In an ideal world, businessmen pursuing sizeable claims would be able to achieve their objectives quickly. In practice, as most users of legal services know only too well, events have rarely worked out this way.
In the past the court system has been slow and companies have had to commit themselves to considerable expense, both financial and in management time, in order to bring their claims to a satisfactory conclusion.
Delaying tactics
Although some delay has always been caused by the sheer pressure of cases in the court system, it has also been caused by deliberate tactical decisions taken by defendants with poor claims, who have sought to obtain favourable outcomes by exploiting procedural legal errors.
One of the reasons for the reforms to the civil justice system, introduced in April this year, is that the old rules created an environment which might reward delay and technical procedural law rather than meritorious claims.
Woolf
As a result, much of the Woolf-inspired Civil Procedure Rules (CPR) are hostile to defendants insofar as they might seek to rely on technicalities above a realistic assessment of their prospects.
Although the pre-Woolf system always enabled defendants to take steps to put claimants at risk for the cost of pursuing claims at overstated levels, the powers contained in the old rules were underused and rarely made a material difference to the outcome of cases.
The old system allowed defendants the right to pay into court a sum of money in full and final settlement of the claim or claims made against it. If this payment was not accepted by the claimant within 21 days, and the claimant went on to trial and was awarded less than the monies in court, the claimant would pay the defendant’s costs from the date of the payment in.
Part 36 Offers
Part 36 of the new CPR, for the first time, hands a similar power to claimants, backed by serious sanctions.
Claimants can now offer to accept a sum less than the full amount of their claim. This is known as a "Part 36 Offer" and can be made even before proceedings are commenced.
If a Part 36 Offer is not accepted and the claimant goes on to be awarded more at trial, the defendant may be ordered to pay the claimant’s costs on an indemnity basis and, more importantly, may be ordered to pay interest at 10% above the standard bank base rate.
The serious consequences of turning down a Part 36 offer can be illustrated by the following example:
Mr Smith has a claim against Mr Jones for £1,000,000. On 1 January 2000, Mr Smith makes a Part 36 Offer to Mr Jones by which he will accept £950,000 in full and final settlement of his claim. Mr Jones does not accept the Part 36 Offer and the case goes forward.
At trial in December 2002 Mr Smith is awarded £1,000,000. Mr Jones has to pay Mr Smith £1,000,000, indemnity costs and £300,000 interest (based on 15% for 2 years).
Clients have always been entitled to expect their lawyers to devise creative solutions for their business problems. In the future, defendants who are advised early of the weaknesses of their defences may wish to pursue alternative forms of dispute resolution.
The powers contained in Part 36 of the CPR allow the tables to be turned on defendants. Claimants have been invited by Lord Woolf to use the powers ignored in the past by defendants themselves.
If defendants continue to adopt the tactics which have been employed in the past, they may pay a heavy price for the privilege.
Article written by Simon Miller & Rachael Charmbury.
For further information please contact Rachael Charmbury or Simon Miller, 2 Park Lane, Leeds LS3 1ES, Tel: +44 113 284 7000.
This article was first published in the Autumn 1999 issue of Hammond Suddards' Commercial Dispute Resolution Newsletter.
The information and opinions contained in this article are provided by Hammond Suddards. They should not be applied to any particular set of facts without appropriate legal or other professional advice.
