Part 36 offers following Carver
The ruling in Carver is a mandate to defendants to undersettle claims but there are ways around it, says John Coughlan
The decision of the Court of Appeal in Carver v BAA [2008] EWCA Civ 412 has drastically changed the face of Part 36: it is no longer sufficient to 'scrape home' against a defendant's Part 36 offer. With the abolition of Part 36 payments from 6 April 2007 came a change of language from the old Part 36.20 'fails to better a Part 36 payment' to the new Part 36.14 'fails to obtain a judgment more advantageous than a defendant's Part 36 offer'.
In Carver, the Court of Appeal held that the new test is an open-textured phrase, and (somewhat paradoxically) that money is no longer the sole criterion governing the application of Part 36 in money claims.
This article explores objections in principle to the decision, together with some of its practical effects and steps that can be taken to protect a claimant's position.
Arguments from principle
It is far from obvious that the change in language in Part 36 indicated an intention on the part of the Rules Committee to alter the common approach to the operation of Part 36 in money cases. The 'judgment more advantageous' test was not invented by the rules change in April 2007: it was already the test for non-money claims. The Court of Appeal appears uncritically to have accepted the proposition that a new approach was intended (see the opening sentence of para 30 of the judgment).
The new approach does violence to the language of Part 36. A penny more than the defendant's offer can only be regarded as an advantage, albeit an extremely slim one. There is no real answer to the point in the judgment.
If the court were minded to mark the slimness of the advantage obtained, it has the tools to do so under its general discretion as to costs contained in CPR 43'“48 rather than forcing the point into CPR 36.
Furthermore, while the dicta of Ward LJ as to the worthiness of compromise are laudable, it will overwhelmingly be the claimant who has to pay for the compromise. The point is illustrated by a consideration of a straightforward claim in debt '“ if I am owed £5,000 for goods sold and I am offered £4,950, am I bound to accept? The answer in principle must be no: it is my £50 and I should not be criticised for forcing the defendant to pay the full value of the claim.
While the 'true' value of a personal injury claim for general damages is not known until the court gives judgment, it is unclear why my failure to beat the defendant's offer by more than £50 should result in a different outcome.
On this view, the decision in Carver amounts to a mandate to defendants to undersettle claims, and it is difficult to envisage circumstances in which a claimant who narrowly misses her own offer could seek to rely upon Carver in her own favour.
Finally, the role now to be played by costs considerations when considering a defendant's Part 36 offer is unclear. Given the facts of Carver, it is fallacious to observe that no reasonable litigant spends tens of thousands of pounds in costs over 18 months simply to recover £51.
Until the claimant's medical evidence collapsed at joint meeting, she had been seeking some £25,000. By the time the 'true' value of her claim emerged, the bulk of those costs had already been spent.
Would a reasonable and privately-paying litigant not wish to pursue the litigation to recover some element of those costs as well as her £51?
Practical effects
It is trite to observe that advising claimants has been rendered much more difficult by this decision. Solicitors and counsel will now need in any case where a Part 36 offer is made to give separate consideration to the Carver issue.
There is no guidance in the decision as to 'how much better' a claimant must do, and satellite litigation is inevitable: compare the positions of a claimant who beats a £2,500 offer by £500 with that of severely injured claimant who beats a £2.5m offer by £50,000. The former has 'won' by a factor of 20 per cent of the value of the claim, and the latter by just 2 per cent.
Similarly for percentage offers: if a claimant achieves 75 per cent at trial against a 70 per cent offer, has she obtained a judgment more advantageous, and does the answer to that question differ given the value of the claim?
The courts' likely response
Certainly one effect of the decision is to give considerable discretion to the judge at first instance, with consequent loss of certainty. The effects of the decision upon the after-the-event insurance market are yet to be seen, but mayhem seems likely.
Ultimately, the costs of that mayhem may end up being borne by the defendant's insurer.
Steps to minimise effects
No doubt the process of reviewing files in any case where a Part 36 offer (or any offer) has been rejected has already begun. A carefully reasoned response to any offer must now be given, and trenchant refusals to negotiate must be avoided.
If the claim proceeds to trial on a close offer, counsel '“ on both sides '“ will need to be furnished with a healthy chunk of the correspondence clip to be prepared to deal with the reasonableness of the parties' approach to the litigation.
Ultimately, though, the only step that will undo the effects of the decision is reversal. It is hoped that the CPR Rules committee is listening.