Why make a Part 36 offer?

The courts want parties to settle their disputes. Those who do not attempt any realistic settlement can expect the court to penalise them with costs orders and requirements to pay interest. One way of attempting settlement is by making a Part 36 offer. The name comes from Part 36 of the Civil Procedure Rules which governs the specific mechanisms for these settlement offers.

If a party does not "beat" a Part 36 offer at trial, the inference is that they should have accepted that Part 36 offer and were unreasonable to force the case to continue to trial. The key feature of Part 36 is that it allows the Court to impose penalties for that unreasonableness in the form of enhanced interest and costs. The purpose of making a Part 36 offer is to put pressure on the other side to settle the dispute without the need to go to trial.

The risk of rejecting a Part 36 offer and proceeding to trial

Cost and interest penalties can be imposed if Part 36 offers are not accepted within the relevant period (usually 21 days from the date of the offer), the case proceeds to trial and either:

(a) a claimant fails to obtain a judgment more advantageous than a defendant's Part 36 offer; or

(b) judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant's Part 36 offer.

A claimant who does not "beat" a defendant's Part 36 offer at trial, can be ordered to pay the defendant's costs from the end of the relevant period. This is a significant departure from the usual position that "costs follow the event" where the losing party pays the winner's costs.

If a defendant does not accept a claimant's Part 36 offer and continues the case to trial but the judgment from the Court is the same or better for the defendant than the claimant's offer, then the defendant can be ordered to pay the claimant's costs on the indemnity basis (where a higher proportion of costs are generally recoverable) and pay interest on damages and costs at an enhanced rate of up to 10% above base rate from the end of the relevant period.

Accepting a Part 36 offer

If a Part 36 offer is accepted, the defendant will pay the claimant's costs up to the end of the relevant period. If parties cannot agree liability for costs after the relevant period, the court will usually order that the party who accepted the offer should pay the offeror's costs from the end of the relevant period to the date of acceptance.

When to make a Part 36 offer?

A Part 36 offer can be made at any time, including before the commencement of proceedings. However, if the offer is made less than 21 days before trial, or after the trial has started, the costs consequences in Part 36 will not be automatic but rather at the court's discretion.

Other considerations

  • Parties should be aware that Part 36 offers must comply with the requirements set out in Part 36 in order to attract the cost consequences mentioned above.
  • Part 36 offers remain open until written notice of the withdrawal is served on the other side. This means that Part 36 offers can be accepted at any time up until withdrawal.
  • Part 36 is a "self-contained" code and so normal contractual principles do not apply. This means that rejection of a Part 36 offer is of no effect and the party rejecting the offer may later accept it unless the offer has been withdrawn. It also means that subsequent offers do not revoke or amend earlier ones.
  • Part 36 offers cannot be time limited – only a Part 36 offer which remains open until trial will attract the benefits of Part 36.
  • Part 36 offers are "without prejudice" which means that the trial judge cannot be told about the offer before judgment is given and so it will not affect the outcome of the litigation.

Summary

Due to the potential costs consequences which can flow from Part 36 offers, they can be one of the most useful tactical weapons in a litigant's armoury. It is important to consider at all stages of a dispute whether a Part 36 offer should be made, accepted or withdrawn. Part 36 offers which have already been made need to be kept under continual review and re-assessed in light of any new developments in the claim - particularly at key stages of proceedings such as disclosure, exchange of witness statements and expert reports.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.