What is a Part 36 offer and what are its effects?

A ‘Part 36 offer’ is a form of offer used to settle all or part of a dispute between parties to civil litigation, which is governed by Part 36 of the Civil Procedure Rules (CPR). It is a method by which claimants and defendants can settle their claim without need for a trial or for the court to be involved.

However, not all offers to settle are the same. A Part 36 offer is a very specific type of settlement offer which must be made in a prescribed way. It also produces significant costs implications for the parties depending on whether the offer is accepted or declined.

How do you make a Part 36 offer?

There are certain rules and requirements which must be met for an offer to be classed as a valid Part 36 offer. It must be made in writing and state that it is made in accordance with Part 36 of the CPR. The offer must remain open for a period of at least 21 days, known as the ‘relevant period’, and state whether it relates to the whole or part of the claim, and if it includes any counterclaim. If the offer is made by a defendant, the offer must be to pay a single sum of money in settlement, and not by instalments.

If you attempt to make an offer under Part 36 which does not meet these strict requirements, it will not be a valid Part 36 offer and will not have the specific consequences discussed here.

Either a claimant or a defendant can make an offer of this kind during civil proceedings. In fact, these offers are often made before or just after proceedings commence or shortly before the trial for tactical purposes.

This is because the failure to accept a realistic Part 36 offer may result in the court ordering one party to pay the other’s costs and interest if the case proceeds to trial.

What happens after the offer is made?

Once the offer has been made, it is open to the other party to accept, refuse or simply ignore it.

You can change or withdraw a Part 36 offer if it has not been accepted and the relevant period has expired. However, if you wish to do this, written notice must be given to the receiving party.

What happens if the offer is accepted?

If the offer is accepted, which should be done in writing, the claim is ‘stayed’ pending the payment of the sum of money in settlement of the claim. This can be done at any time while the offer remains valid and is not withdrawn. The paying party – which is commonly the defendant – must pay the receiving party within 14 days of acceptance.

Following acceptance, the only outstanding issue between the parties will be the treatment of legal costs incurred up to the date of acceptance. If the acceptance is made within the relevant period, the claimant can recover its costs up to the date of acceptance. If the offer is accepted outside this period, other rules apply and the matter may need to be referred to the court to make an order on costs, or the parties may need to agree who pays.

What happens if a Part 36 offer is rejected?

In this case, there are several potential costs consequences for the rejecting party which can be penal in nature. The nature of the consequences depends on the identity of the party making the Part 36 offer, and whether a more advantageous result is achieved at trial:

• If the defendant makes a Part 36 offer which is not accepted, and the claimant obtains a more advantageous judgment following trial (meaning they are awarded a higher amount than was offered), the court will apply the usual principles when ordering the defendant to pay the claimant’s costs.
• If the defendant makes a Part 36 offer which is not accepted, and the claimant fails to obtain a more advantageous judgment, then generally the claimant will be liable to pay the defendant’s costs from the date of expiry of the relevant period plus interest on costs. This means that even though the claimant wins at trial, their failure to accept a better offer before trial means that they are penalised and must pay some of the defendant’s costs.
• If the claimant makes a Part 36 offer which is not accepted, and then obtains a judgment which is not more advantageous than its offer, the court will apply the usual principles when ordering the defendant to pay the claimant’s costs.
• If the claimant makes a Part 36 offer which is not accepted, and then obtains a judgment which is equal or better than the terms of its offer, the defendant will be ordered to pay:
• The judgment
• Interest on the judgment at no more than 10% above base rate from the expiry of the relevant period onwards
• The claimant’s legal costs from the expiry of the relevant period which will be assessed by the court more harshly on what is known as the ‘indemnity basis’
• Interest on those legal costs at no more than 10% above base rate
• An additional amount of up to a maximum of £75,000.

It is also open to the court to exercise its discretion in certain circumstances where it would be ‘unjust’ to apply the rules under Part 36.

As you can see, the consequences of refusing a Part 36 offer before trial can be extreme. This encourages parties to settle early where possible unless they can be sure that the offer made is unreasonable and can be beaten at trial.

Comment

The provisions of Part 36 are very complex and do not apply absolutely in every given situation, but the potentially extreme costs consequences of making the wrong decision when faced with a Part 36 offer mean that they are a very effective and important tool to use in litigation.

If you are considering making, or receive, a Part 36 offer it is always important to take your time to consider whether it is a reasonable offer. We would recommend seeking legal advice before making this decision, especially as the legal costs at risk from Part 36 offers can often exceed the total amount of the claim itself.