It is a method of protecting a party from having to pay the other side's costs. The contents of the offer cannot be shown to the judge until after judgment has been given.
How does a payment into court work?
A defendant in an action is sued for £1m and calculates that it is liable for £500 000. On 1 October 1999, the defendant makes a £500 000 payment into court and the claimant is informed that it has 21 days to accept it as full and final settlement. If the claimant agrees to the payment, it will be entitled to its costs until the date of acceptance; otherwise the offer lapses. If the case goes to trial in July 2000 and the claimant is awarded less than that payment in, the court can decide to make the claimant liable for the defendant's costs from 1 October 1999 to the end of the trial.
Have they changed under the Woolf rules?
The biggest change is that a claimant can now make a part 36 offer, protecting himself in the same way. So, a claimant may issue a claim for £1m and make a simultaneous offer of £800 000. If the defendant refuses to pay, the defendant may be liable for the claimant's costs if it wins more than £800 000 at trial.
Will the rules always be applied?
The court has a discretion whether to award costs against a party who fails to beat a payment in. A party that is protected by a payment in will have a strong argument that it should recover costs. If a claimant beats a part 36 offer, the court may also order that the claimant is entitled to costs on an indemnity basis, plus interest of up to 10% above base rate. This is a powerful sanction and will require defendants to evaluate their potential exposure on receipt of a part 36 offer.
Do the rules apply to arbitration?
Yes, the respondent in an arbitration can make a without prejudice "sealed offer". It is unclear to what extent arbitrators will adopt the new Woolf rules regarding costs and part 36 offers.
Postscript
Jo Rees is a senior solicitor specialising in construction dispute resolution.
