The vast majority of disputes are settled by agreement between the parties rather than by a judgment following a trial. Part 36 refers to that part of the Civil Procedure Rules 1998 which contains a specific procedure by which offers to settle may be made and accepted and the costs consequences that follow on from settlement.

Part 36 sets out a detailed procedure that either party can use to attempt to settle the claim. The Part 36 procedural rules are strict and an offer stated to be made under Part 36 must be set out in a way that fully complies with the rules. The reason for this is that the purpose of Part 36 is to encourage settlement by imposing costs sanctions on a party who does not accept, in circumstances where they fail to obtain a judgment more advantageous than the terms set out within the Part 36 offer.

The Part 36 rules are complicated and it is only possible to give an outline within the Guide.

Any party to a case can make an offer to settle in any form they prefer but an offer that does not comply with the strict rules contained within Part 36 will not have the automatic Part 36 consequences (in costs) unless the Part 36 requirements are fulfilled in entirety.

Where an offer does not comply with the strict rules contained within Part 36, the court is, nevertheless, entitled to take it into account in determining the liability for costs at the end of a trial.

For the purposes of this section, either party will be referred to as the:

• Offeror - (the party who makes the offer); and
• Offeree – (the party to whom the offer is made)

Part 36 does not apply to claims allocated to the Small Claims Track which is subject, instead, to a no costs rule which means that neither party is normally entitled to seek their legal costs from their opponent regardless of the outcome of the case.

Form and Content of a Part 36 Offer

A Part 36 offer must:

• Be in writing
• Stated as intended to have Part 36 consequences
• Specify a period of not less than 21 days for acceptance within which the Defendant will be liable for the Claimant’s costs (save where an offer is made less than 21 days before the start of a trial), state whether it relates to the whole or part of the claim or as to the whole or part of an issue (in the claim)
• State whether it takes into account any counterclaim
• Additional information is required to be contained in any offer that relates to future financial losses in a personal injury claim, provisional damages claimed or the deduction of benefits but note that these are not applicable outside of a personal injury claim.

Further:

• An Offeror can make a Part 36 offer solely as to liability (in which case the value of the claim will be dealt with separately). The reason why this may be an attractive option to an Offeror is that it affords the protection of Part 36 on costs.
• An offer may be made by a Defendant in respect of a claim and the Defendants counterclaim even where the counterclaim has not yet been brought

Terms of the offer

The requirements of Part 36 in respect of the content and terms of the offer are strict. If the offer is made in accordance with the specific provisions of Part 36 as set out above, then the Defendant will be liable for the Claimants costs as set out within Part 36 10. If the offer does not fully comply with Part 36 then the court does not have any specific discretion to apply the costs rules.

The court does have a general discretion to take any offer into account when deciding what order to make in respect of costs and must have regard to any efforts to settle by either of the parties made before and during the course of the case to try and settle the dispute. However, for an offer to be admissible for the purpose of the courts general discretionary powers, the offer must be either an open offer (that is, contained within open correspondence) or an offer that states it is made without prejudice save as to costs).

The term “without prejudice” is used for any negotiations made for the purpose of facilitating the settlement of a claim so that when put on a letter it means that the writer of the communication is not prejudiced by its terms at any later stage during the course of the case and it means that both Offeror and Offeree cannot refer to any document marked this way even on the question of costs. However, the Offeror may reserve the right to refer to any offer he has made on the question of costs at the end of the case which is why marking an offer without prejudice save as to costs is important. If it is marked simply without prejudice; then neither party may use the offer after the trial on the issue of costs.

Where an offer fully complies with Part 36 then it will always be treated as being made without prejudice save as to costs.

A Part 36 offer may be made at any time including before the commencement of proceedings and may be made in appeal proceedings. Part 36 offers will be treated as exclusive of interest until the time given for acceptance expires or, if it is made less than 21 days before the start of the trial, a date 21 days after the offer was made.

It is possible for the parties to agree to extend the period of time within which a Part 36 offer may be accepted but it is not possible to withdraw the offer or change its terms so as to be less advantageous to the Offeree without the court’s permission. After the expiry of the offer period of at least 21 days then, provided the Offeree has not served Notice of Acceptance, the Offeror may withdraw the offer or change the terms of the offer so as to be less advantageous to the Offeree without the permission of the court. To do so the Offeror must serve written notice of withdrawal or written notice of any change of terms.

Part 36 offers do not lapse so they remain open for acceptance for as long as they are not withdrawn or changed on written notice to the Offeree.

Once withdrawn, a Part 36 offer will lose the automatic costs protection that is otherwise the consequence of non-acceptance.

Part 36 offer by the Defendant

If a Defendant makes an offer to pay a sum of money (save in personal injury claims for future pecuniary loss and in claims for provisional damages), the offer must be to pay a single sum of money and must be stated to be paid no later than 14 days following the date of acceptance.

Therefore, if it is not possible for a Defendant to be able to state he will pay within 14 days, he cannot make an offer that is compliant with Part 36 but that would not prevent him from making an open offer or an offer made without prejudice save as to costs to which the court must have regard under its general powers on costs.

Clarification of a Part 36 offer

Within 7 days of Part 36 offer being made, the Offeree is entitled to request clarification of its terms and if clarification is not given within a further 7 days (unless a trial has started) may apply for an order that clarification be provided.

Acceptance of a Part 36 Offer

Unless the courts permission to accept is required, a Part 36 offer may be accepted at any time by the service of written notice of acceptance unless the Offeror has already served a notice of withdrawal on the Offeree.

The courts permission to accept a Part 36 offer will be required in some circumstances, in particular, where the trial has started.

The effect of acceptance of a Part 36 offer

The acceptance of a Part 36 offer stays the claim. A stay does not bring the claim to an end it simply stops the claim so that it will go no further provided the terms of acceptance are adhered to and therefore the stay will be on the terms of the offer.

Staying the claim rather than bringing it to an end, allows the court to deal quickly with enforcement of the terms of the Part 36 offer and the costs of the proceedings themselves. If the position were otherwise, then the court would have no jurisdiction (there being no claim) with which to deal with either of these matters.

If it is necessary for the parties to obtain the approval of the court before a settlement becomes binding, then acceptance will only take effect once that approval has been given.

Payment

The general rule is that a single sum of money offered and accepted must be paid within 14 days of the date of acceptance and if it is not paid, then the Offeree is able to enter judgment for that amount. However, for larger claims it is usual for the parties to agree terms which may include payment of a larger claim at a later date, by instalments or as a combination of both. The agreed terms are drawn up into an order and if there is default by one party, it allows the other to go back to court to enforce the terms of settlement, including, in the case of the payment of a sum of money, to obtain judgment on the balance outstanding.

The Cost Consequences of Acceptance of a Part 36 Offer

Save for two limited exceptions, where a Part 36 offer is accepted within the relevant period, the Claimant will be entitled to the costs of the claim up to the date on which notice of acceptance is served on the Offeror.

Exception 1

Where a Defendants Part 36 offer relates to part of the claim and at the time of serving notice of acceptance (within the relevant period), the Claimant abandons the balance of the claim, then the Claimant will be entitled to the costs of the claim up to the date of serving notice of acceptance unless the court orders otherwise to be assessed on the standard basis if the amount of costs is not agreed (between the parties).

Exception 2

Where a Part 36 offer, made less than 21 days before the start of the trial is accepted or where a Part 36 offer is accepted after expiry of the relevant period, then if the parties do not agree the liability for costs, the court will make an order but in the case of acceptance after expiry of the relevant period, then unless the court orders otherwise, the Claimant is entitled to the costs of the proceedings up to the date that the relevant period expired and the Offeree will be liable for the Offerors costs for the period from the date of expiry of the relevant period to the date of acceptance.

The Claimants costs will include any costs incurred in dealing with the Defendants counterclaim provided the party’s Part 36 offer states that it takes into account the counterclaim.

From the Claimants point of view, there is every reason to make a carefully considered Part 36 offer and little reason not to do so. If the Defendant accepts the offer then, save in exceptional circumstances, the Claimant can look to the Defendant to pay its costs. Even if the Defendant does not accept the offer put forward, it may prompt them to make their own offer.

Given the cost consequences, a Defendant may not wish to make a Part 36 offer, however, there is always a risk that the Defendant may, overall, lose if the matter proceeds to trial and if that is the case, it will normally be ordered to pay the Claimants costs in any event. A carefully considered Part 36 offer will, if not accepted, or if accepted outside of the relevant period for acceptance, limit the costs to which the Defendant is exposed.

For both parties, even if the strict operation of the Part 36 procedure means an offer under that procedure is not viable, they can still make a general offer to settle made without prejudice save as to costs in any form that they wish and the only difference is that the cost consequences do not automatically follow (although the parties may still agree liability for costs or may ask the court to exercise its discretion). Further, a general without prejudice save as to costs offer may specifically state that it lapses after the time limit for acceptance.

Claimant and Defendant Pre-Action Offers

As we have seen at section 3.3, a Claimant who settles a claim before it is issued is not as a general rule entitled to recover pre-action costs or interest unless the Defendant agrees to pay. Whilst a Part 36 offer must state it is intended to have Part 36 consequences (costs), this can tend to be rather vague and lead to unnecessary arguments about costs if the offer is made at pre-action stage. For that reason, if a pre-action offer under Part 36 is made, then it should make absolutely clear whether the Offeror expects to receive (or pay, in the case of a Defendant) interest and costs.

If a party makes an offer that is compliant with Part 36, it will be taken into account as such if a claim is subsequently issued and the matter proceeds to trial.

Offers to settle not made or which do not comply with part 36

Even where an offer to settle is made that does not comply with the formal requirements of Part 36 (whether deliberately or by accident), the court does still have a general discretion to take any offer into account when exercising its discretion as to costs and this power is contained within Rule 44.3 CPR. Under this rule the court has a general discretion to determine whether costs are payable by one party to another; the amount of those costs; and when they must be paid.

Acceptance of a P36 Offer Stays the Claim

There may be circumstances in which the court is required to approve the terms of settlement, for example in the case of a person who does not have capacity to accept on their own behalf.

A Part 36 offer that is made by a Defendant includes an offer to pay a single sum of money, that is taken to be payable within 14 days of the date of acceptance or, in some cases, the date of a court order. In those circumstances, if the accepted sum is not paid within 14 days or such other period that has been agreed, then the Offeree may enter judgment for the unpaid sum.

Of course it is possible for the parties to agree different terms of settlement and again, if the terms of the agreed settlement are not adhered to, then the Offeree may apply to enforce the terms of settlement without having to bring a new claim.

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