This article explains the key points about Part 36 offers and provides top tips for avoiding common pitfalls.
Part 36 of the Civil Procedure Rules (“Part 36”) is a self-contained set of rules designed to encourage both the Claimant and Defendant to settle the claim outside of court. Any offer made under Part 36 is on a ‘without prejudice, save as to costs’ basis (36.16). The court will only be informed of a Part 36 offer when the issue of costs falls to be considered. A Part 36 offer may be an offer of a sum of money, but it can be a non-monetary offer, for example an offer on liability.
Either party can make an offer to settle the claim. If the offer is accepted, the claim is resolved, subject to any issues in respect of costs. If the offer is rejected, the parties go to trial and there may be cost consequences to this
Which Aspect of a Claim Does Part 36 Apply to?
A Part 36 offer may be made in respect of the whole, or part of, a claim, counterclaim, other additional claim, appeal or cross-appeal from a decision made at a trial (36.2(3)).
When Can a Part 36 Offer be Made?
A Part 36 offer may be made at any time until judgment, including before proceedings have been issued (36.7(1)). A Part 36 offer is made when it is served on the offeree (36.7(2)).
Although making an offer early on can be beneficial, you will need to assess whether you are informed enough to make the offer if proceedings have not commenced and relevant documents have not been disclosed.
If the trial has already commenced, you will need the court’s permission to accept the offer (36.11(3)(d)).
What Are the Requirements of a Part 36 Offer?
- the offer must be in writing (36.5(1)(a))
- it must make clear that it is made pursuant to Part 36 (36.5(1)(b))
- it must specify a period of not less than 21 days within which the defendant will be liable for the claimant’s costs (the “Relevant Period”) (36.5(1)(c))
- it must state whether it applies to the whole or part of the claim (36.5(1)(d))
- it must state whether it takes into account any counterclaim (36.5(1)(e))
What Are the Consequences of Making a Part 36 Offer Less Than 21 Days Before Trial?
Part 36 costs consequences do not apply to offers made less than 21 days before trial (36.5(2)). However, costs consequences may apply if the court allows the Relevant Period to be shortened.
Clarification of the Part 36 Offer
The offeree may, within 7 days of a Part 36 offer being made, request the offeror to clarify the offer (36.8(1)).
If the offeror does not give the clarification within 7 days of receiving the request, the offeree may, unless the trial has started, apply for an order that the offeror do so (36.8(2)).
Can a Part 36 Offer Be Withdrawn or Changed?
A Part 36 offer can only be withdrawn, or its terms changed, if the offeree has not previously served notice of acceptance (36.9(1)). The offeror withdraws the offer or changes its terms by serving written notice of the withdrawal or change of terms on the offeree (36.9(2)).
Once the Relevant Period has expired, and if the offer has not been accepted, an offer can be withdrawn or changed at any time (36.9(4)(a)). A Part 36 offer may be automatically withdrawn in accordance with its terms (36.9(4)(b)).
If an offer is withdrawn or changed then the Part 36 costs consequences will cease to have effect.
If the Relevant Period has not expired, it cannot be withdrawn or changed to be less advantageous unless the party has the court’s permission to do so. A more advantageous offer will be treated, not as a withdrawal of the original offer, but as a new offer (36.9(5)(a)).
Accepting a Part 36 Offer
A party must accept a Part 36 offer in writing (36.11(1)) and it may be accepted at any time (36.11(2)). If multiple offers have been made, and not withdrawn or changed, a party may accept any of the offers.
Cost Consequences of Accepting a Part 36 Offer
The defendant must pay the claimant within 14 days (36.14(6)), otherwise the claimant can enter judgment against the defendant for the sum (36.14(7)).
If accepted within the Relevant Period, the claimant is entitled to its costs up to the date of acceptance (36.13(1)).
If accepted outside of the Relevant Period, or the offer is made less than 21 days before trial, the parties can agree liability for costs, otherwise the court will make an order as to costs (36.13(4)).
If accepted outside of the Relevant Period, the presumption is that the claimant will be entitled to costs up to the date on which the Relevant Period expires, and the defendant will be entitled to its costs from the date of expiry to the date of acceptance (36.13(5)).
If the parties cannot agree the amount of costs, they will be assessed by the court on a standard basis (36.11(4)).
Defendant’s Part 36 Offer – Consequences of Non-Acceptance
If the claimant obtains judgment that is more advantageous than the defendant’s Part 36 offer, the court will apply the usual principles in making the cost order.
If the claimant fails to obtain judgment that is more advantageous than the defendant’s Part 36 offer, and it is made more than 21 days before trial, then unless the court considers it unjust to do so, the claimant will be liable to pay the defendant’s costs from date of expiry of the Relevant Period plus interest on those costs. This is a consequence of not accepting the defendant’s offer which would have disposed of the claim earlier.
Claimant’s Part 36 Offer – Consequences of Non-Acceptance
If the claimant obtains judgment that is not as advantageous as the claimant’s Part 36 offer, but equal to the defendant’s Part 36 offer, the court will apply the usual principles in making the costs order.
If the claimant obtains judgment that is at least as advantageous as the claimant’s Part 36 offer, and the offer is made 21 days before trial, then unless the court considers it unjust to do so, it will order that the claimant is entitled to (36.17(4)):
- interest on the whole or part of any money awarded at not more than 10% above base rate for some or all of the period starting with expiry of the Relevant Period;
- its costs on the indemnity basis (which is more generous than the standard basis) from the date of expiry of the Relevant Period;
- interest on those costs not exceeding 10% above base rate; and
- an additional amount of up to a maximum £75,000 (calculated as being 10% of the money awarded up to £500,000 and 5% above this amount up to £1m; if it is a non-money claim, this additional amount is calculated on the amount of costs ordered instead).
The defendant will have to pay the above amounts in addition to the judgment as a consequence for not accepting the claimant’s Part 36 offer which would have disposed of the claim earlier and on more advantageous terms for the defendant.
What Does the Court Consider to Be Unjust?
In considering whether it would be unjust to make the orders, the court must take into account all the circumstances of the case including (36.17(5)):
- the terms of any Part 36 offer;
- the stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made;
- the information available to the parties at the time when the Part 36 offer was made;
- the conduct of the parties with regard to the giving of, or refusal to, give information for the purposes of enabling the offer to be made or evaluated; and
- whether the offer was a genuine attempt to settle the proceedings.
If the court decides that it would be unjust to make the usual order under Part 36, it has wide powers when exercising its discretion as to costs under CPR 44.2.