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An Overview of Part 36 Offers To Settle

A Part 36 Offer is simply a specific type of offer, open to either party, which carries with it significant costs consequences. Such offers are governed by Part 36 of the Civil Procedure Rules (‘CPR’), a revised version of which has been in force since 6 April 2015. The principal aim of Part 36 Offers is to encourage parties to settle the dispute and they should not therefore be seen as a sign of weakness but rather, as a tactical move that puts pressure on the opponent.

A distinction should be drawn between Part 36 Offers and so-called ‘Calderbank Offers’, which are offers without prejudice save as to costs and governed by Part 44 of the CPR. Under CPR 44.2, the Court has discretion to make an order as to costs and interest on those costs, whereas under Part 36 the Court has further discretion to order interest on any sum awarded and under certain circumstances, order a Defendant to pay a sum to a Claimant. It is generally accepted that Part 36 has a more prescriptive framework than Part 44, largely specifying the orders the Court is to make in the different circumstances unless it would be unjust to do so.

Requirements of Part 36 Offers

For a Part 36 Offer to be valid, it is necessary that it comply with the requirements set out in Rule 36.5 as follows:

  1. Be in writing;
  2. Make it clear that the offer is made pursuant to Part 36;
  3. Specify the relevant period which must not be less than 21 days as a general rule, where the offer is made more than 21 days before trial;
  4. State the scope and extent of the offer (i.e. whether it applies to whole or part of the claim, to an issue in question or which part of the issue); and
  5. State whether it takes any counterclaim into account.

Compliance with the above formalities is not however enough to ensure that the Part 36 procedure is not abused, especially since there is no definition of an offer to settle in Part 36. For example, without further provisions to the contrary, it would be possible for a Claimant to ask a Defendant for the whole amount sought under the Particulars of Claim simply to get the protection of Part 36. Designed to overcome this possibility, rule 36.17(5)(d) provides that a Part 36 Offer must be a genuine offer to settle the proceedings. Rule 36.16(1) makes it clear that Part 36 offers, just as Calderbank Offers, are also made without prejudice save as to costs so that their existence is not admissible as evidence against the offeror, except on the question of costs if the offer is not accepted. Rules 36.16(2) further provides that the existence of a Part 36 Offer or the terms of the Offer are not to be disclosed to the trial judge until judgment is given, subject to an Offer being accepted or the parties agreeing otherwise.

Circumstances and Timing

Part 36 Offers may be made in the following instances:

  1. In any type of claim, including money and non-money, but not in small tracks claims;
  2. In relation to part of a claim or the whole claim;
  3. In relation to a counterclaim or other additional claims;
  4. In relation to a claim which includes provisional damages;
  5. In appeals or cross-appeals; and
  6. In relation to detailed assessments costs claims.

Part 36 Offers can be made at any stage of a dispute, even before proceedings have commenced as Rule 36.7(1) provides and in appeal proceedings (CPR 36.2(3)(b)). It should be noted that if a Part 36 Offer is made less than 21 days before trial, the costs implications under Part 36 will not follow and the Court will instead exercise its discretion pursuant to CPR 44.2, unless the it agrees to ‘shorten’ the relevant period as explained in the case of McEwan v Flair Construction UK Ltd [2008] EWHC 2848 (Ch).

Deciding Whether to Accept the Offer

It is vital for solicitors to discuss with their client on receipt of a Part 36 Offer what the intended response may be, including acceptance, non-acceptance or making a counter-offer. The client must be able to understand the consequences of acceptance, which will ultimately depend on whether an offer has been made in relation to the whole or part of a claim and if it involves multiple defendants. It is important to remember that the costs consequences flowing from acceptance of a Part 36 Offer are determined according to when the offer is accepted, whether within or after the relevant period. It is always advisable to check whether the offer complies with the requirements of Part 36 and whether the Court’s permission is required to ensure that any necessary application is made quickly and in the appropriate way.

In deciding whether to accept the offer, a factor to consider other than the costs implications, is the reason why the offer was made in the first place. This may include for example the opponent identifying a weakness in its case, thus wanting to bring the dispute to an end, or simply seeking to protect its position should the dispute go to trial.

Before responding to a Part 36 Offer, it is always worth ascertaining whether it is sufficiently clear as the Offeree may request for clarification of the terms. This may be done within 7 days of the offer being made pursuant to CPR 36.8. However, if the Offeror fails to provide clarification, this does not automatically render the Part 36 Offer invalid and the Offeree may apply to court to obtain that the Offeror do so (CPR 36.8(2)).

Costs Consequences: Accepting Offer in Relevant Period

If a Part 36 Offer is made not less than 21 days before trial in relation to the whole claim and is accepted within the relevant period, the Defendant will have to pay the Claimant’s costs up to the date of acceptance, including any pre-action costs, under CPR 36.13(1). These costs will be assessed on the standard basis unless they are agreed or fixed (CPR 36.13(3)). Where a Defendant’s Offer relates to only part of a claim and the Claimant abandons the rest of the claim, the Claimant would be entitled to the costs of that part of the claim until the date of acceptance of the Offer unless the court orders otherwise.

Costs Consequences: Accepting Offer After Expiry of Relevant Period

CPR 36.13(4)(b), 36.13(5) and (6) provide the orders a court has to make in the case of late acceptance, unless it would be unjust to do so. If a Claimant’s Part 36 Offer is accepted late by a Defendant, the Claimants is entitled to its costs until the relevant period expires and the Claimant is entitled to its costs from the date of expiry until the date of acceptance. If a Defendant’s Part 36 Offer is accepted late by a Claimant, the Claimant is entitled to its costs until the relevant period expires and the Defendant is entitled to its costs thereafter until the date of acceptance. There is no presumption that a Defendant is entitled to indemnity costs for the period until acceptance date (Fitzpatrick Contractors Ltd v Tyco Fire and Integrated Solutions (UK) Ltd [2009] EWHC 274 (TCC)) but indemnity costs may be sought in the usual way.

Effect of Acceptance

CPR 36.14 and 15 provide that when a Part 36 Offer is accepted the claim is stayed and the relevant sum must be paid to the Claimant within 14 days of acceptance unless agreed otherwise between the parties or the court orders otherwise. If the amount is not paid within 14 days, the Claimant can enter judgment for the unpaid sum.

Withdrawing an Offer

A Part 36 Offer remains open for acceptance until trial unless its terms specify that it is to expire on a certain date or by a certain event provided it has not been accepted or the Offeror formally withdraws it. If the Offeror wishes to withdraw the Offer after the relevant period expires, CPR 36.9 applies and the Offeror may give notice of the withdrawal. If the Offeror wishes to withdraw the Offer during the relevant period and the Offeree wishes to accept the Offer, CPR 36.10 will apply, in which case the Court will intervene only permitting withdrawal if there is a change in circumstance and it would be in the interests of justice to permit it.

Varying an Offer

An Offeror may vary its Part 36 Offer to make it more advantageous to the Offeree, within or after the expiry of the relevant period, if the Offeree has not served notice of acceptance. The revised offer will take effect as a new offer according to CPR 36.9(5).

If an Offeror wishes to vary its Part 36 Offer to make it less advantageous to the Offeree, it may do so after the expiry of the relevant period (CPR 36.9), but if it wishes to do so within the relevant period then CPR 36.10 will apply in the same way as for withdrawal mentioned above.

Counter-Offers

Parties are free to make counter-offers but should bear in mind that any Part 36 Offer remains open (CPR 36.11(2)) unless the Offeror serves a withdrawal notice or the Offer has a deadline after which it expires. Therefore, if the original Offeror does not accept the counter-offer, the party making the counter-offer can still go back and accept the original offer provided it has not been withdrawn or varied. In DB UK Bank Ltd (t/a DB Mortgages) v Jacobs Solicitors [2016] EWHC 1614 (Ch) it was held that where a Part 36 Offer is made and is met with a counter-offer, Part 36 will apply even if the counter-offer is not in the form of a Part 36 Offer. However, if the initial offer is not a Part 36 Offer and the counter-offer is then the common law rules of offer and acceptance apply, whereby the earlier offer is deemed to be rejected and the counter-offer stands.

Costs Consequences: Claimant Does Not Accept Defendant’s Offer

CPR 36.17 outlines the costs consequences following judgment and is therefore dependent on the outcome achieved at trial.

If a Claimant obtains judgment more advantageous than the Defendant’s Part 36 Offer, the Court will most likely follow the general rule that the Defendant pays for the Claimant’s costs on the standard basis as per CPR 44.2(2).

If the Claimant obtains judgment less advantageous than the Defendant’s Part 36 Offer, the Court will normally order that the Claimant pays for the Defendant’s costs incurred from the day after the expiry of the relevant period, plus interest (CPR 36.17(1) and (3)).

Costs Consequences: Defendant Does Not Accept Claimant’s Offer

If the Claimant obtains judgment less advantageous than their own Part 36 Offer, the Court is most likely to follow the general rule that the Defendant pays for the Claimant’s costs on the standard basis.

If the Claimant obtains judgment which is at least as advantageous as the Claimant’s own Part 36 Offer, the Court will usually order the Defendant to pay the following sums:

  1. Interest on some or all of the sum awarded to the Claimant at up to 10% above base rate for some or all the period since the expiry of the relevant period (CPR 36.17(4)(a));
  2. The Claimant’s costs on an indemnity basis since the expiry of the relevant period plus interest of up to 10% above base rate (CPR 36.17(4)(b) and (c)); and
  3. An additional sum of up to £75,000 calculated by a formula based on the sum awarded by the Court (CPR 36.17(4)(d))

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