The Court of Appeal has clarified the new Part 36 rules and has, for the first time given an explanation of the meaning of the phrase 'more advantageous'.

The Civil Procedure Rule Part 36.14 was brought in to replace 36.20 under which a claimant used to be liable for the defendant's costs where they 'failed to better' the defendant's Part 36 offer. The new rule applies to claimants who fail to obtain a judgment which is 'more advantageous' than that offered by the defendant or the judgment against the defendant is at least as advantageous to the claimant as the claimant's own Part 36 offer. The rules were changed in order to allow defendants to make non-monetary offers on a Part 36 basis and to avoid an accompanying payment but the Court of Appeal in the case of Lisa Carver v BAA [2008] has given a wider meaning to the words.

The case concerned an air hostess who injured her ankle in a lift operating in one of BAA's airports. Liability was admitted early on in the case and an interim payment made. A Part 36 offer was then made in the sum of £4635.00. Settlement did not occur so the case proceded to court where Ms Carver was awarded £4686.26 - just £51 more than the Part 36 offer. There then ensued arguments over costs, in particular due to the fact that the claimant sought £57,000 plus VAT.

The judge applied the new 36.14 rule and decided that the judgment obtained was not more advantageous to the claimant in view of the stresses and resources involved in gaining just £51 more than an earlier offer. The judge therefore awarded BAA their costs from the end of the offer period through to trial. He also made no order for costs for the period after the defendant made an offer which was £430 lower than the sum eventually awarded.

On appeal, the Court of Appeal broadly agreed with the trial judge, and did not vary any of the costs orders. Lord Justice Ward said that the aim of the new rules was for lawyers to use a modern approach to litigation. He said 'The CPR, and Part 36 in particular, encourage both sides to make offers to settle. Compromise is seen as an object worthy of promotion, for compromise is better than contest and for the administration of justice as a whole. Litigation is time-consuming and it comes at a cost, emotional as well as financial. There are, therefore, appropriate factors to take into account in deciding whether the battle was worth it. Money is not the sole governing criterion.' The Court took account of the fact that Part 36 offers could be used in non monetary claims. It would not be straightforward to assess whether an offer had been beaten in those type of claims, so there was no reason to avoid the same exercise in monetary claims.

This judgment will have far reaching consequences for claimants as defendant costs draftsmen will already be poring over the transcripts of the hearing. Clearly lawyers must now take care not to press on to trial where they are reasonably confident of beating an offer but must instead attempt to value the non-financial costs of reaching the court door. Part 36 offers are no longer black and white but shades of gray - offers which are nearly enough should probably now be accepted.

Note that the 'more advantageous' test although introduced in April 2007, applies to Part 36 offers made before that date, so all existing offers need to be carefully reconsidered.

Click here to read the Court of Appeal decision in full.