The Importance of Making a Strategic Part 36 Offer

What does a Part 36 offer mean?

Part 36 offer in the Civil Procedure Rules is a provision which 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 a Part 36. However, 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 should be made which puts the other side under pressure to settle.

When can a Part 36 offer be made?

Part 36 offers can be made before court proceedings are issued. However Part 36 do not apply to claims that are small claims track (claims that are less than £10,000).

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.

How long does a Part 36 offer last?

The relevant period if you decide to make a part 36 offer has to specify a period of at least 21 days within which the other party will be liable for your costs if the offer is accepted.

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.

In this specific case, 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.

Amount awarded to Omya: £765,094.40

Part 36 offer made by Omya : £756,287.05

Mr Sissons, for the defendant, argued the following:

“In the circumstances of this case, Client’s offer ought not to be regarded as a genuine attempt at settlement because:

The offer was to accept a discount of just £8,806.95 against the amount claimed.”

To this, Deputy High Court Judge Ter Haar QC commented that: 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.

In this case damages exceeded the offer by a margin of just 1.15% i.e a discount of £8,806.95.

That is an admittedly small discount, but this was a case in which there was never likely to be any significant debate as to quantum (value of the claim). It is also relevant that if interest accrued is considered. the discount rises to margin of 5%.

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; implausible; and absurd defences and denials; 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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