The Part 36 Offer – A Powerful Settlement Tool

Part 36 of the Civil Procedure Rules allows a party to litigation to make a settlement offer before trial on terms that if the offer is not accepted and the opposing party fails to beat the offer at trial the Court is likely to impose severe costs and/or interest penalties. The Part 36 offer procedure can, if used wisely, be a very powerful negotiating tool and it provides a great incentive to settle.

• Part 36 offers can be made by both Claimants and Defendants so either party can put its opponent at risk of serious costs or interest penalties by refusing to accept a well-pitched offer.

• There is no longer a requirement to support a Part 36 offer with a payment into court which means an increasing number of Defendants are using this procedure.

• If an offer is made by a Defendant who is then unable to pay within 14 days of its acceptance, judgment will be entered against him without the need for a trial.

• If the offer is not accepted and a trial takes place the offer remains "without prejudice as to costs" during the proceedings i.e. the court will not be aware of it until the outcome of the case has been decided and the issue of costs is being determined.

There are a number of different scenarios, which could occur where a Part 36 offer is made, the most common of which are described below:

The Defendant Makes A Part 36 Offer

Outcome – The Defendant pays the offer figure and the Claimant’s standard costs up to the date on which the offer was accepted.

The Claimant wins at trial but is awarded less than the amount that the Defendant offered.

Outcome – Even though the Claimant has won the case it will recover standard costs only to the last date the Part 36 offer could have been accepted. The Claimant will normally be ordered to pay the Defendant’s standard costs from the last date on which the offer could have been accepted plus interest on those costs*. In this scenario, as trial costs are high, the Claimant could end up paying more of the costs of the action than the Defendant.

The Claimant wins at trial and is awarded more than the amount that the Defendant offered.

Outcome – the Defendant will be ordered to pay the Claimant’s standard costs in the usual way (i.e. as if no Part 36 offer had ever been made).

The Claimant makes a Part 36 offer

Outcome – the Defendant will be ordered to pay the Claimant’s standard costs up to the date on which the offer was accepted.

The Claimant wins at trial but is awarded less than the amount that the Claimant offered to accept.

Outcome – the Defendant will be ordered to pay the Claimant’s standard costs in the usual way (i.e. as if no Part 36 offer had ever been made).

The Claimant wins at trial and is awarded more than the amount of the offer.

Outcome – The Claimant may be awarded interest of up to 10% above the base rate on any damages and costs on an indemnity basis and interest on costs from the last day after which the Defendant was expressed to be able to accept the offer*.

* If a party fails to beat a Part 36 offer, when considering the costs award to be made, the Court will take into account the stage in the proceedings when the offer was made; the information available to the parties at the time; and the conduct of the parties in giving or refusing to give information for the purpose of enabling the offer to be made or evaluated.

The offer will usually remain open for acceptance for a period of 21 days on terms that costs will be paid by the Defendant up to the date of acceptance within that period. An offer will remain in force beyond the 21-day limit unless the offering party has withdrawn it and therefore both parties should review an unaccepted offer as each stage of the litigation unfolds.

Tactics

A Defendant will aim to pitch his offer at a level that is just high enough for the Claimant to be worried about the risk of not accepting it.

A Claimant will try to pitch an offer low enough that the Defendant would be unwise to refuse but that is not significantly below what they could realistically expect to receive at trial.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.