Part 36 offers to settle - OverviewWhat is a Part 36 offer and what is its effect

A Part 36 offer is an offer to settle a claim or intended claim (or a part thereof) which, if compliant with the provisions of CPR 36, carries with it certain costs consequences. These depend on if and when it is accepted or, if a Part 36 offer is not accepted it may carry costs consequences under CPR 36 dependant on what happens at an ultimate trial or summary disposal of the claim. Some of the consequences for non acceptance of a validly made Part 36 offer can carry heavy costs and interest penalties, the aim being to focus the mind of the offeree when considering whether or not to accept the Part 36 offer.

Part 36 offers are an important feature of any litigation strategy. This is increasingly so given the court's drive to encourage early settlement of cases thus avoiding the need for lengthy and expensive trials. It is highly likely, therefore, that at some point you will need to discuss making a Part 36 offer with your client or how to respond on receipt of one. In so doing it is essential that your client understands both the general costs consequences of litigating a claim and also the specific costs consequences that can apply should a Part 36 offer be made and either accepted or not accepted.

CPR 36 featured in Lord Justice Jackson's review on civil litigation costs and is due for amendment in the near future.

For more detail see What is a Part 36 offer and what is its effect?.

Is this a valid Part 36 offer?

A Part 36 offer will only carry with it the potential costs consequences set out in CPR 36 if it is made as a valid Part 36 offer, complying with all the requirements of CPR 36.2. Some of those requirements, such as the need to state a 'Relevant Period' if the offer is being made less than 21 days before trial, have given rise to a considerable amount of caselaw. It is essential, therefore, that you understand exactly what will suffice for a valid Part 36 offer. This is particularly so since CPR 36 is intended to be a self-contained code and not import general principles of contract law unless necessary. This is most readily seen in the requirement that a Part 36 offer must remain open for acceptance until trial and that this is so, notwithstanding its initial rejection, unless and until the offeror formally withdraws it.

There are also specific rules as to how interim payments, interest and costs should be dealt with, as well as counterclaims and the existence of multiple Part 36 offers, all of with which it is important to understand when drafting or receiving a Part 36 offer.

For more detail see Is this a valid Part 36 offer?

Serving Part 36 offers, notices of acceptance and withdrawal

A Part 36 offer or a notice of acceptance or withdrawal or variation of/to it is only valid when served. Service must be on a party's legal representative where there is one. Since a Part 36 offer remains open for acceptance until trial, from a tactical perspective it is crucial that you are in a position to serve any notices as required without delay. It is important therefore to understand the rules regarding service of these documents and the deemed dates of service; together with practical tips on the quickest methods of service, where permissible.

For more detail see Serving Part 36 offers, notices of acceptance and withdrawal.

Deciding whether to accept a Part 36 offer

It is imperative that on receipt of a Part 36 offer you discuss with your client their intended response, be it acceptance, non-acceptance or counter-offer. This is because the costs consequences that can flow from acceptance of a Part 36 offer are determined with reference to when the offer is accepted (either within or after expiry of the Relevant Period). It is also important to ensure that on receipt of a Part 36 offer any issues as to its technical compliance with CPR 36 and/or any areas requiring clarification are considered and dealt with as appropriate without delay, since again this can impact on the costs position should you wish to accept the offer. Clients will also need to understand the effects of acceptance of a Part 36 offer, which is dependant on whether or not the offer is being made in relation to the whole or part only of a claim and whether or not the claim is one involving multiple defendants.

For more detail see Deciding whether to accept a Part 36 Offer

When and how to accept a Part 36 offer

There are certain instances when the court's permission is required before a Part 36 offer can be accepted. Where permission is required you will need to ensure that your client is in a position to make any such application for acceptance quickly and in the appropriate way. This is particularly important given the without prejudice nature of Part 36 offers meaning that, generally, such applications should not be made to the trial judge. There are also formal requirements for accepting a Part 36 offer which must be followed, including notifying the court in certain instances.

For more detail see When and how to accept a Part 36 offer.

Not accepting (or rejecting) a Part 36 offer

You will need to be aware of the potential adverse costs consequences for your client if they decide not to accept a Part 36 offer. These will vary depending on whether your client is a claimant receiving a defendant's Part 36 offer or a defendant receiving one from a claimant. In essence, adverse costs consequences - in the form of indemnity costs and penalty interest - apply if a defendant fails to accept a Part 36 offer and the claimant equals or betters that offer at trial. For a claimant who fails to accept a defendant's Part 36 offer and then fails to better that offer at trial adverse costs consequences (although not the imposition of penalty interest) will apply. Central to these two costs consequences are the concept of a claimant's judgment being either:

These concepts have prompted controversy in the caselaw. This has now been ameliorated, in the main, by the introduction of CPR 36.14(1A) for all offers made on/after 1 October 2011 where, in the case of money claims or the money element of a claim, 'more advantageous' has been defined as meaning 'better in money terms by any amount, however small' and that 'at least as advantageous' shall be construed accordingly.' CPR 36.14(1A) was intended to reverse what was known as the Carver effect and now provides certainty in respect of Part 36 offers in relation to money claims made on/after 1 October 2011. There is therefore still scope for offers pre-dating this/those concerned with non-money claims to bring into consideration factors negative to the claimant in determining whether or not a judgment is 'more advantageous' than a defendant's Part 36 offer or 'at least as advantageous' as a claimant's own Part 36 offer. You will need to understand these distinctions fully in order to be able to advise your client on the possible consequences of not accepting a Part 36 offer.

The costs consequences for not accepting a Part 36 offer are, however, subject to the court's discretion and the court can choose not to make the usual Part 36 orders where it would be 'unjust' to do so. A number of factors must be considered in determining whether or not the usual Part 36 costs order would be unjust.

Given the nature of CPR 36 operating as a self-contained code, there are also special rules which apply such that a rejected offer can subsequently be accepted (if not already formally withdrawn by the offeree).

For more detail see Not accepting/rejecting a Part 36 offer.

Withdrawing or varying a Part 36 offer

A Part 36 offer remains open for acceptance until trial unless formally withdrawn by the offeror. If an offeror wishes to withdraw its Part 36 offer before expiry of the Relevant Period then the court's permission will first be required. Thereafter a Part 36 offer may be withdrawn by the service of a notice of withdrawal on the offeree. It is important to understand the tactical considerations involved of either withdrawing or varying a Part 36 offer and the need to keep extant offers under constant review in order quickly to withdraw or vary a Part 36 offer should circumstances in the case change. You also need to be aware of the fact that the court may still take a withdrawn Part 36 offer into account as an admissible offer under CPR 44.3 when determining costs.

Variation of Part 36 offers is only dealt with explicitly in CPR 36 in relation to changing the terms of an offer so as to make it less advantageous to an offeree. Even then the rules provide little guidance other than that such a variation can only be made within the Relevant Period with the court's permission and, thereafter, such variation can be made on service of a notice of change of terms on the offeree.

For more detail see Withdrawing or varying a Part 36 offer.

Part 36 counter-offers

Where a Part 36 offer is not acceptable to your client it may yet provide a platform for the start of settlement negotiations. It may be that your client wishes to respond to a Part 36 offer received with its own Part 36 counter-offer. Such a step will not prevent your client from subsequently accepting the offeror's original Part 36 offer unless that has already been formally withdrawn or your client's Part 36 counter-offer has already been accepted. You should be ready to review the terms of your client's own Part 36 offer where it is met with a Part 36 counter-offer.

For more detail see Part 36 counter-offers.

Part 36 offers accepted before proceedings start-costs recovery

Until recently there was some confusion as to whether or not a Part 36 offer which was accepted prior to the commencement of proceedings - such that no proceedings were then issued - could cover pre-action costs when the question of costs under Part 36 came to be determined. This was because of wording in CPR 36 which talks of 'the costs of the proceedings'. Such uncertainty as there was has now been clarified by the recent Court of Appeal decision in Solomon. This now provides that such pre-action costs are recoverable to the extent that they would have been recoverable had proceedings been issued. Notwithstanding this there are practical tips that you may wish to consider when drafting a Part 36 offer which may help to ensure that your client can recover its pre-action costs with more ease.

For more detail see Part 36 offers accepted before proceedings start - costs recovery.