Client Information Guide to Part 36 Offers

The intention of this Guide is not to advise you on whether or not to make or accept a Part 36 Offer or Payment (which will depend on the facts of your own case). The subject of Part 36 Offers is a complex area and no guide can ever set out all the factors relating to a particular case. THIS GUIDE IS NOT THEREFORE A SUBSTITUTE FOR DETAILED ADVICE ON YOUR CASE. If you would like further explanation of any points in this Guide, please contact us.

The Court rules relating to Part 36 Offers have changed with effect from 1 April 2013, as part of the recommendations made by Lord Justice Jackson. This Guide takes into account those changes.

WHAT ARE PART 36 OFFERS AND WHAT ADVANTAGES CAN THEY PROVIDE? Negotiations have always been a useful way of settling disputes and Court proceedings. Part 36 of the Civil Procedure Rules goes beyond the less formal system of "Without Prejudice" settlement discussions to provide a structure for "Part 36 Offers" and to set out the consequences if Part 36 Offers are made; or accepted or not-accepted. In general, Part 36 Offers:

• are "Without Prejudice" and are therefore not seen by the Court (if the case does not settle) until after the Court has decided the case and is considering who should pay the costs of the litigation;
• can be used by both Claimants and Defendants to try to force a settlement of the claim and to try to protect themselves from having to pay all of the other side's costs. They are therefore a very useful tactical weapon in litigation;
• can have very important costs consequences in litigation (see below) and therefore parties should consider carefully at an early stage (and keep under review) whether or not to make an offer (and whether to accept an offer that has been made);
• do not apply to cases allocated to the Small Claims Track, but can be made before the case is allocated (see our Guides for Potential Claimants and Defendants for an explanation of the "tracks" to which a case can be allocated);
• can be made in respect of all or part of a claim or counterclaim;
• can apply (after 1 April 2013) to the costs of detailed assessment proceedings.

WHAT IS THE PROCEDURE FOR MAKING A PART 36 OFFER?

Part 36 Offers can be made at any time and even before Court proceedings have been commenced, they must be in writing and carefully worded in order to have the desired effect. A Part 36 Offer must generally be expressed to remain open for 21 days, however, a longer offer period can be stated if the offeror chooses. The period for which the Part 36 Offer is expressed to be open is known as the "Relevant Period". Unless a Part 36 Offer is expressly withdrawn, it can be accepted at any time even after the expiry of the Relevant Period. Therefore, it is important to keep a Part 36 Offer under review once it has been made.

WHAT IS THE EFFECT OF A PART 36 OFFER?

If the Claimant accepts a Part 36 Offer made by a Defendant within the Relevant Period, the Defendant must, in general pay the Claimant's costs to the date of acceptance of the offer (cases have held that, in order to be a Part 36 Offer, an offer should not try to provide a different costs outcome if the offer is accepted). Alternatively, if the Claimant accepts a Part 36 Offer (that has not been expressly withdrawn) after the expiry of the Relevant Period the Court will decide which party is liable for costs and for which period, although the default position (which is subject to Court's discretion) is that the Claimant would in general be entitled to its costs up to the end of the Relevant Period but would have to pay the Defendant's costs from the end of the Relevant Period.

If the Claimant does not accept a Part 36 Offer made by the Defendant, and wins at trial but is awarded less than the amount of the Part 36 Offer, the Claimant will generally (although the Court always has discretion as to costs), provided that the Part 36 Offer has not been withdrawn, be ordered to pay the Defendant's costs from the end of the Relevant Period plus interest on those costs. These costs will usually therefore include the particularly expensive costs of the trial (the Claimant will usually still be awarded their costs up to the last date on which the Part 36 Offer was expressed to be open for acceptance). However, if at trial the Claimant beats the Part 36 Offer that was made by the Defendant, the Defendant will normally have to meet the Claimant's costs in the usual way.

The Court rules now state that where an offer, or an element of an offer, that is solely for a sum of money is beaten at trial, by however small a margin, the Part 36 costs sanctions will apply. This applies to offers made after 1 April 2013.

Since 6 April 2007, Defendants have not needed to pay monies into Court when making a Part 36 offer but can make written offers to settle on the basis that, if accepted (by notice in writing) before it is withdrawn, the payment offered must be made within 14 days of acceptance. If the offer is made less than 21 days before trial the notice period is the period up to the end of the trial or other such period the Court has determined. If the Part 36 offer is accepted by the Claimant, failure by the Defendant to pay within this deadline will enable the Claimant to enter judgment on the sum "accepted" and the Defendant will lose any costs protection afforded by the Part 36 offer. A party making a Part 36 offer should therefore ensure that, if the offer is accepted, they will be able to pay the sum offered within the 14 days of any acceptance of the offer.

A Claimant can also make a Part 36 Offer and similar rules apply. If the Defendant accepts the offer, he must generally pay the Claimant's costs up to the date of acceptance. If the Defendant does not accept the offer and the Claimant is at trial awarded more than the amount of the Part 36 Offer, the Claimant may be entitled to recover interest at up to 10% above base rate on any damages awarded, together with costs on an indemnity basis (which is more favourable to the Claimant) plus interest on those costs at up to 10% above base rate from the last date after which the Defendant was expressed to be capable of acceptance.

The new rules provide that where judgment is granted at trial against a Defendant which is at least as advantageous to the Claimant as the Claimant's Part 36 Offer, the Court will (unless it considers it unjust to do so) order the Defendant to pay an additional amount of up to 10%, capped at £75,000, on amounts awarded up to £100,000. This sanction is in addition to the sanctions set out in the above paragraph and any damages award. The aim behind this change is to encourage Claimant's to make sensible Part 36 Offers. This applies to offers made after 1 April 2013.

To gain full tactical advantage, it is very important that any Part 36 Offer is pitched at the right level and that any Part 36 Offers that have been made are kept under review. If you are the Defendant there is little point in making an offer that the Claimant is unlikely to accept and has very good prospects of beating at trial, as this will not impose a high level of costs risk on the Claimant should they not accept the offer. Similarly, if you are the Claimant, there is little tactical point in pitching the offer at a level that obviously exceeds the amount that you are likely to recover at trial, although if you are a Claimant or a Defendant it is possible to make a succession of different offers (see below).

Overall, Part 36 Offers and Payments can be a very important tactical weapon and anyone involved in litigation should give careful consideration as to whether to make such an offer. If an offer is made that is far below the likely expected damages then it will have less tactical effect. However, if it is at a level likely to cause concern to the opponent then it can prove to be a very cost-effective method of settling a claim or at least protecting oneself against some of the inherent costs risks of a trial.

HOW MANY OFFERS CAN BE MADE?

It is possible to make more than one Part 36 offer. Both parties may decide to make an initial offer at a level well below which they would be prepared to settle and then increase it if it is not accepted. Parties should however be wary of making too many, ever-increasing Part 36 offers, as this may encourage the other party to think that they should not accept an offer as an increased offer may follow.

IF THE OTHER SIDE MAKES A PART 36 OFFER

Because of the costs consequences outlined above, if the other side to litigation makes you a Part 36 Offer, it is very important to give serious consideration, within the 21 day period from the Offer, to whether or not to accept it. If you do not accept the offer and fail to beat it at trial it may have very serious consequences as concerns the costs of the action and interest.

Ashfords is regulated by the Solicitors Regulation Authority. The information in this article is intended to be general information about English law only and not comprehensive. It is not to be relied on as legal advice nor as an alternative to taking professional advice relating to specific circumstances.