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When parties become involved in litigation, many assume that the dispute will inevitably end with a trial. In reality, the vast majority of civil claims in England and Wales settle before reaching a final hearing, and one of the most effective mechanisms for encouraging settlement is the Part 36 Offer.
A well-timed Part 36 offer can dramatically alter the financial consequences of litigation. It has the potential to place significant pressure on an opponent, encourage meaningful negotiations and, in some cases, determine who ultimately bears the legal costs of the proceedings.
Understanding how Part 36 works is therefore essential for anyone involved in civil litigation.
What is a Part 36 Offer?
A Part 36 Offer is a formal offer to settle made under Part 36 of the Civil Procedure Rules (CPR). It is a self-contained procedural code with specific rules governing how offers are made, accepted, withdrawn and the costs consequences that follow.
Unlike an ordinary “without prejudice” settlement offer, a valid Part 36 offer carries automatic costs consequences if certain conditions are met. These consequences are designed to encourage parties to settle disputes wherever possible rather than proceed to an expensive trial.
Why are Part 36 Offers important?
Litigation can be costly, time-consuming and uncertain.
The purpose of Part 36 is to encourage parties to realistically evaluate their case throughout the proceedings and to make sensible attempts to resolve disputes before trial.
A carefully considered Part 36 offer can:
- encourage early settlement;
- place commercial pressure on the opposing party;
- protect a party’s position on legal costs;
- reduce the overall expense of litigation; and
- demonstrate to the court that a genuine attempt has been made to resolve the dispute.
For many litigants, the costs consequences of rejecting a reasonable Part 36 offer can ultimately be more significant than the value of the claim itself.
When can a Part 36 Offer be made?
One of the advantages of Part 36 is its flexibility.
A Part 36 offer may be made:
- before court proceedings begin;
- during litigation;
- after disclosure;
- shortly before trial; or
- even during the course of litigation before judgment, subject to the applicable procedural rules.
The timing of an offer is often a strategic decision. An early offer may encourage settlement before substantial legal costs are incurred, whereas a later offer may be made once the strengths and weaknesses of each party’s case have become clearer.
What makes a valid Part 36 Offer?
To benefit from the special costs consequences under the Civil Procedure Rules, a Part 36 offer must comply with a number of formal requirements.
Among other things, it must:
- be made in writing;
- expressly state that it is intended to have the consequences of Part 36;
- specify whether it relates to the whole claim, part of the claim or a particular issue;
- include a “relevant period” of at least 21 days (unless made within 21 days of trial) during which the offeree can accept the offer without facing the usual post-expiry costs consequences; and
- comply with any additional requirements that apply to particular categories of claim.
Failure to comply with these requirements may mean that the offer is treated simply as an ordinary settlement offer rather than a Part 36 offer.
The 21-day relevant period
One of the most important aspects of a Part 36 offer is the relevant period.
This is normally a period of at least 21 days during which the recipient has the opportunity to accept the offer.
If accepted within that period:
- the claim usually comes to an end on the agreed terms;
- the applicable costs consequences are determined by the CPR; and
- both parties avoid the uncertainty and expense of continuing litigation.
If the offer is not accepted within the relevant period, it does not automatically expire. Unless it has been withdrawn, it generally remains open for acceptance, although different costs consequences may then apply.
What happens if a Claimant rejects a Defendant’s Part 36 Offer?
This is where Part 36 can have significant financial implications.
If a defendant makes a valid Part 36 offer which the claimant rejects, and the claimant subsequently fails to obtain a judgment more advantageous than that offer, the court will usually order that, from the expiry of the relevant period:
- the claimant pays the defendant’s costs;
- interest may be payable on those costs; and
- the claimant may lose a substantial proportion of any damages recovered due to the adverse costs order.
The court will normally impose these consequences unless it considers it unjust to do so.
What happens if a Defendant rejects a Claimant’s Part 36 Offer?
The consequences can be even more severe.
If a claimant makes a valid Part 36 offer and then obtains a judgment at trial that is at least as advantageous as the offer, the court will generally award the claimant:
- indemnity costs from the expiry of the relevant period;
- enhanced interest on those costs;
- enhanced interest on damages; and
- an additional amount calculated under CPR Part 36, subject to the applicable statutory cap.
These enhanced consequences are intended to encourage defendants to give careful consideration to reasonable settlement offers rather than pursuing litigation unnecessarily.
Can a Part 36 Offer be withdrawn?
Yes.
However, there are strict rules governing the withdrawal or amendment of a Part 36 offer.
The offeror cannot simply withdraw an offer without complying with the procedural requirements contained within Part 36. In many cases, the timing of any withdrawal will determine whether the original costs consequences continue to apply.
Legal advice should always be sought before withdrawing or varying a Part 36 offer.
Are Part 36 Offers confidential?
Yes.
Part 36 offers are generally made on a “without prejudice except as to costs” basis.
This means that the trial judge will not normally be informed about the existence or terms of the offer until after judgment has been delivered, when the court comes to determine the issue of costs. This protects the fairness of the trial while still allowing the offer to have its intended costs consequences.
Strategic considerations
A successful litigation strategy often involves much more than preparing for trial.
Experienced litigators will carefully consider:
- when a Part 36 offer should be made;
- the amount of the offer;
- the likely commercial response;
- the evidential strengths and weaknesses of the case;
- the potential costs consequences; and
- whether alternative forms of settlement should also be explored.
A well-pitched Part 36 offer can shift the dynamics of litigation, placing the opposing party under considerable pressure to reassess its position.
Why legal advice matters
Although Part 36 offers may appear straightforward, they are governed by detailed procedural rules and can have significant financial consequences.
An offer that is too high may be ignored. An offer that is too low may undervalue a strong claim. Likewise, rejecting an opponent’s reasonable offer without proper advice can expose a party to substantial adverse costs.
Careful consideration should therefore be given to both the legal merits of the case and the commercial realities before making or responding to a Part 36 offer.
How Lawdit Solicitors can help
At Lawdit Solicitors, our experienced litigation team regularly advises clients on the strategic use of Part 36 offers in commercial disputes, contractual claims, intellectual property litigation, property disputes and a wide range of civil proceedings.
Whether you are considering making a Part 36 offer, have received one from your opponent or require advice on the likely costs implications, we can help you assess your position and develop a strategy that protects your interests.
If you are involved in litigation and would like expert advice on settlement strategy, contact Lawdit Solicitors today. Early advice on Part 36 can often make the difference between a commercially successful outcome and a costly day in court.
