Settling a Dispute: Part 36 Offer?

There are always benefits to settling a dispute and this is generally encouraged by the courts. The court rules set out the way a formal offer to settle can be made. This is covered under the Part 36 of the court rules.

A Part 36 offer impacts the damages, costs and interest a party will pay, so it is a useful tool to be used when engaged in litigation and can give you a tactical advantage.

When and who can make a Part 36 Offer

A Claimant or Defendant can make a Part 36 offer to settle at any stage of the dispute. This includes before and after proceedings have started.

The offer may be made in respect of the whole, part of or any issue in the following cases:

• money and non-money claims, counterclaims or other additional claims; or
• appeals or cross appeals from a decision made at trial.

 

Requirements

Part 36 offers must comply with the court rules and be in the prescribed form. To be compliant the offer must:

• comply with the strict requirements set out in Part 36;
• be in writing;
• be a genuine offer to settle;
• be made on a “without prejudice except as to costs” basis (this means it cannot be referred to the court until the end of the matter and will become admissible when the court considers costs);
• state that it is made pursuant to Part 36 and that it is intended to have the consequences of Part 36;
• have an acceptance 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 relevant period”);
• state if it relates to the whole of the claim, to part of the claim, to an issue that arises in it and if so which part or issue; and
• state if it takes into account any counterclaim.

 

If the Part 36 offer is made by the Defendant, it must also:

• (in an offer to pay money) state that the settlement amount will be paid in a single sum; and
• state that the sum will be paid not later than 14 days following the date of acceptance.

 

Interest

Any Part 36 offer to settle a money claim will be treated as inclusive of interest until the end of the relevant period. If the Part 36 offer does not include a provision for accrual of interest on the settlement sum after the relevant period, it will be treated as inclusive of all interest up to the date of acceptance.

Clarification

A party may seek clarification of an offer within 7 days of it being made.

Withdrawing or Varying a Part 36 Offer

If the relevant period has not expired, the Part 36 Offer can be varied or withdrawn provided the offer is not accepted. If the offer has been accepted within the relevant period, then the offer may be varied with the court’s permission. The party making the offer will have to make any application to the court within 7 days, or if earlier, before the first day of trial. It will also have to show that there has been a change in circumstances since the making of the original offer and that it is in the interests of justice to give permission.

If the relevant period has expired, the offer may be withdrawn and varied, and the court’s permission is not required.

Any notice of withdrawal must be in writing and served on the opposing party. If no notice of withdrawal is served, the offer remains open for acceptance. Although the offer may be automatically withdrawn pursuant to its terms.  It will also not be affected by any counteroffer.

If a Part 36 offer is withdrawn, the Part 36 consequences no longer apply.

Consequences

The consequences a party faces for not accepting a Part 36 offer vary depending on who is the offeror, when the offer was accepted, if the party accepted an offer late or it failed to accept an offer, and whether the judgment obtained was more or less advantageous than the offer (has the offer been beaten? i.e., regarding money claims, this means is the judgment obtained better in money terms by any amount).

If we consider a simple example of a Claimant and Defendant’s offer separately. In this scenario the Claimant is claiming £500,000.

Claimant’s Offer

The Claimant offers to settle by accepting £400,000 plus costs.

If the Defendant accepts the offer whether within or after the relevant period, the Claimant will be entitled to receive its costs up to the date of acceptance. The Defendant will have to pay the settlement sum within 14 days. The claim is stayed upon the terms of the offer. The parties must agree costs, failing which the liability and amount of costs will be determined by the court.

If the Defendant fails to accept the offer and the Claimant obtains judgment at least as advantageous as its offer (in this scenario it recovers more than £400,000), the court must, unless it is unjust to do so, order that the Claimant gets:

• interest on the whole or part of any sum of money (excluding interest) awarded, at a rate not exceeding 10% above the base rate for some or all the period starting with the date on which the relevant period expired;
• costs (including any recoverable pre-action costs) on the indemnity basis from the date on which the relevant period expired;
• interest on those costs at a rate not exceeding 10% above the base rate;
• an additional amount, which shall not exceed £75,000, calculated as 10% on damages or cost up to £500,000 and 5% on damages or costs above £500,000.

 

If the Claimant recovers less than it offered or the claim is dismissed, normal costs rules will apply.

Defendant’s Offer

The Defendant offers to settle by paying the Claimant £400,000 plus costs.

If the Claimant accepts, it will receive its costs up until the date of acceptance, if the acceptance is within the relevant period. If acceptance is outside the relevant period, the Defendant will get his costs from expiry of the relevant period to acceptance.

If the Claimant fails to accept the offer and the Defendant obtains a judgment which is more advantageous than its offer, then the Defendant gets:

• its costs from the expiry of the relevant period on the standard basis: and
• interest on those costs.

 

The Claimant must pay its own costs from the expiry of the relevant period.

If the Claimant recovers more than the offer or the claim is dismissed the normal costs rules will apply.

Points to Note

Remember:

• make sure the Part 36 offer complies with the rules;
• make the Part 36 offer clear as possible, if it is not clear ask for clarification;
• Part 36 offers are formal offers;
• Part 36 offers do not incorporate all the features of contract law;
• consider if a Part 36 offer is appropriate, e.g. do you need more time to pay than 14 days, can you pay the sum in a single sum, are multiple parties involved, or is there further proceedings or claims envisaged or need to be settled?
• keep a record of Part 36 offers including whether they have been withdrawn or remain open for acceptance;
• do not mention Part 36 offers to the trial judge until liability and quantum have been determined.

 

If you would like further information, advice or require assistance with your claim or commercial dispute, contact Muhammed Poswall and feel free to follow us on LinkedIn for further updates.

The information in this article does not constitute legal advice and is for information purposes only.