Clamping down on admissions

At the beginning of this month, the Department for Constitutional Affairs made two major changes to the procedural rules. The first, known as Part 14, relates to the rules governing the circumstances under which a party can withdraw an admission made openly in correspondence (prior to commencement of proceedings) or within a defence.

The second, known as Part 36, alters the process for payments into court. While both changes are broadly positive, it is important for insurers and brokers to understand them, and why they are of significance.

This issue of withdrawal of admissions (whereby the insurer admits to liability to some extent) came under some considerable scrutiny in the Court of Appeal during Sowerby v Charlton, when the court decided in what circumstances a party could be allowed to withdraw an admission.

Following the high profile debate on the issue, procedural reforms have been introduced in relation to personal injury claims, which was implemented on 6 April 2007 by the 44th update to the Civil Procedure Rules.

Apply for judgment
For the first time pre-action admissions have been defined. Pre-action admissions must now be made in writing and after proceedings are commenced. Any party may apply for judgment on the (pre-action) admission, and the party who made the pre-action admission may apply to withdraw it.

However, it can only be withdrawn if the claimant agrees or the court uses its discretionary power to enable the party to withdraw it.

The criteria that the court will take into account are detailed, and effectively pre-action admissions will now have virtually the same effect as one made after proceedings have commenced and so be more difficult to resile from.

There can be many reasons why insurers and their lawyers consider it is subsequently appropriate to withdraw an admission. Sometimes the earlier admission has been based on incomplete evidence or there is a subsequent realisation that the claim is potentially much more valuable than perhaps was first thought.

There is now a 'non exhaustive' list of factors that the court will take into account when considering whether to allow a party to withdraw pre -action admissions. These include the stage at which the application is made and the prospects of success if the admission is withdrawn of the claim.

If claims handlers consider that an admission should be withdrawn, they should let the claimant know as soon as possible setting out their reasons and why they consider they are likely to be allowed to withdraw the admission in subsequent court proceedings if the claimant will not agree to the admission being withdrawn.

Admissions made after the commencement of proceedings have not changed but effectively pre-action and post-action admissions made after 6 April 2007 cannot be withdrawn without the court's permission and without good reason.

Defending a personal injury claim is obviously an ongoing investigative process and the potential reasons for a change of mind over quantum and liability are many.

It is now going to be more difficult to withdraw admissions and so it goes without saying that the decision to admit should be taken carefully.

Hopefully, all will have noticed that in relation to payments into court, parties are no longer be able to make such payments. Instead, defendants must make written offers to settle. To carry costs consequences written offers to settle must be in a prescribed form and carefully worded to ensure they comply with the rules.

If the claimant accepts the offer then this must be paid by the defendant within 14 days or the claimant will be able to enter judgment against the defendant.

Offers may now be withdrawn or amended after 21 days without seeking the court's permission but crucially offers now remain open indefinitely unless they are withdrawn or altered.

While this rule change is on the face of it attractive leading to improved cash flow for compensating insurers and defendants, it is clearly going to be important that the 14-day time limit is met or claims handlers may be faced with disgruntled insureds and the prospects of funding applications to set aside judgment with costs consequences.

There are also risk management issues to consider where offers that have previously been made have neither been accepted nor withdrawn.

Accept offer
Under the new rules it will be open for the claimant to accept the defendant's offer at any time, even after the 21-day period has expired, although the presumption would be that the defendant would be entitled to his costs from the date of expiry of the original offer as is the case under payments into court.

The difference here appears to be that, under the old rules the defendant was on notice that the claimant was making an application and could make a cross application under the new provisions. It is not clear that the court would have any remedy for the defendant other than in costs.

If the evidence has changed radically and there is a risk that a claimant would prefer to accept an old offer and pay the defendant's costs then to minimise the risk of this occurring Part 36 offers should be reviewed and trimmed if necessary although presumably with care as of course the defendant will lose costs protection in doing so.

Both the changes are significant and will need to be understood by claims handlers both handling claims at the pre-litigation stage and when working with instructing solicitors once proceedings have been issued.

There are also gaps, for example while there is the ability for the claimant to apply for judgment on a pre-action offer to settle (when the defendant fails to pay) the rules do not specify by what procedure.

Whereas in relation to pre-action offers to admit liability, there is a specific provision provided for entering judgment on an admission.

And what is the net result? It will be harder for defendants to withdraw pre-action admissions; easier for defendants to make offers and for claimants to accept offers to settle and quicker for claimants to get paid their damages. IT

Lea Brocklebank is a partner at Bond Pearce and president of the Forum of Insurance Lawyers