Using Part 36 Offers to Settle Disputes
Civil Procedure Rules (CPR) sets out provisions to encourage parties to settle disputes without going to trial, under what is called ‘Part 36’.
Part 36 allows both the claimant and defendant to communicate with one another an offer that they are willing to accept that will resolve their dispute. However, if a party does not accept an offer made under Part 36, it risks them being made liable to pay more in interest and/or the costs on a judgement than if no offer had been made. These financial risks are set to encourage parties to make a settlement offer and to seriously consider that offer when it is made.
Part 36 offers are particularly useful as they are made on a ‘without prejudice save as to costs’ basis, meaning that the court does not need to be made aware of the Part 36 offer until after the judgement has been reached, but it will be made aware of before an order has been made where costs of the proceedings are concerned. This is unless the trial has already commenced, and a party is willing to accept the offer, that party will need to seek permission from the court to accept that offer.
Either party can submit a Part 36 offer at any time until judgement, including before proceedings have been issued, which can be beneficial at this stage however, an informed assessment will need to be made to determine the details of the offer. The Part 36 offer can be made in respect of the whole, or part of, a claim, counterclaim, other additional claims, appeal, or cross-appeal.
Making a Part 36 Offer
Part 36 Offer Requirements
For the Part 36 offer to be valid, it will require:
- The offer to be made in writing
- To be made clear that it is made pursuant to Part 36
- A specification period of nothing less than 21 days within which the defendant will be liable for the claimant’s costs, otherwise known as the ‘Relevant Period’
- The offer to state whether it applies to the whole or part of the claim, and any counterclaim
Clarification of Part 36 offers
The claimant may request clarification of the offer within 7 days of a Part 36 offer being made. If the defendant does not provide clarification within 7 days in receipt of the request, the claimant may apply for an order that the defendant does so, unless the trial has begun.
Accepting Part 36 Offers
Any party who wants to accept a Part 36 offer should do so in writing. If there are multiple offers, the other party can still accept an earlier offer, unless that offer has been formally withdrawn or changed (see below).
However, where the trial has already started, then the accepting party will need to gain the court’s permission to accept the offer. Additionally, if there is more than one defendant with joint liability, and the claimant wishes to continue the claim against the other defendant, the claimant will require permission from the court.
Withdrawing or Changing Part 36 Offers
Until the ‘Relevant Period’ (outlined above) has expired, a Part 36 offer cannot be withdrawn or changed to be less advantageous to the other party unless the court has provided permission to do so. After the Relevant Period has expired, it can be withdrawn or changed at any time, unless the offer has already been accepted. Although it may be that in doing so, Part 36 costs consequences will be lost.
Consequences of Accepting a Part 36 Offer
Where the offer involves the defendant paying a sum of money to the claimant, it must be paid within 14 days from the date of the offer being accepted, or any other date agreed by both parties. Failure to pay within the agreed time may result in the claimant entering a judgement against the defendant for that sum.
If the offer is accepted within the Relevant Period, the claimant is entitled to its costs to be paid up to the date of acceptance. In cases where costs liability cannot be agreed upon, will likely result in the court assessing the means of costs recoverable at 60-70% of the actual costs incurred.
If the offer is accepted within the Relevant Period, or the offer is made less than 21 days before the trial, either the parties can agree on liability for costs, or the court will make an order as to the costs.
Where an offer has been accepted prior to court proceedings, then such arrangements should be followed based on the Part 36 offer (being properly worded) in the form of a contract between both parties.
Consequences of not accepting the Defendants Part 36 Offer
If the claimant achieves a more advantageous judgement than the defendant’s Part 36 offer, the court will apply for a costs order in the usual principle.
Otherwise, if the claimant fails to achieve a more favourable judgement than the defendant’s Part 36 offer, and the offer has been made 21 days before the trial, the claimant will be liable to pay the defendants’ costs from the date of expiry of the Relevant Period and interest on said costs unless the court considers this unjust. This means that even though the claimant may have obtained a judgement in their favour, they will have to pay some of the defendants’ costs as a ‘penalty’ for not accepting the offer that was made to them.
It is therefore recommended to defendants to carefully assess their pitch and for it to be of reasonable value as to not miss out on this possible eventuality.
Consequences of not accepting the Claimants Part 36 Offer
If the claimant achieves judgement less favourable than the claimant’s Part 36 offer but is equal to the defendant’s Part 36 offer, the court will then apply for a costs order in the usual principle.
Should the judgement be at least as advantageous, if not better than the terms of the Part 36 offer, and that offer has been made more than 21 days before trial, then unless the court considers it unjust to do so, the court will order that the claimant is entitled to:
- Interest on the whole or part of any claim awarded at no more than 10% above the base; rate for some or all of the period stating with expiry of the Relevant Period;
- Costs on the indemnity basis that is more generous than the standard basis from the date of the expiry of the Relevant Period;
- Interests on those costs that do not exceed 10% above the base rate; and
- An additional amount of up to a maximum £75,000 (calculated on a certain formula)
The defendant will therefore have to pay the above amount in addition to the judgement as a consequence of not accepting the claimant’s Part 36 offer, which would otherwise have disposed of the claim earlier.
When litigation occurs between two or more parties, negotiations can be an effective way of settling disputes. Part 36 offers can provide a reasonable and cost-effective resolution where finances are at stake and having the right litigating lawyer at your defence can make all the difference. If you have a question in relation to this article, or you would like to see how we can help you with a litigation dispute, please call 023 8023 4433 to arrange a callback. Additionally, you can find out more about our General Litigation services here.
Disclaimer: Information on this webpage is not intended for legal purposes or advice. If you require legal advice or services, you should seek a professional legal practitioner.
