Settlement Of Civil Claims – New Rules On Part 36 Offers & Additional Risks For Defendants

What is a Part 36 offer?

A Part 36 offer is an offer of settlement that can be made by a Claimant or Defendant at any stage of civil proceedings (including pre-action) which encourages the opponent to settle proceedings due to the potential consequences that may apply in the event that a party unreasonably refuses to accept their opponent’s offer of settlement.

Making a Part 36 offer can see a party gain a significant tactical advantage when making an offer of settlement.

Any offer of settlement must be in writing and confirm a period of not less than 21 days (the “relevant period”) in which the offer can be accepted by the opponent.

Consequences of accepting or rejecting a Part 36 offer

The consequences of accepting or rejecting a Part 36 offer differ depending on whether it is the Claimant or the Defendant who has made such an offer.

Where a Defendant rejects or fails to accept a Claimant’s Part 36 offer; and the Claimant proceeds to trial and recovers in Judgment a sum equal to or more advantageous than their own offer, the Court can order the Defendant to pay:

1. Interest on the whole or part of the sum awarded by the Court, at a rate not exceeding 10% above the base rate for all or some of the period running from the expiry of the 21-day relevant period;
2. Costs on the indemnity basis from the date on which the relevant period expired;
3. Interest on those costs at a rate not exceeding 10% above base rate; and
4. An additional amount, which shall not exceed £75,000, is calculated by applying a prescribed percentage.

Under the present rules, if a Defendant accepts the Claimant’s offer, but this is done after expiry of the relevant period, no consequences are suffered by the Defendant aside from having to pay the Claimant’s solicitors costs up to the date that the offer was accepted.

New rules – interest on Part 36 offers

Under new rules which apply from 6th April 2021 (codifying the decision in the case of King v City of London [2019] EWCA Civ 2266), The Civil Procedure (Amendment) Rules 2021 introduces a new Civil Procedure Rule 35.5(5) to clarify the issue of interest on Part 36 offers.

The new rules provide that Part 36 offers may include provision for the accrual of interest on any sum offered after the expiry of the 21-day relevant period. If an offer is silent on the provision of interest, the presumption is that it is made inclusive of interest up to the date of acceptance.

The effect of the new rules can only act to apply more pressure to any opponent as a Defendant can no longer presume that they will be entitled to accept the Claimant’s offer after expiry of the relevant period without facing additional, punitive consequences.