Whilst there is no prohibition against a party making an offer to settle in any way it chooses, there can be damages, costs, interest and tactical advantages in making a formal offer to settle which complies with the rules of court (a “Part 36 offer to settle”).
Part 36 offers to settle in the prescribed form aim to encourage parties to try and settle a dispute. They set out the costs and other consequences that a party will face if it refuses a reasonable offer to settle.
Making a Part 36 offer to settle should not be regarded as a sign of weakness but 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?
To be compliant 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 having conduct of the proceedings until the conclusion of the matter)
- 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 liability alone, thus leaving the issue of the amount of any damages to be dealt with later
- In respect of counterclaims and any additional/third party (Part 20) claim.
Part 36 offers to settle can be made by both a claimant and a defendant in a dispute, at any stage of a dispute before or after proceedings have commenced and in appeal proceedings.
Part 36 offers to settle can be made prior to the commencement of court proceedings.
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 for acceptance 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 whether it 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 sufficient information to allow the offeree to consider the offer which will be necessary where the offer relates to a non-money claim.
If you are a defendant making a Part 36 offer to settle, it must also:
- (in the case of an offer to pay a sum of money) State that the offer is to pay a single sum of money
- State that the sum will be paid at a date not later than 14 days following the date of acceptance.
An offer to settle a money claim will be treated as inclusive of all interest (subject to CPR 36.3(3)).
Clarification of a Part 36 offer to settle
Clarification within seven days of service of an offer to settle can be sought to enable a party to consider the offer properly.
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, provided that acceptance is not within 21 days of trial or the trial has not started
- If, as defendant, you do not pay the sum offered within 14 days (or such other period as has been agreed) of the date the offer to settle being accepted, the claimant can enter judgment against you for the unpaid sum (i.e. the amount of the accepted offer to settle)
- The cost consequences of accepting a Part 36 offer to settle, and when the court’s permission is required for acceptance, are addressed below.
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 his costs of the proceedings up to the date of acceptance on the standard basis
- The claim is stayed upon the terms of the offer.
If a Part 36 offer to settle is accepted after expiry of the relevant period:
- The parties must agree the liability for costs or, failing agreement, the court decides liability for costs
- The claim is stayed upon the terms of the offer.
The claimant’s costs will include any costs incurred in dealing with the defendant’s counterclaim if the offer to settle states that it takes the counterclaim into account.
If a party makes an offer to settle inclusive of costs, such offer will not be in accordance with Part 36, and it will be in the court’s discretion (not pursuant to Part 36) as to whether any costs or other advantages will be given to the party making the offer if the offer is unreasonably rejected.
Claimant’s Part 36 offers and enhanced damages
If a claimant’s Part 36 offer made after 31 March 2013 is not accepted and at trial the claimant obtains a judgment at least as advantageous as the terms of its own offer, the claimant will be able to claim an additional sum for damages in respect of a money claim or an additional sum for costs in respect of a non money claim. Such additional sum being 10% on damages or costs up to £500,000 and 5% on damages or costs above £500,000 up to £1m; equating to a maximum enhancement of £75,000 on damages or costs (depending upon whether the claim is a money claim or non money claim).
How to accept a Part 36 offer to settle
- A Part 36 offer to settle is accepted by serving written notice of the acceptance on the offeror (CPR 36.9(1))
- Service should be made on the offeror’s legal representative, if he has one, and the notice filed with the court (where proceedings are underway)
- There are no formal requirements for the notice of acceptance. A letter identifying the claim number and title (where proceedings have been commenced) and the offer to settle to which it relates should be sufficient.
Date of acceptance
Although the Rules do not state when acceptance will be effected, date of acceptance should be taken to be the date the acceptance notice was served on the offeree or his legal representative.
When can an offer to settle be accepted?
Provided that the offer has not been withdrawn (see below), an offer to settle can be accepted at any time, subject to circumstances when permission of the court is required.
When is the court’s permission for acceptance required?
Permission of the court will only be required to accept a Part 36 offer to settle:
- Where the claimant wishes to accept an offer to settle made by one or more, but not all, of a number of defendants and certain requirements are not satisfied '
- Where the trial has 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 (CPR 36.11(6)). If not paid within 14 days or the period agreed, the offeree may enter judgment for the unpaid sum (CPR 36.11(6) and (7))
- For any other type of offer (e.g. an agreement to vacate premises, deliver up documents etc), the Rules provide that where such an offer is 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 (CPR 36.11(8)).
Can a Part 36 offer to settle be withdrawn and what are the consequences?
- Before expiry of the relevant period, a Part 36 offer to settle can only be withdrawn or its terms changed to be less advantageous to the offeree if the court gives permission (CPR 36.3(5))
- The court’s permission is not required if the offeror withdraws the offer or changes its terms to be less advantageous to the offeree after expiry of the relevant period, provided that the offeree has not previously served notice of acceptance (CPR 36.3(6))
- The Rules do not prescribe the grounds for permission to withdraw an offer. An offeror has to be able to show that there has been a sufficient change of circumstances so that it is just that he has the opportunity to withdraw/revise the Part 36 offer to settle
- Withdrawal or a change in terms is affected by serving written notice to that effect on the offeree/his legal representative. Unless withdrawn by written notice the offer will not be deemed withdrawn and will remain open for acceptance. An opponent making a counter offer will not affect an offeree’s ability to accept a previous offer, if it has not been withdrawn by written notice
- Once withdrawn, a Part 36 offer will NOT attract the Part 36 costs and interest consequences (CPR 36.14(6)(a)), although it may be possible to argue that they apply under the court’s general costs discretion (CPR 44.3).
In what circumstances should you consider making a Part 36 offer to settle?
- They should at least 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
- Claimants should consider making early Part 36 offers in order to resolve disputes and to potentially recover an enhancement on damages or costs of up to £75,000 pursuant to CPR 36.14(3) if the offer is not accepted and the matter proceeds to trial (for offers made from 1 April 2013)
- 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 the risk of proceeding with the litigation for the opponent
- If accepted, a Part 36 offer to settle can avoid the time and potential irrecoverable costs associated with court proceedings
- A Part 36 offer to settle will not be appropriate where a defendant does not wish to pay a claimant’s costs, or in respect of claims being dealt with on the small claims track.
Ten Key Points to Remember
- Part 36 offers do not incorporate all the rules of law governing the formation of contracts. Part 36 embodies a self-contained code
- Part 36 offers to settle are formal offers which have costs and other consequences if not accepted
- Whilst nothing in respect of 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 (CPR 36.2), it will not have the consequences prescribed in Part 36 as referred to above
- If making a Part 36 offer to settle, make it as clear as possible – use CPR 36.2 as a checklist
- Keep a record of Part 36 offers made and constantly monitor and re-evaluate the position. Offers not withdrawn by notice in writing will remain open to acceptance, and rejection or any offeree’s silence may not prevent later acceptance of a Part 36 offer
- If making an offer to settle or accepting a claimant’s offer, defendants need to bear in mind that payment has to be made within 14 days, failing which judgment can be entered against them. Therefore, ensure that payment can be made or try and agree an extension of time for payment
- Claimant Part 36 offers to settle can result in enhanced damages, recoverable costs and interest on costs. Defendant Part 36 offers to settle can result in a period of costs protection and a recovery of costs from the claimant
- If not accepted, the important question on costs is not which party has won, but whether the eventual judgment 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 are determined
- If a Part 36 offer to settle 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 regard to all the circumstances of the matter, including the 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 to settle, a party should obtain the benefit of the costs and other consequences as specified in Part 36.
For further information contact your usual legal advisor or our Legal Director (Keith Levene).