What are the Consequences of a Part 36 Offer?

LitigationCosts

19 Oct

What is an Offer to Settle?

Litigation in England and Wales is governed by a set of rules known as the Civil Procedure Rules (or “CPR”). Those rules describe most of what the parties must do at various stages of the litigation, and some of the powers that the court has.

The rules are split into 89 different chapters (or “parts”), each of which covers a different topic although some of them overlap.

Part 36 is entitled “Offers to Settle”, and it covers the ways in which one of the parties can make a formal offer to settle the dispute, and the consequences that follow when an offer is made and either accepted, or rejected.

An offer to settle is when one party (whether it is the claimant or the defendant) suggests to the other party that – instead of continuing with the litigation and waiting for the court to decide the outcome – they agree a way to resolve the dispute themselves.

For example, if Company A sues Company B for £100,000, then Party A might put an offer to settle the claim for a payment of £90,000, on the basis that Party A would rather have £90,000 now than wait until the end of a trial to obtain £100,000.

It is possible to make and accept offers to settle informally. For example, it is not uncommon for a director of Party A to call a director of Party B and agree a deal over the telephone.

However, there are some potential advantages to taking a more formal approach pursuant to Part 36, and the CPR sets out what those advantages are. If the rules of Part 36 are not followed, then none of those advantages will be available (this is stated in CPR r.36.2(2)).

Requirements of a Claimant’s Part 36 Offer

If the Claimant is the party making the Part 36 offer in a construction claim, then:

the offer must be made in writing;
must make clear that it is a Part 36 offer;
must (unless the start of the trial is less than three weeks away) state that the offer is open for acceptance for at least 21 days; and
must state whether it takes into account any counterclaim.

Consequences of Accepting a Claimant’s Part 36 Offer

A Claimant’s Part 36 Offer is accepted by the Defendant sending a written notice of acceptance to the Claimant, and this can be done at any time after the offer is made (providing that the trial has not yet started, and the offer has not been withdrawn).

If a Claimant’s Part 36 offer is accepted within the 21 day-period, the claimant becomes automatically entitled to its costs (on the ‘standard basis’) up to the date of the acceptance.

If it is accepted after that period, then the court will decide liability for costs (unless the parties can agree that liability between them), and will usually decide that the Claimant gets its costs up to the date of acceptance.

Once a Claimant’s Part 36 offer has been accepted, the claim is stayed.

The offer must be paid by the Defendant within 14 days of being accepted.

Consequences of Rejecting a Claimant’s Part 36 Offer

If a Claimant’s Part 36 offer is not accepted, then:

ordinarily, the existence, and amount, of the offer must be kept secret from the court until after the court has decided the case;
the Defendant will be required to pay certain amounts to the Claimant on top of the amount that the court has decided the Claimant is entitled to, if the amount decided by the court is the same or more than the amount of its offer (i.e. if the Claimant has won more than its offer). The additional amounts are:
- interest on the sum that the court decides the Defendant must pay, at up to 10% above base, for some or all of the period between the end of the 21-day period and the date the court makes its decision;
- the Claimant’s costs (on the indemnity basis) for the period between the end of the of the 21-day period and the date the court makes its decision;
- interest of the Claimant’s costs at up to 10% above base; and
- a penalty of up to £75,000 that is calculated by reference to the amount that the court has decided the Claimant is entitled to.

Requirements of a Defendant’s Part 36 Offer

If the Defendant is the party making the Part 36 offer in a construction claim, then:

the offer must be made in writing;
it must be an offer to pay a single sum of money;
must make clear that it is a Part 36 offer;
must (unless the start of the trial is less than three weeks away) state that the offer is open for acceptance for at least 21 days; and
must state whether it takes into account any counterclaim

Consequences of Accepting a Defendant’s Part 36 Offer

A Defendant’s Part 36 Offer is accepted by the Claimant sending a written notice of acceptance to the Defendant, and this can be done at any time after the offer is made (providing that the trial has not yet started, and the offer has not been withdrawn).

If a Defendant’s Part 36 offer is accepted within the 21 day-period, the claimant becomes automatically entitled to its costs (on the ‘standard basis’) up to the date of the acceptance.

Once a Defendant’s Part 36 offer has been accepted, the claim is stayed.

The offer must be paid by the Claimant within 14 days of being accepted.

Consequences of Rejecting a Defendant’s Part 36 Offer

If a Defendant’s Part 36 offer is not accepted, then:

ordinarily, the existence, and amount, of the offer must be kept secret from the court until after the court has decided the case;
the Defendant will be required to pay certain amounts to the Claimant on top of the amount that the court has decided the Claimant is entitled to, if the amount decided by the court is less than the amount of the Defendant’s offer (i.e. if the Claimant has not won more than the Defendant offered). The additional amounts are:
- the Defendant’s costs (on the standard basis) for the period between the end of the of the 21-day period and the date the court makes its decision; and
- interest on the Defendant’s costs at up to 10% above base;

When the Part 36 Rules Do and Don’t Apply in Construction Claims

The rules in Part 36 are quite complicated, but there are some circumstances where the rules do not apply (or there are different rules that apply). Some key points relevant to construction claims are that:

Part 36 does not apply to claims that are proceeding through the courts on the small claims track. This means that the potential advantageous of a Part 36 offer do not apply to claims which have a value of less than £10,000.
Part 36 does apply where the fixed costs regime under the CPR applies to a claim, but in such a case the costs recoverable will be those fixed costs rather than the actual costs incurred.
Part 36 does apply to counterclaims – which are claims made by a defendant in response to claims made by a claimant.
Part 36 does apply to appeal proceedings.
Part 36 does apply to offers made before litigation is commenced.
Part 36 does not apply if the offer does not comply with the requirements of Part 36, although the courts will usually strive to construe an offer as compliant wherever it is considered that the non-compliant offer was intended to be a Part 36 offer. Therefore, a simple or obvious error in how the offer was worded is unlikely to mean that the offer is invalid.

Summary

Offering to settle a claim (whether you are making the claim, or the claim is being made against you) is always something worth considering. The cost and time involved in fighting a claim can be significant, and there can be substantial value to be attached to avoiding those things – as well as the stress – over a sustained period of time.

An offer to settle a claim can be (and often is) informal and something that can be dealt with by the parties in the ordinary course of their relationship.

However, there is a formal way to make an offer that brings with it potentially significant consequences, depending on whether the offer is accepted, or rejected but then not beaten at trial.

If you require help or advice in relation to deciding whether to make, or accept, an offer to settle a claim, contact Hamshaw today.

Daniel Shaw