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Civil Justice Reform - Sanctioned Offers and Sanctioned Payments (February 2009)
Under the new High Court and District Court Rules, to come into effect on 2 April 2009, "sanctioned offers" and "sanctioned payments" will replace the existing "payments into court" procedure. The changes aim to encourage parties to settle and avoid prolonged litigation. Sanctioned offers and sanctioned payments can be made any time after proceedings have commenced.
What are the main changes?
Under the new court rules, Defendants will still make payments into court (re-named "sanctioned payments") in respect of monetary claims, but will also be able to make "sanctioned offers" in respect of non-monetary claims. The most radical change is that Plaintiffs will be able to make sanctioned offers in respect of their own monetary and non-monetary claims. Another important change is that severe financial penalties may be imposed on a party who rejects a sanctioned offer or sanctioned payment and then fails to achieve a better result at trial.
Sanctioned Payments by Defendants
Sanctioned payments, which can be made by Defendants in relation to the whole or part of a monetary claim, are essentially the same as the current payments into court made by Defendants. Defendants will make sanctioned payments by filing with the court and serving on the Plaintiff a prescribed form (which must contain certain particulars specified in the court rules) and paying the sum into court. Under the court rules, the Plaintiff may request and apply for clarification of the terms of a sanctioned payment.
Sanctioned Offers by Plaintiffs and Defendants
Sanctioned offers (which can be made in relation to the whole or part of a claim) can be made by Plaintiffs in respect of both monetary and non-monetary claims and by Defendants in respect of non-monetary claims. Although sanctioned offers must be in writing, there is no prescribed form. The offer must, however, contain certain particulars (as specified in the court rules) and must be clear or else the court may decline to impose enhanced interest and costs sanctions against the party who rejects it and then fails to achieve a better result at trial. As with sanctioned payments, there is provision in the court rules for the offeree to request and apply for clarification of the terms of a sanctioned offer.
What is the time limit for acceptance of a sanctioned offer or sanctioned payment?
A sanctioned offer or sanctioned payment should be accepted within 28 days after it is made. If a sanctioned offer or payment (i) is made less than 28 days before trial; or (ii) is not accepted within 28 days of being made, it can still be accepted without the court's permission, if the parties agree on liability for costs; if the parties do not agree on liability for costs, it may only be accepted with the court's permission.
Special provisions apply where a Plaintiff wishes to accept a sanctioned offer or payment made by one or more, but not all, of a number of Defendants.
In some cases, for example where the Plaintiff is under a disability i.e. is mentally incapacitated or under 18 years of age, the court's permission is required before a sanctioned offer or sanctioned payment can be accepted.
What happens if a sanctioned offer is accepted?
The claim (or the part to which the sanctioned offer relates) is stayed and either party may apply to enforce the terms of the accepted offer without the need to commence new proceedings. In those cases where the court's approval is required for acceptance, for example where the Plaintiff is under a disability, the stay takes effect when the court's approval is given.
What happens if a sanctioned payment is accepted?
The claim (or the part to which the sanctioned payment relates) is stayed and the Plaintiff requests payment out to him of the money in court. Again, in those cases where the court's approval is required for acceptance, for example where the Plaintiff is under a disability, the stay only takes effect and the payment out can only be made when the court's approval is given.
What are the costs consequences when a sanctioned offer or sanctioned payment is accepted?
Where the Defendant's sanctioned offer or sanctioned payment to settle the whole claim is accepted (in circumstances where the court's permission is not required for such acceptance), the usual costs order is that the Plaintiff will be awarded his costs of the proceedings up to the date he served the notice of acceptance on the Defendant. Similarly, where a Defendant's sanctioned offer or payment relates to part of a claim and the Plaintiff accepts it and abandons the other part(s) of the claim, the Plaintiff is entitled to his costs of the proceedings up to the date on which he served notice of acceptance.
Where the Plaintiff's sanctioned offer to settle the whole claim is accepted (again, in circumstances where the court's permission is not required for such acceptance), the usual costs order is that the Plaintiff will be awarded his costs of the proceedings up to the date on which the Defendant served the notice of acceptance on the Plaintiff.
If a sanctioned offer or sanctioned payment relating to only part of a claim is accepted, unless the parties have agreed costs, costs will be decided by the court.
Other costs orders may apply in those circumstances (as prescribed by the rules) where the court's permission is required for acceptance of a sanctioned offer or payment, for example where the offeree wishes to accept a sanctioned offer or sanctioned payment outside the 28 day limit for acceptance.
What are the consequences of not accepting a sanctioned offer or payment?
The proceedings will continue. The court rules direct the court to impose the following sanctions on a party who does not accept a sanctioned offer or sanctioned payment and then fails to achieve a better result at trial. The court is directed to impose such sanctions, unless it considers it unjust to do so. In considering whether it would be unjust to impose sanctions, the court will take into account:
| i. |
the terms of the sanctioned offer or payment; |
| ii. |
the stage of proceedings at which the sanctioned offer or payment was made; |
| iii. |
the information available to the parties at the time at which the sanctioned offer or payment was made; and |
| iv. |
the conduct of the parties in giving or refusing information for the purpose of enabling a sanctioned offer or payment to be evaluated. |
What are the costs consequences when a Plaintiff fails to do better than a Defendant's sanctioned offer or sanctioned payment?
If a Plaintiff does not accept a Defendant's sanctioned offer or sanctioned payment and fails to do better than that sanctioned offer or sanctioned payment at trial, the court may:
| i. |
disallow all or part of any pre-judgment interest otherwise payable on the whole or part of the sum awarded to the Plaintiff for some or all of the period after the latest date on which the sanctioned offer or payment could have been accepted without the court's permission; |
| ii. |
order the Plaintiff to pay the Defendant's costs on an indemnity basis (i.e. on a higher basis than usual) from the latest date on which the Defendant's sanctioned offer or sanctioned payment could have been accepted without the court's permission; and |
| iii. |
order the Plaintiff to pay interest on the costs payable to the Defendant at a rate of up to 10% above judgment rate. At the time of writing the judgment rate is 8.192%. |
What are the costs consequences when the Plaintiff does better than he proposed in his sanctioned offer?
If a Defendant does not accept a Plaintiff's sanctioned offer and the Plaintiff does better than that offer at trial, the court may:
| i. |
order the Defendant to pay interest on the whole or part of any sum awarded to the Plaintiff at a rate of up to 10% above judgment rate for some or all of the period after the latest date on which the Defendant could have accepted the offer without requiring the court's permission; |
| ii. |
order the Defendant to pay the Plaintiff's costs on an indemnity basis from the latest date on which the Defendant could have accepted the offer without requiring the court's permission; and |
| iii. |
order the Defendant to pay interest on the costs payable to the Plaintiff at a rate of up to 10% above judgment rate. |
Implications
| i. |
Any sanctioned offer or payment will have to be given serious consideration, in view of the severe financial penalties that can be imposed if it is not accepted and then not bettered at trial. |
| ii. |
Clients will have to provide their solicitors with all relevant information and documents about their case immediately upon instructing them so that solicitors can assess the merits and quantum of a claim and be in a position to evaluate any sanctioned offer or payment made by the opposite party. This will inevitably lead to more costs being incurred at an early stage of proceedings than at present. |
| iii. |
The new system of sanctioned offers and payments is likely to result in more cases being settled and at a much earlier stage of proceedings than at present. |
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Karen Dicks. Professional Support Lawyer
Litigation Department, Deacons
February 2009 |
