Part 36: Offer to Settle

What is a Part 36 offer?

A Part 36 offer is a provision under the Civil Procedure Rules (‘CPR’) to encourage parties to settle a dispute without commencing or continuing proceedings. A Part 36 offer is made based on a ‘without prejudice save as to costs’ basis and therefore the judge will not know of the offer until the case has been decided. When a Part 36 offer is made by the offeror (party who made the offer) and if the offeree (party whom the offer is made to) refuses a reasonable offer to settle, they will have to face costs and other consequences under the CPR. Therefore, a Part 36 offer is often used as a tactical step in litigation process and an appropriate method to convince the other party to settle.

Who can make a Part 36 offer?

Either party in a dispute can make a Part 36 offer to settle.

When can a Part 36 offer be made?

A Part 36 offer can be made at any time before judgement is given, including before proceedings begin. When it is served on the offeree, a Part 36 offer is made.

What are the requirements of making a Part 36 offer?

1. 1. The offer must be made in writing.
   2. It must make clear that the offer is made pursuant to Part 36 of the CPR.
   3. It must specify a period for acceptance of at least 21 days (‘the Relevant Period’) within which the other party will be liable for the costs.
   4. It must state whether the offer relates to the whole or part of the claim.
   5. It must state whether the offer takes into account any counterclaim.

Clarification of a Part 36 offer:

The offeree may request the offeror to clarify the offer within 7 days of a Part 36 offer being made.

If the offeror does not give the requested clarification within 7 days of receiving the request, the offeree may apply for an order that the offeror do so, unless the trial has started.

Withdrawing or changing the terms of a Part 36 offer:

As long as the offeree has not accepted the Part 36 offer, the offeror can withdraw or change the terms of the offer. The court’s permission will not be needed, even after the expiry of the Relevant Period.

If the offeror changes the terms of the offer to make it more advantageous to the offeree, the improved offer will be treated as the making of a new Part 36 offer on the improved terms, and the original offer will not be treated as withdrawn.

Can the offeror withdraw or change the terms of a Part 36 offer before the expiry of the Relevant Period?

The offeror may serve notice on the offeree before the expiry of the Relevant Period to withdraw the offer or to change its terms to make it less advantageous to the offeree, provided that:

1. the offeree has not accepted the offer; and
2. if the offeree accepts the original offer before the expiry of the Relevant Period, the offeree’s acceptance will be valid unless the offeror successfully applies to the court for permission to withdraw, or to change the terms of the offer, within 7 days of the offeree’s acceptance.

The court will consider whether there has been a change of circumstances since the making of the original offer and whether it is in the interests of justice when giving such permission.

Accepting a Part 36 offer

Accepting within the Relevant Period
Provided that a Part 36 offer was not previously withdrawn, a notice of acceptance can be served on the offeror at any time. If an offeree has accepted a Part 36 offer within the Relevant Period, then it is for the offeror to pay the settlement sum and the offeree’s legal costs up to the date on which the notice of acceptance was served.

Accepting after the Relevant Period
If a Part 36 offer is accepted after the Relevant Period, unless it is agreed between the parties, the court will consider whether it is in the interest of justice to do so and determine the liability for costs. Usually, the court will order the Defendant to pay the Claimant’s costs up to the date on which the Relevant Period expires and the offeree to pay the offeror’s costs for the period from the date of expiry of the Relevant Period to the date of acceptance (for late acceptance).

Rejecting a Part 36 Offer

As a Part 36 offer is made on ‘without prejudice save as to costs’ basis, the judge will not know of the offer until the case has been decided.

Defendant’s Part 36 offer
If the Defendant made a Part 36 offer to the Claimant in which the Claimant rejected, and the Claimant fails to obtain a judgement better than the terms of the Defendant’s offer, the court will order the Claimant to pay the Defendant’s costs from the date of expiry of the Relevant Period and interests on those costs.

Claimant’s Part 36 offer
If a Claimant has made a part 36 offer in which the Defendant rejected, and the court awards the Claimant an amount equal to, or more advantageous than the terms of the Claimant’s offer, the Defendant will be liable to pay:

1. 1. up to 10% interest on the whole or a part of the sum awarded from the date of expiry of
      the Relevant Period;
   2. costs on the indemnity basis from the date of expiry of the Relevant Period;
   3.  an additional 10% of damages if the amount awarded is up to £500,000. If the damages
      awarded is above £500,000, 10% of the first £500,000 and 5% of any amount above that
      figure.

The risk of costs carried under Part 36 of the CPR can often exceed the total amount of the claim itself. Unless a party can be sure that the offer made to them is not genuine, unreasonable, or that they can obtain a more advantageous judgement, it is often best to seek legal advice before making such decisions. If you require advice on a Part 36 offer, please do not hesitate to contact us on 020 7632 4300.