What is a Part 36 offer?
A Part 36 offer is a provision, outlined in the Civil Procedure Rules (CPR), which is designed to encourage claimants and defendants involved in legal proceedings (civil and commercial litigation) to settle a dispute without having to go to Court.
If the party receiving the Part 36 offer rejects it, then it risks having to pay more in costs and interest at the end of the proceedings than if no offer has been made. A Part 36 offer is often seen as being a means of putting the other party under pressure to resolve a dispute. It shouldn’t be seen as a sign of weakness on behalf of the party making the offer.
In this regard, a Part 36 offer is on a ‘without prejudice, save as to costs’ basis. This means that the Courts are not made aware of a Part 36 offer until it has reached a judgment in the matter and has moved on to decide who should be responsible for the costs of the proceedings.
When can a Part 36 offer be made?
A Part 36 offer can be made at any point in time leading up to the point of a Court judgment being made (although if a Part 36 offer is to have any real impact, it ought to be made at least 21 days before any trial and preferably before most of the costs associated with preparing for trial have been incurred). An offer can be made prior to any Court proceedings being issued.
Part 36 offers do not apply to claims that are small claims tracked (claims valued less than £10,000).
What should a Part 36 offer include?
When making a Part 36 offer, it must:
- Be made in writing;
- Outline the consequences of the Part 36;
- State whether it is being made to settle the whole claim or only part of it (if this is the case, which part);
- Whether it includes any counterclaim; and
- Specify a period of no less than 21 days (although in practice there is no reason to set a period of longer than 21 days when making such an offer) within which the other party will be liable for the costs of the party making the offer if the offer is accepted (known as the relevant period).
How long does a Part 36 offer last?
If a Part 36 offer is being made 21 days or more prior to the commencement of Court proceedings, it is required to specify a relevant period of at least 21 days within which the other party will be liable for costs if the offer is accepted. This requirement is based upon the proviso that a party is entitled to be paid its costs once the claim has been settled.
Technically, the relevant period can be longer than 21 days, but this doesn’t usually happen.
If a Part 36 offer includes the provision that the party making the offer is to pay a specified amount of money to the other side, then the payment of this amount must be paid as a single sum (not in instalments).
Can a Part 36 offer be withdrawn?
As long as the offer isn’t time limited, a party can withdraw a Part 36 offer or change the terms of it. If the other party hasn’t accepted the offer, it can be withdrawn or varied at any time after the relevant period has expired and permission from the Court will not be required.
If the relevant period has not expired, the offer cannot be withdrawn or changed to be less advantageous to the other side without the permission of the Courts. It is therefore essential that a party is sure that a Part 36 offer should be made and the terms of such an offer before it is made.
Can a Part 36 offer be negotiated?
Whilst a Part 36 offer can be negotiated, when a party receiving the offer makes a counteroffer it doesn’t affect the validity of the original offer.
Thereby, if a counteroffer is made that the other party rejects, the party making the counteroffer is still able to accept the original Part 36 offer. This is assuming that the original offer has not been withdrawn/expired.
What happens if a Part 36 offer is accepted?
If a Part 36 offer is accepted by the other party (this must be done in writing) within the relevant period, at which point the claim is for practical purposes concluded save for the assessment of costs to be paid by one party to another. Any sum outlined in the offer must be paid within 14 days of acceptance. If this is not done, a judgment for that sum can be sought from the Court.
The claimant accepting the Part 36 offer is entitled to receive from the other party their costs up to the date the offer is accepted. However, if the parties cannot agree on the costs amount, this will be determined by the Court on a standard basis, which typically means that the claimant recovers around 60% to 70% of their costs incurred.
If a party makes multiple Part 36 offers, the other side is still able to accept an earlier offer, assuming it hasn’t been withdrawn or changed.
If a trial has already commenced and a party wishes to accept an offer, the Court’s permission is needed. In the circumstances where a Part 36 offer is made by one defendant in a joint liability claim and the claimant decides to continue their claim against the other defendants, this will again require the Court’s permission to accept the Part 36 offer.
If an offer to settle is accepted after the relevant period has expired the claimant and defendant must agree on the liability for costs. If this is not agreed upon, the Court decides liability for costs. The claim stays when the offer is accepted. The Court typically deems that if an offer is accepted after the relevant period, the claimant is entitled to recover its costs up to the date that the relevant period expired. The party accepting the Part 36 offer is liable for the costs of the party for the period from the date the relevant period expired to the date it is accepted. Costs will again be assessed on a standard basis if the parties cannot come to an agreement.
The recovery of the claimant’s costs will include those incurred in dealing with the other side’s counterclaim if the Part 36 offer states that it takes the counterclaim into account.
What are the consequences of not accepting a Part 36 offer?
Offers made by the defendant
Should the claimant obtain a Court judgment that is more advantageous than the offer made by the defendant, the Court will generally apply the usual principles when making a cost order.
If the judgment isn’t more advantageous to the claimant than the offer made by the defendant, and it is made more than 21 days before the Court trial, unless the Court deems that it is unfair to do so, the claimant will be liable to pay the defendant’s costs from the date the relevant period expired and the interest on those costs.
Offers made by the claimant
If the judgment is not as advantageous to the claimant as the offer made by them, however, it is equal to the defendant’s Part 36 offer, then the Courts will generally apply the usual principles when it makes its costs order.
If the judgment is at least as advantageous to the claimant as the Part 36 offer they made, and the offer was made 21 days prior to the trial, unless it is unjust to do so, the Court will typically order that the claimant is entitled to:
“(a) interest on the whole or part of any sum of money (excluding interest) awarded, at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired;
(b) costs (including any recoverable pre-action costs) on the indemnity basis from the date on which the relevant period expired;
(c) interest on those costs at a rate not exceeding 10% above the base rate; and
(d) provided that the case has been decided and there has not been a previous order under this sub-paragraph, an additional amount, which shall not exceed £75,000, calculated by applying the prescribed percentage set out below to an amount which is—
(i) the sum awarded to the claimant by the Court; or
(ii) where there is no monetary award, the sum awarded to the claimant by the Court in respect of costs—
Amount awarded by the Court Prescribed percentage
Up to £500,000 10% of the amount awarded
Above £500,000 10% of the first £500,000 and (subject to the limit of £75,000) 5% of any amount above that figure.”
How can we help?
For more information on Part 36 offers or any related subjects, please contact Daniel Brumpton, Partner in our Commercial Litigation team, or Kevin Modiri, Partner in our Private Litigation team, on 0800 024 1976 or contact us via our online enquiry form.
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