Part 36 offers are one of the most powerful tactical tools in English civil litigation. They provide a formal mechanism for parties to make settlement offers that carry significant costs consequences if unreasonably rejected. A well timed and well pitched part 36 settlement offer puts the opponent under pressure, can provide crucial protection on costs (which are often significant as legal disputes progress) and can lead to settlement.
What is a part 36 offer?
A Part 36 offer is a specific type of settlement offer which follows strict formalities and can triggers defined cost consequences if rejected by the recipient. A part 36 offer can be made by either claimant or defendant. The offer must :-
be in writing
state that it is made under Part 36
specify time period - must remain open for acceptance for at least 21 days (the 'relevant period') during which the cost consequences will apply.
be a genuine attempt to settle though it doesn't have to settle all aspects of the case (see below)
include clear terms capable of acceptance without further negotiation.
How it works and why part 36 offer can be important
If a Part 36 offer is rejected and at trial the claimant either loses or recovers less/only marginally more than the offer, they face serious costs consequences from the date the offer expired (in other words costs incurred after a part 36 has been made and then rejected, not costs incurred before this point). Consequences include :-
being ordered to pay the defendant's costs (subject to assessment if not agreed) from the expiry date of the offer (typically 21 days after it was made), including interest.
they may be ordered to pay enhanced interest on those costs (up to 10% above base rate)
possibly have to pay an additional penalty of up to 10% of the first £500,000 awarded and 5% of any amount above that (capped at £75,000)
This is why Part 36 offers create significant pressure to settle - rejecting them carries major financial risks if you don't beat the offer at trial.
Court not aware of part 36
Part 36 offers remain confidential from the trial judge until after judgment on all issues except costs. This protection prevents judicial bias or concerns that it indicates lack of confidence to the judge, allows genuine attempts at settlement and protects parties' negotiating positions.
Only after giving judgment will the court be informed of any Part 36 offers, consider their terms, assess the reasonableness of rejection of the offer and apply cost consequences.
Using a part 36 offer for parts of the dispute
A Part 36 offer can be made in respect of either the whole case or part of a case. This means you can make Part 36 offers for:
Individual issues/elements within a claim (e.g., liability only, or just quantum)
Specific heads of damage or parts of a claim
Specific issues in dispute (e.g., causation)
Individual claims within proceedings with multiple claims
Counterclaims
The key requirement is that the offer must be clearly defined in terms of what it covers. The costs consequences will then apply specifically to the part of the case that was the subject of the offer.
When an offer relates to only part of a case, the court has discretion in how to apply the Part 36 consequences, taking into account factors like the significance of that part of the case and its relationship to the whole.
Strategic timing of offer to settle
Generally speaking, the earlier an offer to settle is made, the better the potential costs protection. However, balance and experience are essential because an early offer, without fully understanding the strengths and weaknesses of your case and your opponent's can easily be pitched at the wrong level, either too high or too low (if too low, protection on costs will likely be lost).
Making a part 36 offer close to trial reduces the cost protection but can still be worthwhile because trial costs are very high.
Often the best approach (although each case will vary) is to consider an offer to settle at a strategic point - this can often be after disclosure of evidence, whether documents or witness statements.
Clients often worry that making an out of court settlement offer will be taken as a sign of weakness by the opponent. In fact, the opposite is often the case as a well timed and carefully assessed offer generally shows confidence.
Contact us for strategic advice on your legal dispute.
