THE ART AND THE SCIENCE
PART 36 OFFERS EXPLAINED

Gateley Legal

Legal News | 20/06/22

Litigation is expensive for everyone involved. It’s unsurprising, then, that the Civil Procedure Rules (CPR), which underpin litigation in England and Wales, contain extensive provisions encouraging and facilitating settlement, both before and after proceedings are issued.

One such provision is the unique and self-contained settlement procedure contained in CPR Part 36. Settlement offers made pursuant to this part are, inventively, called “Part 36 offers”.

A well-judged Part 36 offer is a powerful tool in ongoing (or prospective) litigation. However, there is both an art, and a science, behind their effective use.

PART 36 OFFERS – THE DRAW
The primary benefit of Part 36 offers, which can be made by both Claimants and Defendants, is the cost consequences which follow.

Where a Part 36 offer is accepted within the relevant period (21 days from service), the Claimant will be entitled to their costs (including recoverable pre-action costs) up to the date of acceptance. However, if a Part 36 offer is not accepted, the costs consequences can be significantly tougher.

Where a Claimant doesn’t accept a Defendant’s Part 36 offer, and obtains a less advantageous judgment, the Claimant is liable to pay the Defendant’s costs plus interest from the date that the relevant period expired.

Where a Defendant doesn’t accept a Claimant’s Part 36 offer, and judgment against the Defendant is at least as advantageous to the Claimant, the Claimant will be entitled to:

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

For Claimants at least, then, the potential benefits of a well-judged Part 36 offer can be substantially in excess of any costs order they might hope to achieve at trial.

THE ART
In order for the consequences of a Claimant’s Part 36 offer to engage, the offer must be one which the Claimant subsequently matches or betters at trial. However, pitch an offer too low and it may be snapped up by the Defendant before you realise that you’ve agreed to halve the value of your claim and throw in a fruit basket for good measure.

There is no magic formula for making a successful, and well-placed, Part 36 offer. Generally, though, this writer would suggest beginning your calculations with a figure marginally below the minimum that you would expect to receive at trial, factoring in a discount for litigation risk (i.e. the unpredictability of human behaviour – unreliable witnesses, grumpy judges, et cetera).

THE SCIENCE
Tactics aside, in order to be valid, a Part 36 offer must meet the strict requirements of CPR Part 36. Even a minor variation, or addition, can render the offer ineffective as a Part 36 offer. Several recent cases have highlighted the potential consequences for non-compliant offerors.

COST DEDUCTIONS
Do not include costs discussions/provisions in a Part 36 offer, other than those expressly provided for in the CPR Part 36. If you do, your offer won’t be a valid Part 36 offer (although it will probably still be a without prejudice offer).

SERVICE BY MAIL
If sending a Part 36 offer by email, or other electronic method, ensure that the other side has agreed to accept service electronically. In the case of London Trocadero LLP -v- Picturehouse Cinemas Ltd, an offer was still considered a valid Part 36 offer, but the offeror was not awarded the full cost benefits of having beaten the offer at trial due to having served their offer by email without consent.

EXPIRY OF THE RELEVANT PERIOD
Always ensure that a Part 36 offer is made in good time to allow the relevant period (21 days from service of the offer) to elapse before trial. A Part 36 offer made less than 21 days before trial will not incur the same cost benefits for offerors, even if the trial is adjourned and takes places more than 21 days after the Part 36 offer was made.

As a general point, the consequences of an unaccepted Part 36 offer only begin on the date of expiry of the relevant period. The earlier in proceedings a Part 36 offer is made, therefore, the longer the other side will be at risk from a costs perspective.

YES MEANS YES
Accepting parties cannot caveat their acceptance of a Part 36 offer with conditions. If they do, they may be estopped from arguing that there was a contractual non-Part 36 agreement regarding that caveat.

CONCLUSIONS
When used properly, Part 36 offers are a powerful tool. However, litigants must take care to comply with the strict requirements of the CPR when drafting, serving and discussing their Part 36 offer. To do otherwise is to risk losing the benefits which the procedure facilitates.