Making a Strategic Part 36 Offer in Litigation

What is a CPR Part 36 offer?

A CPR Part 36 offer is a formal settlement offer made in civil litigation in England & Wales. Part 36 of the Civil Procedure Rules aims to encourage parties to try to settle their disputes by setting out the costs consequences of offers to settle if they are made in accordance with the rule. If a party fails to accept a realistic offer made from the other side there is a risk of penalised costs and interest at the end of the case. Therefore, a genuine offer to settle (ie not a vey high Part 36 Offer) should be made which puts the other side under pressure to settle.

Part 36 should be used as a strategic litigation tool to encourage early resolution of a dispute. If an offer is accepted, the case ends on the agreed terms. However, if not accepted and the offering party ultimately achieves a better outcome at trial, they can recover increased costs contribution, interest, and potentially an uplifted percentage of damages from the other side. In summary, it’s a tool to incentivise settlement and manage the financial risks of litigation by increasing pressure on the opponent.

If you are involved in litigation in England & Wales but your solicitor has not explained Civil Procedure Rule Part 36 to you then you can book a case review and get a second opinion on your case from our elite litigation solicitors and counsel.

When can a Part 36 offer be made?

A Part 36 offer can be made at any time, even before court proceedings have started. This flexibility allows parties to explore settlement options early on in a dispute, which can often lead to significant cost savings. By making a Part 36 offer, you demonstrate a willingness to compromise and can significantly improve your position if the case proceeds to trial and you achieve a more favourable outcome.

However, Part 36 does not apply to claims that are small claims track (claims that are less than £10,000). Generally we do not undertake work on small claim cases unless there is a debt of more than £750 which is not disputed and is owed by a company (see our successes in such cases here).

What are the requirements of a Part 36 offer?

A Part 36 offer must be in writing which states the consequences of the Part 36 and state the offer that is made to settle the whole claim or only part of it and whether it takes into account any counterclaim. A Part 36 offer must comply with specific requirements as outlined in the Civil Procedure Rules (CPR) Part 36.

Essential Elements of a Part 36 Offer

1. Written Communication: The offer must be made in writing (CPR 36.5(1)(a)).
2. Clear Identification: The offer must explicitly state that it is made pursuant to Part 36 of the CPR (CPR 36.5(1)(b)).
3. Offer Period: The offer must specify a “relevant period” of at least 21 days within which the other party will be liable for the offering party’s costs if the offer is accepted (CPR 36.5(1)(c)).
4. Scope of Offer: The offer must clearly state whether it applies to the whole claim or only part of it (CPR 36.5(1)(d)).
5. Counterclaims: The offer must indicate whether it takes into account any counterclaims (CPR 36.5(1)(e)).

Additional Considerations

• Clarity and Specificity: The offer should be clear and unambiguous to avoid any potential disputes.
• Calculation of Amounts: If the offer includes a sum of money, it should be calculated accurately and clearly stated.
• Interest: The offer may include interest, but this should be clearly specified.
• Costs: The offer can include provisions for costs, but this is not mandatory.

By adhering to these requirements, parties can ensure that their Part 36 offers are valid and enforceable. Failure to adhere to them means the judge is not bound by CPR Part 36.

How long does a Part 36 offer last? Relevant Period explained.

A Part 36 offer must be open for acceptance for a minimum of 21 days in order to comply with the rule. This period is known as the ‘relevant period’. It’s important to note that while the minimum ‘relevant period’ is 21 days, you can offer a longer period if you wish. However, in practice, it’s uncommon to see periods significantly longer than 21 days.

The ‘relevant period’ is the timeframe specified in a Part 36 offer during which the other party can accept the offer and incur liability for the offering party’s costs. Essentially, it’s the deadline for the other party to accept the settlement terms without facing additional cost implications.

It is important to note that the Part 36 offer must remain open for acceptance even after the ‘relevant period’ in order to take advantage of CPR Part 36. Ideally it should be open for acceptance even during the trial. It is important to bear in mind throughout the litigation that unless withdrawn a part 36 offer is treated as open for acceptance.

What happens if the Defendant fails to beat the Claimant’s Part 36 offer, and what is considered a genuine attempt to settle?

In the event that a defendant in unable to beat the Part 36 made by the claimant – the Court must order that: said claimant reserves the right to interest payments at a larger rate (not above the 10% of the base rate); costs on the basis of indemnity (security or protection against a loss); an interest on said costs at a larger rate; and moreover, a further percentage of the amount awarded in damages to the claimant in total.

According to the Civil Procedure Rules, Part 36.17, the Court must consider the following factors while considering whether it would be unjust to make a normal order.

• The terms of the Part 36 offer;
• The stage of litigation at which the offer was made, particularly how long before the proceedings had started that the offer was made;
• The information the parties were privy to at the time of the offer;
• The conduct of the parties with regard to the giving of or refusal to give information for the purposes of enabling the offer to be made or evaluated;
• If the offer was a genuine settlement attempt.

Consequences of Accepting or Rejecting a Part 36 Offer

The decision to accept or reject a Part 36 offer can have significant financial implications. Understanding the potential consequences is crucial for making informed decisions during litigation.

Accepting a Part 36 Offer

If a party accepts a Part 36 offer, the case is resolved according to the terms outlined in the offer. Typically, the accepting party will be responsible for the offering party’s costs incurred up to the date of acceptance.

Rejecting a Part 36 Offer

Rejecting a Part 36 offer involves risks. If the offering party ultimately secures a more favorable judgment than the rejected offer, the rejecting party may face the following consequences:

• Increased Costs: The court may order the rejecting party to pay the offering party’s costs on an indemnity basis, which is generally higher than standard costs.
• Interest: The rejecting party might be liable for increased interest on the judgment amount.
• Additional Damages: In certain cases, the court has the discretion to award the offering party a percentage of the difference between the rejected offer and the final judgment.

Given these potential consequences, carefully considering the merits of a Part 36 offer is essential before making a decision.

Case Study: Small Part 36 Discount Doesn’t Equal Lack of Genuine Intent

In Omya UK Ltd v Andrews Excavations Ltd & Anor [2022] EWHC 1882 (TCC) (19 July 2022), the primary point of objection taken by the defendant was that the offer made by the claimant was not a genuine attempt to settle the proceedings. The claimant, Omya, made a Part 36 offer to settle the dispute for £756,287.05. The defendant rejected this offer. The court ultimately awarded Omya £765,094.40. Thus, in this case damages exceeded the offer by a margin of just 1.15% i.e a discount of £8,806.95.

The court in Omya UK Ltd v Andrews Excavations Ltd considered several key factors when determining whether the claimant’s Part 36 offer was a genuine attempt to settle:

• Magnitude of the Discount: While the relatively small discount offered by the claimant was a factor, it was not determinative.
• Timing of the Offer: The court considered that the offer was made at a relatively early stage of the proceedings, which supported the argument for a genuine attempt to settle.
• Complexity of the Case: The court noted that the quantum of damages was not significantly in dispute, suggesting a higher likelihood of settlement.
• Overall Conduct of the Parties: The defendant’s conduct in the case was deemed unreasonable, which influenced the court’s view on the claimant’s offer.

Ultimately, the court found that the claimant’s offer was a genuine attempt to settle, despite the small discount, due to the combination of these factors.

A key issue was whether Omya’s offer constituted a “genuine attempt to settle” as required for enhanced costs recovery under Part 36. The defendant argued that the small difference between the offer and the final judgment indicated a lack of genuine intent to settle.

The court disagreed, finding that while the discount offered was small, it was made at an early stage of proceedings and in a case where quantum was not significantly disputed. Therefore, the offer was deemed a genuine attempt to settle.

The case provides valuable guidance on the factors a court will consider when determining whether a Part 36 offer is genuine. It emphasizes that while the magnitude of the discount is relevant, it is not the sole determinant. Other factors, such as the timing of the offer and the overall context of the case, are also crucial.

Mr Sissons, for the defendant, argued the following:

In the circumstances of this case, C’s offer ought not to be regarded as a genuine attempt at settlement because: (a) The offer was to accept a discount of just £8,806.95 (1.15%) against the amount claimed; (b) Even if interest is taken into account the offer was still derisory. At the date offer was made the accrued interest assuming a (generous) commercial rate of 2.5% was £33,957.23. On this basis the offer was to accept 95% of the total amount claimed inclusive of interest; (c) Accordingly, in the context of the total value of the claim, the concession offered cannot realistically be regarded as having any significant value; (d) There was no explanation as to how the offer was calculated. It did not involve any assessment of litigation risk but merely discounted a very small and apparently arbitrary amount from the total claim. This suggests a tactical attempt to catch Ds on the hook of Part 36 rather than a genuine effort at settlement; (e) This case was always a binary one; C would either recover the whole of the sum claimed or nothing at all. The offer did not reflect a possible outcome of the litigation. Accordingly, the amount offered created no real inducement or incentive for acceptance.

Deputy High Court Judge Ter Haar QC determined:

“whilst the mathematical proportion of the offer to the amount claimed is a potentially relevant factor, it is not in and of itself the only determinant of whether the offer is a genuine attempt to settle the proceedings.”

The Judge determined that whilst 1.15% or £8,806.95 was an admittedly small discount, this was a case in which there was never likely to be any significant debate as to quantum (value of the claim). It was also relevant that if interest accrued is considered, the discount rose to a margin of 5%. Also, the offer was also made at a relatively early stage of the proceedings, which was consistent with a genuine attempt to settle.

Judge Ter Haar QC declared that the offer was in all the circumstances:

“a genuine attempt to settle – an entirely sensible course for a commercial enterprise such as the Claimant which had no interest in the proceedings being dragged out and faced risks that important witnesses might not appear at trial. These matters indicate to me that the Claimant had every incentive to try to achieve a settlement and that this was not, as in some cases posited in the authorities, a cynical attempt to manipulate a scheme designed to encourage settlement.”

As the Court found the Defendant’s general conduct to be highly unreasonable including some aspects of its defence, it awarded indemnity costs both before and after expiry of the offer. Due to the narrow margin, however, it restricted interest to 5% above base (not the full 10%).

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