Although there is no prohibition against a party making an offer to settle in any way it chooses, there can be costs, interest and tactical advantages in making a formal offer to settle which complies with the rules of court.
Part 36 of the Civil Procedure Rules creates a framework within which parties to a dispute can settle. If the other party to the dispute refuses a reasonable settlement offer this can have consequences for the costs and interest they may have to pay.
Making a Part 36 offer to settle should not be regarded as a sign of weakness, but as an appropriate way of putting pressure on an opponent to settle.
What is a Part 36 offer to settle and when can one be made?
In order to comply with the rules of court a Part 36 offer to settle must:
- be a genuine offer to settle;
- be made 'without prejudice except as to costs' – it cannot be referred to the judge overseeing court proceedings until the conclusion of the matter; and
- comply with the strict requirements of Part 36 of the rules of court.
Part 36 offers to settle can be made in the following instances:
- in both money (including claims for provisional damages) and non-money claims;
- in respect of the whole or part of the claim or in relation to an issue that arises;
- in respect of counterclaims and any additional/third party (Part 20) claim.
Part 36 offers to settle can be made by either party, at any stage of a dispute or in appeal proceedings. They can also be made before court proceedings begin.
How can a part 36 offer to settle be made?
If you are a claimant making a Part 36 offer to settle it must:
- be in writing;
- state on its face that it is intended to have the consequences of Part 36;
- specify a period of not less than 21 days within which the other party will be liable for your costs if the offer is accepted ('the relevant period');
- state whether the offer relates to the whole of the claim or to part of it or to an issue that arises in it, and if so to which part or issue;
- state whether it takes into account any counterclaim;
- contain enough information to allow the other party to consider the offer.
If you are a defendant making a Part 36 offer to settle it must also:
- state that the offer is to pay a single sum of money if appropriate;
- state that the sum will be paid at a date not later than 14 days after the date the offer is accepted.
An offer to settle a money claim will be treated as inclusive of interest.
Accepting a Part 36 offer to settle
Part 36 offers to settle must be accepted in writing, and can be accepted without the court's permission providing that acceptance is not within 21 days of the trial date or the trial has not started.
If, as defending party, you do not pay the sum offered within 14 days of the offer being accepted, the other party can enter judgement against you for the unpaid sum.
Costs and consequences of acceptance
Generally speaking, if a Part 36 offer to settle is accepted within the relevant period:
- the claimant is entitled to its costs of the proceedings up to the date of acceptance on the standard basis; and
- the claim is stayed (put on hold) on the terms of the offer.
If the offer is accepted after expiry of the relevant period:
- the parties must agree liability for costs or, failing agreement, the court decides liability for costs. Unless the court orders otherwise, the claimant will be entitled to the costs of the proceedings on the so called "standard basis" up to the date when the relevant period expired. After this point, the party accepting the offer will be liable to the party who made the offer from the date of expiry of the relevant period to the date of acceptance; and
- the claim is stayed on the terms of the offer.
In order for a Part 36 offer to settle to have the costs consequences as specified in Part 36 an offer to settle should not include a time for acceptance or any other condition or term not specified in Part 36.
How to accept a Part 36 offer to settle
A Part 36 offer is accepted by serving written notice of acceptance on the person making the offer and its legal representative if applicable. If proceedings are already underway, notice should also be filed with the court.
There are no formal requirements for the notice of acceptance. A letter identifying the claim number and title (if court proceedings are already underway) and the offer to settle to which it relates should be sufficient.
Date of acceptance
Although this is not formally covered in the CPR, date of acceptance should be taken to be the date the acceptance notice was served.
When can an offer to settle be accepted?
Provided that the offer has not been withdrawn, it can be accepted at any time subject to circumstances when permission of the court is required. Permission will be needed:
- where the claimant wishes to accept an offer to settle made by one or more, but not all, of a number of defending parties and certain requirements are not satisfied;
- where the trial has already started;
- in a number of other limited circumstances - in particular relating to personal injury claims.
Execution and enforcement
An offer to pay a single sum of money must, unless the parties have otherwise agreed in writing, be paid within 14 days of the date of acceptance. If not paid within 14 days or the period agreed, the party the offer is made to may enter judgement for the unpaid sum.
For any other type of offer the CPR provides that, where the offer has been accepted and a party alleges that the other party has not honoured its terms, that party may apply to enforce the terms of the offer without the need for a new claim.
Consequences of withdrawing a Part 36 offer to settle
Before the relevant period expires (21 days from the date the offer is served) a Part 36 offer can only be withdrawn or its terms made less generous if the court gives permission. The court rules do not state what the grounds for permission are, but typically it will be to show that there has been a sufficient change of circumstances so that it is just to allow the party making the offer to have the opportunity to withdraw or revise the offer.
Withdrawal or a change in terms is made by serving written notice to that effect on the other party or its legal representative. Once withdrawn, the offer will no longer attract the Part 36 costs and interest consequences although it may be possible to apply for such under the court's general costs discretion.
The court's permission is not needed if the offer is withdrawn or made less generous after the relevant period has expired, provided that notice of acceptance has not already been served.
In what circumstances should you consider making a Part 36 offer to settle?
Part 36 offers should be considered in all cases in order to achieve the best costs and interest on costs scenario if the matter has to proceed to trial.
The making of a Part 36 offer to settle can focus an opponent's mind and, even if not accepted, may lead to a commercial settlement of the dispute. They increase for the opponent the risk of proceeding with litigation. If accepted, the offer can avoid the time and potential irrecoverable costs associated with court proceedings.
A Part 36 offer may not be appropriate where a defending party does not wish to pay the other party's costs, or in respect of smaller claims.
Points to remember:
- Part 36 offers do not incorporate all the rules of law governing contracts – they embody a self-contained code;
- Part 36 offers to settle are formal offers which have costs consequences if not accepted;
- if making a Part 36 offer, make it as clear as possible;
- keep a record of offers made and constantly monitor and re-evaluate the position - offers not withdrawn by notice in writing may remain open to acceptance;
- if making an offer or accepting the claimant's offer, defending parties need to bear in mind that payment has to be made within 14 days failing which judgement can be entered against them. Ensure that payment can be made or try to agree an extension of time for payment;
- rejection or silence may not prevent later acceptance of a Part 36 offer;
- if not accepted, the important question on costs may not be which party has won but whether the eventual judgement is at least as or more advantageous than the offer;
- Part 36 offers to settle must not be mentioned to the trial judge until after all questions of liability and quantum have been settled;
- although nothing in Part 36 prevents a party making an offer to settle in whatever way it chooses, if the offer is not made in accordance with the prescribed form and content it will not have the costs and interest consequences prescribed in Part 36;
- if a Part 36 offer is not made, or is made but is not successful at trial, in deciding what order (if any) to make about costs the court will have to consider all circumstances of the matter – including conduct of the parties, the failure of a party to be wholly successful in respect of its claim, a party's failure in respect of specific issues and any other relevant factors;
- following a successful Part 36 offer, a party should obtain the benefit of the costs consequences as specified in Part 36.