What is a Part 36 offer?
Part 36 of the Civil Procedure Rules (CPR) is intended to encourage the parties to settle by attaching costs penalties where litigation has been conducted in an overly aggressive fashion or without true regard to the merits of the claim or defence. By attaching those penalties a Part 36 offer can often force the parties to settle as it increases the costs risk if the matter gets to trial. These penalties have become stricter for Defendants following the recent Jackson reforms.
How will the Part 36 operate if I am successful?
The mechanics of Part 36 can be fairly complex but in basic terms it means that if the Defendant makes an offer which the Claimant fails to beat at trial with a "more advantageous" judgment, the Claimant may be required to pay the Defendant's costs (and interest on those costs) from the date on which the offer expired, even if it has technically still won the case.
If the Claimant makes an offer which it beats at trial the Defendant may be liable for substantial interest and a higher than usual award of costs paid on the indemnity basis. The Claimant will also, for offers made on or after 1 April 2013, receive an additional sum of damages in respect of a money claim or additional sum for costs in respect of a non-money claim as follows:
- 10% on damages or costs up to £500,000;
- 5% on damages or costs above £500,000 up to £1 million;
The maximum enhancement is capped at £75,000 on damages or costs.
What constitutes 'more advantageous'?
In earlier case law it had been suggested that ‘more advantageous’ could include non-monetary values such as time and stress, making the position far less certain as to when an offer can be said to 'beat' a monetary judgment. Following this a change to the rules has been introduced which clarifies that "more advantageous" means "better in money terms by any amount, however small".
What does a Part 36 Offer need to include?
Part 36.2 of the CPR requires that an offer must:
Will I automatically get the Part 36 costs consequences at trial if I beat an offer made?
- be in writing;
- state on its face that it is to have Part 36 consequences;
- specify a period of no less than 21 days in which the offeree may decide to accept;
- state the amount of the claim which it takes into account (and if it includes any counter claim).
In general, you will do. However, if you have conducted your case in a manner which the court terms unsatisfactory, the court may decide not to award the Part 36 consequences or determine that they will run only from the point at which you corrected your error or behaviour.
Examples of unsatisfactory conduct in recent cases include refusing to give information requested which would enable the offer to be evaluated fully, attempting to use material obtained fraudulently and taking an unrealistic approach to the litigation which escalated the claim unnecessarily.
Is a time limited Part 36 offer valid?
A Part 36 offer may not be time limited – e.g. by stating on the face of the offer that it will be automatically withdrawn on a future date. If parties no longer wish a Part 36 offer to remain open for acceptance because of changes in their position or in the case they should withdraw it in writing as soon as possible.
What happens if I don’t get all the requirements correct?
CPR 36.1(2) states that if an offer is not made in compliance with CPR 36.2 it will not have the costs consequences intended.
Courts do however want litigants to be able to rely on Part 36 offers because they promote settlement and cut trial costs. To such end, courts will sometimes attempt to ‘interpret’ Part 36 offers to read accurately where they were a genuine attempt to settle. This has included construing phrases such as “this offer will be open for 21 days” to mean not that the offer is time limited but that the party may withdraw it after that date.
Reliance should not be placed on the courts doing so, as Judges have also where appropriate deemed offers invalid for technical defects, and it is therefore important to ensure that any Part 36 offer that you intend to make is drafted correctly and that appropriate legal advice is sought in this regard.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at August 2013. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.
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