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Litigation: Offers to settle under Part 36

Friday, 13 January 2012

What is a Part 36 Offer?

In the context of litigation, for example, a civil dispute or a commercial dispute which is before the Courts, a Part 36 offer is an offer by one of the parties to settle the litigation prior to a hearing and decision by a Judge or decision-maker.

A Part 36 Offer can result in a Court dispute settling at an earlier stage which often benefits one or even all parties to the dispute.

A Part 36 Offer must be in writing and structured in the manner prescribed by Part 36 of the Civil Procedure Rules.

Why Make a Part 36 Offer in the Course of Litigation?

For parties to litigation, there are various reasons to consider making a Part 36 offer. For example:

  • A strategic and well structured Part 36 Offer may mean that the parties more quickly obtain a satisfactory result in the litigation.
  • A Part 36 Offer places pressure on the other party to the litigation (the party to whom the offer is made) to seriously consider the strength of their case, whether they are prepared to settle, or whether they are prepared to risk a costs penalty if the matter goes to hearing and they do not ultimately do better than the offer put to them. For example, if a Claimant with a strong claim makes a Part 36 Offer to a Defendant to settle for 85% of the total claim, a pragmatic Defendant may jump at the chance to settle on this basis in view of the risk that if the claim was heard by a Judge an order would be made for payment of the full amount of the claim.
  • Parties are highly likely to save legal costs in the longer term through a quicker settlement of the litigation.
  • Exploring settlement prior to hearing can often be advantageous to both parties. At this stage parties can still negotiate towards a compromise suited to their commercial needs, rather than have an "all or nothing" result imposed on them by the Judge or decision maker at a final hearing.

The effectiveness of a Part 36 Offer lies in its ability to place pressure on the party receiving the offer who will know that, if they do not accept your Part 36 offer and fail to beat your Part 36 offer at the hearing, the Court is likely to order that they make a considerably larger contribution to your legal costs than they would otherwise have had to make.

Information that the Part 36 Offer Must Contain

An effective Part 36 Offer must meet the following requirements:

  • It must be in writing.
  • It must be expressed as being made under Part 36.
  • It must specify the period in which it is open for acceptance by the other party, which cannot be a period less than 21 days (although it can be a longer period or even an indefinite period).
  • It must state that it relates to the entire claim or, if it does not, it must state the relevant part of the claim that it relates to.
  • It must state whether it takes into account any counterclaim.

What Happens if a Part 36 Offer is Accepted by the Other Party?

A Part 36 Offer may be accepted at any time before it expires. If you are a Claimant who has made a Part 36 Offer and your offer is accepted by the Defendant, you will be entitled to have your costs of the litigation paid by the Defendant up to the date the Defendant accepted the offer.

Upon acceptance by the Defendant, your claim will be stayed. Where the Defendant has accepted your offer to pay you a sum of money, that money must be paid to you within 14 days of acceptance.

Cost Consequences: What Happens if a Part 36 Offer is Rejected by the Other Party?

If you are the Claimant and the Defendant does not accept your Part 36 Offer, the Defendant will be ordered to pay your costs, including interest on your costs, if your claim proceeds to hearing and you do better than your earlier offer. So (for example), if your claim against the Defendant is for £100,000 and you made an offer to settle for £85,000 at an early stage in the litigation which the Defendant did not accept, if the matter goes to hearing and you are awarded the full £100,000, the Court is likely to order the Defendant to pay your costs from the date your offer expired up to judgment in your claim.

If you are the Defendant making a Part 36 Offer to the Claimant, if the Claimant does not accept your offer, proceeds to hearing then fails to better your offer, the Court is likely to order that the Claimant pay your costs of the litigation from the date your offer expired to the date of judgment. In this case the Claimant will be ordered to pay your costs at a higher than usual rate. This type of costs order is known as an indemnity costs order.

To find out more about Part 36 Offers in the context of litigation, or if you would like a general discussion about a civil or commercial dispute, please contact James Crighton on 020 7611 4848.