Rules Change For Offers to Settle Litigation

In practice, most litigation never reaches court because a settlement is negotiated between the parties before the matter goes to trial.



Changes to the regime that governs offers of settlement in legal disputes will affect anyone making or receiving an offer (under Part 36 of the Civil Procedure Rules) to settle after 5 April 2015.



The general rule (this, and what follows below, is much simplified) is that if an offer is made to settle a dispute before it reaches court and the offer is rejected, the costs incurred after the offer is made will be borne by the ‘loser’ in court. In this context, the person making the offer will be the loser if the court awards the other party more than the offer. If the court awards less, then the person making the offer is the winner and the other party picks up the costs of the court proceedings.



The way the rules have operated has led to complexities and many disputes.



The rule changes have removed some of the uncertainty regarding offers which are clearly meant to be Part 36 offers, but which have technical deficiencies. These will, in future, be less likely to be able to be challenged.



In addition, ‘time limited’ offers will be specifically acceptable provided that the time limit for acceptance before the offer is automatically withdrawn is at least 21 days.



Where an offer is made but subsequently improved, there has long been an issue about whether the improved offer is a new offer (which terminates the original offer and starts the process running afresh) or a variation of the old offer. Under the new rules, the new offer will not terminate the old offer but will constitute an offer on improved terms.



Lastly, the changes make it clear that where there is a counterclaim, a Part 36 offer can be made with regard to a claim, a counterclaim or an additional claim.



The changes to the rules will affect litigation strategy in many cases.