy itself. It is often used in combination with a “no win no fee” agreement for personal injury claims.
For more information contact David Vaughan-Birch.