A part 36 offer is made in accordance with Civil Procedure Rules (CPR) Part 36 to settle a claim or part of a claim or any issue that arises in a claim. The purpose is to put legitimate pressure on the other side to accept a proposal to settle, with potential costs consequences for non-acceptance. It is therefore an important tactical tool. But it is essential to understand how Part 36 works.
Formalities of making a Part 36 offer
It can be made by a claimant or a defendant, before or during proceedings. It can be made in relation to any kind of claim, also in relation to liability alone. The form and content of the offer must comply with the strict requirements of Part 36. This means it must be in writing and :
- State that it is a Part 36 offer
- State whether it relates to the whole of the claim or part of it, and if so which part
- State whether it takes into account any counterclaim
- Offer a figure inclusive of interest
- Specify a period of not less than 21 days (the ‘’relevant period’’) within which the party making the offer is liable for the offeree’s costs if the offer is accepted
- Must not include costs or an offer to discount costs
- Contain sufficient information to allow the offeree to form a view
- State that payment will be made within 14 days of acceptance
Consequences of a defendant’s Part 36 offer
If accepted, the claimant is entitled to costs, on the standard basis, up to the date of acceptance.
If not accepted :
(a) If the claimant beats the offer. The offer has no application. The general costs provisions apply. Usually this means that the defendant will pay the claimant’s costs on the standard basis, and pay its own.
(b) If the claimant wins, but equals the offer. Unless the court considers it unjust to do so, the claimant will be ordered to pay the defendant’s costs after the last date of the ‘’relevant period’’ on the standard basis, plus interest on those costs, and to bear its own costs.
(c) If the claimant wins, but fails to beat the offer. Unless the court considers it unjust to do so, the same applies as in (b)
Consequences of a claimant’s Part 36 offer
If accepted , the claimant is entitled to the costs, on the standard basis, up to the date of acceptance.
If not accepted :
(a) The claimant beats the offer. Unless the court considers it unjust to do so, the consequences will be :
- Additional interest at a rate above base rate for some or all of the period from the date the ‘’relevant period’’ expired
- Indemnity costs from the same date ; and
- Additional interest on those costs
(b) The claimant wins, but equals the offer. Unless the court considers it unjust to do so, the same applies as in (a)
(c) The claimant wins but fails to beat the offer. The offer has no application and the general costs provisions apply. Usually, this means that the defendant will pay the claimant’s costs on a standard basis and bear its own.
How great should the discount be in order to obtain the Part 36 costs benefits ?
This is a difficult question. The revised Part 36 Offer (which came into effect on 6th April 2007) replaced “fails to better a Part 36 payment” with “fails to obtain a judgement more advantageous than a defendant’s Part 36 offer”. Under the old rule, it was generally thought that beating a Part 36 offer by as little as £1 was doing better, and a claimant would escape the consequences of Part 36, although the court retained its general discretion on costs.
A recent Court of Appeal decision (Carver v BAA 2008) makes it clear that it is not sufficient to scrape home against a defendant’s Part 36 offer. This is odd, since £1 more than an offer is more advantageous, albeit only just. The courts seem inclined to mark the slimness of the advantage obtained. The words “fails to obtain a judgement more advantageous than a defendant’s Part 36 offer” is open-textured, and permits a review of all the facts and circumstances of the case. The amount of the offer is no longer the sole criteria governing the application of Part 36 in money claims.
There is very little guidance available on how much better a claimant must do. It is clear that the offer must be more than a tactical step in order to secure the benefit of the Part 36 incentives – there must be a proper offer to settle. Ultimately, the issue will always depend on the particular facts. The position of a claimant with a cast iron claim (or defendant with a cast iron defence) cannot be the same as an “all-or-nothing claim”; the reduction offered in the case of the former would not be expected to be as large as for the latter, for it to be construed as a genuine offer to settle.
The line in the sand has been removed. This might well increase the court’s ability to do justice according to the individual case but it comes at the price of certainty. A carefully reasoned response to any Part 36 offer should now be given. The costs provisions are all about a graded approach. Cases are approached on their individual merits having considered all of the relevant facts and circumstances. Primary among these is the conduct of the parties; A claimant who makes little effort to compromise might be in for a nasty shock if a defendant has made an offer to settle which turned out to be not unreasonable, even if it was slightly “light”. A claimant’s failure to respond was a major factor in the Court of Appeal’s approach in Carver.
Time-limited offers
The revised Part 36 Offer replaced the requirement that a Part 36 offer must ‘’remain open for acceptance’’ for 21 days. The current requirement is to ‘’specify a period of not less than 21 days within which the defendant will be liable for the claimant’s costs … if the offer is accepted’’.
The High Court has very recently held (C v D & D2 16 Nov 2010) that a time-limited offer (i.e. one that is open for acceptance for only a limited period) is not capable of being a Part 36 offer, although it can still be taken into account by the court in exercising its general discretion. An offer that is expressed to be ‘’open for 21 days’’ might be construed as a time-limited offer, even if the rest of the wording makes it clear that the intention is that the offer is intended to have Part 36 consequences. Permission has been granted for leave to appeal against the decision.
Should a Part 36 offer be made ?
Part 36 will be particularly useful for a claimant in an “all-or-nothing” case. Where there are only two possible outcomes, if the claim is successful the claimant will be entitled to indemnity costs and enhanced interest from the last date the offer could have been accepted. If the claim is not successful, the offer has no application but the claimant has lost nothing by making it. It also plays an important role in support of mediation. It will assist in focusing the other party’s mind on settlement. It also provides the mediator with a measure of the party’s position against which to consider the alternative of litigation.
There will be instances where a Part 36 is not appropriate. The most obvious example is for a defendant in an ‘’all-or-nothing’’ case. Whether the case succeeds or fails, a Part 36 will not help the defendant. This is not to say that another form of settlement offer should not be made. The general discretion on costs is still available.
Part 36 remains a means of encouraging the other side to act realistically and reasonably towards a claim, to avoid costly litigation where a compromise can be reached and of protecting, to a certain extent, one’s position on costs. The question is: can you afford not to make one ?
Article by Faye Doherty.
Update - March 2012
Click here for an update on this issue and a review of Thewlis v Groupama Insurance
