Exploring Advantages and Disadvantages of Part 36 Offers

Quick Summary

1. Part 36 offers are a specific type of settlement offer governed by Part 36 of the Civil Procedure Rules.
2. They can be used by both claimants and defendants to encourage settlement and manage legal costs in a dispute.
3. Strategic advantages exist for both parties to a claim, including potential cost benefits and a stronger negotiating position.
4. Parties need to carefully consider the implications of making and responding to a Part 36 offer, as there can be significant consequences.
5. Our law firm firm, Go Legal, has over 100+ 5* reviews on Trustpilot & has been rated as Excellent with 4.9 out of 5 rating putting us amongst one of the best law firms in the UK.

Have you received a Part 36 offer or are you considering making one? Gain clarity and protect your interests with a Free Consultation with our expert solicitors. Call us now on 0207 459 4037 or schedule at a time that is convenient for you by using our booking form below.

Introduction to Part 36 Offers in UK

Dealing with legal disputes can be complex and overwhelming. Whether you’re seeking to resolve a claim or defend against one, it is crucial to understand the tools and strategies available for achieving a fair outcome.

Part 36 offers present strategic opportunities for both claimants and defendants by potentially reducing legal costs and providing clear incentives for settlement, with some consequences potentially determining the particular potential advantage and benefit of an offer made under a Part 36 offer at the discretion of the court. In this article, we explore the benefits, risks, and requirements of using Part 36 offers, enabling you to make well-informed decisions in your legal matters. Engaging experienced legal counsel is vital to maximise the advantages of this powerful legal tool and to ensure that it is applied effectively in your case.

What Is a Part 36 Offer?

A Part 36 offer is a special type of settlement offer mechanism within the UK’s legal framework that aims to encourage parties to resolve disputes before trial, particularly any part of a claim. These offers are formal written proposals made in compliance with Part 36 of the Civil Procedure Rules and can significantly influence the outcome of a case, particularly regarding the type of offer related to legal costs.

Both claimants and defendants can make early Part 36 offers. For instance, a claimant may propose a specific amount to settle the whole of the claim, while a defendant, as the paying party, might offer to pay a single sum of money to resolve the matter. If a Part 36 offer is rejected and the rejecting party fails to achieve a more favourable outcome at trial, they may face significant cost consequences, such as paying additional costs or interest, which will depend on the exercise of the court’s general discretion on costs, especially in detailed assessment proceedings, allowing claimants to use Part 36 offers to much greater effect.

Courts view Part 36 offers as a means to streamline legal processes and encourage fair settlements. The Court of Appeal has emphasised the importance of adhering strictly to the rules surrounding these offers to avoid unintended consequences.

Example of a Part 36 Offer in a Commercial Dispute

Consider a scenario where a business owner (the claimant) is involved in a contract dispute with a supplier (the defendant). The claimant alleges that the supplier breached the terms of their agreement by failing to deliver goods as promised, resulting in a financial loss of £100,000.

The claimant makes a Part 36 offer to settle the claim for £80,000, specifying that this offer remains open for acceptance within a 21-day ‘relevant period’. The offer is clearly labelled as a Part 36 offer under the Civil Procedure Rules and outlines that it covers the entire claim, including interest accrued up to the date of acceptance and a provision for the recovery of the claimant’s costs up to that point.

If the supplier accepts the offer within the specified period, the matter is resolved, and the claimant is entitled to recover their legal costs up to the date of acceptance in a personal injury claim. However, if the supplier rejects the offer and the case proceeds to trial, and the Court awards the claimant an amount equal to or greater than £80,000, the supplier may face significant cost penalties. This could include covering the claimant’s legal costs on an indemnity basis from the end of the relevant period, as well as paying interest on the awarded sum and costs (see further below).

For more detailed insights and tips on how to draft and strategically use a Part 36 offer to maximise your settlement in commercial litigation cases, see our related article: Part 36 Offer Example: How to Draft, Use, and Maximise Your Settlement in the UK.

Key Features of Part 36 Offers

Several essential characteristics define a Part 36 offer:

1. Genuine Intent to Settle: The offer must reflect a real intention to resolve the dispute, rather than simply serving as a tactical move.
2. Written Format: The offer must be in writing and clearly state that it is made under Part 36 of the Civil Procedure Rules. It should also outline the terms of the settlement, such as whether it pertains to the entire claim or only a portion, including any relevant counterclaims.
3. Clear Terms: If the offer involves a monetary settlement, it must specify the exact amount, including interest where applicable, regarding the Bank of England base rate.
4. Relevant Period for Acceptance: The offer must include a period of no less than 21 days during which the opposing party can accept it. This ‘relevant period’ sets the timeline for acceptance and influences potential cost consequences.

Part 36 offers can have a major impact on legal costs. If an offer is accepted, the party making the offer may recover their legal costs up to that point. However, if the offer is rejected and the rejecting party achieves a less favourable outcome at trial, they may be subject to penalties, including paying additional costs.

Requirements for a Valid Part 36 Offer

To ensure that a Part 36 offer is valid and triggers the desired cost consequences, it must meet specific requirements:

1. Written Declaration: The offer must clearly state that it is made under Part 36.
2. Identification of Claims: The offer should specify which claims it relates to, including any counterclaims.
3. Monetary Provisions: For offers involving payment, the amount must be specified, including any interest, which must be referenced against the Bank of England base rate.
4. Relevant Period: The offer must include a minimum 21-day period for acceptance, providing a window for settlement discussions.

Strategic Considerations and Potential Consequences

Part 36 offers can provide significant advantages in settlement negotiations but also carry risks, especially when considering a genuine offer that aims for meaningful cost protection. For example, if you make an offer that is rejected but subsequently achieves a better outcome at trial, you may be entitled to enhanced costs. Conversely, rejecting a reasonable offer can lead to severe cost consequences if the trial result is less favourable.

Given these complexities, it is crucial to weigh the benefits and potential drawbacks of making or responding to a Part 36 offer. Consulting with experienced legal professionals ensures that you fully understand the implications and can make informed decisions that align with your objectives.

For expert guidance on making or responding to a Part 36 offer, contact our team today at 0207 459 4037 or book a consultation through our online form. Our specialist solicitors are ready to help you achieve the best possible outcome for your case.

Can a Part 36 Offer Be Withdrawn or Changed?

Yes, a Part 36 offer can be withdrawn or modified under specific conditions. The process for doing so involves meeting certain procedural rules, and the court has the discretion to intervene if it believes a change is unjust.

To withdraw or amend a Part 36 offer, the party making the offer must issue a formal written notice to the other party. This notification must clearly state the intention to withdraw or vary the terms of the offer. However, a withdrawal or change is not always a simple matter. Once the ‘relevant period’ (the 21-day minimum period for acceptance) has expired, there are additional considerations. If the receiving party has relied on the offer in good faith and withdrawal would lead to unfair outcomes, the court may restrict the ability to amend or withdraw the offer.

In some cases, the withdrawal or modification of a Part 36 offer may be subject to the court’s approval, especially where it impacts the overall fairness of the proceedings. Parties need to be mindful of their conduct throughout the process, as the court considers their actions and intent when assessing whether withdrawal or change is appropriate.

What Are the Cost Consequences of a Part 36 Offer?

The cost consequences of a Part 36 offer, as outlined in the Civil Procedure Rules, are designed to encourage parties to make and consider settlement offers seriously. Understanding these consequences is crucial, as they can significantly affect the financial outcome of a dispute.

What Constitutes a “Successful” Part 36 Offer?

A “successful” Part 36 offer occurs when the party making the offer (whether a successful claimant or defendant) achieves an outcome in court that is at least as favourable as the terms they proposed in their Part 36 offer. This triggers specific costs-related consequences in favour of the offering party, as noted in the judgments involving the office of communications. Essentially, if the offer is not accepted and the trial outcome matches or exceeds the terms of the offer, the offering party may be entitled to substantial cost benefits.

Costs Consequences for the Party Making a Successful Offer:

1. Enhanced Interest on Damages: If a claimant makes a Part 36 offer that is rejected, and subsequently obtains a judgment that is at least as favourable as their offer, the court may require the defendant to pay interest on the damages awarded at a rate of up to 10% above the base rate. This interest applies from the date the relevant period expires (usually 21 days after the offer was made) until the judgment is given.
2. Costs on the Indemnity Basis: The successful party may be awarded their costs on an indemnity basis from the date the relevant period ended. Costs assessed on an indemnity basis typically result in a higher recovery of costs compared to the standard basis, meaning that more of the successful party’s expenses are reimbursed.
3. Additional Amount on Damages: The court may order the defendant to pay an “additional amount” of up to 10% of the value of the damages awarded, capped at £75,000. This extra sum acts as a financial incentive to accept reasonable settlement offers.
4. Enhanced Interest on Legal Costs: In addition to enhanced interest on the damages, the court may impose interest on the successful party’s legal costs at a rate of up to 10% above the base rate from the expiry of the relevant period.

Costs Consequences for the Party Receiving a Part 36 Offer:

1. Paying the Opponent’s Costs: If a defendant makes a Part 36 offer that is not accepted by the claimant and the claimant ultimately fails to achieve a judgment more favourable than the offer, the claimant may be ordered to pay the defendant’s legal costs from the expiry of the relevant period.
2. Interest Penalties: The court may also impose interest on any costs the claimant is required to pay.

Discretion of the Court:

The court retains discretion to vary these cost consequences if it believes enforcing them would be “unjust.” Factors taken into consideration include:

1. The timing of the offer.
2. The conduct of the parties during the proceedings.
3. Any relevant changes in circumstances.

Example: Imagine a commercial contract dispute in which the claimant offers to settle for £100,000 through a Part 36 offer, but the defendant refuses. If the court later awards the claimant £120,000, as seen in JLE v Warrington & Halton Hospitals NHS, the claimant may be entitled to recover their costs on an indemnity basis from the end of the relevant period, receive enhanced interest on the damages awarded, and claim an additional 10% on the judgment amount. These cost consequences underscore the importance of carefully evaluating a Part 36 offer before rejecting it.

What Does the Court Consider to Be Unjust?

Although Part 36 sets out specific cost consequences for acceptance or rejection, the court retains the discretion to adjust these consequences if they would lead to unjust outcomes. This safeguard ensures fairness in the application of the rules.

To determine whether enforcing Part 36 cost consequences is unjust, the court examines several factors, such as:

1. Reasonableness of the Offer: Was the offer realistic and fair at the time it was made? An unreasonable or overly aggressive offer may carry less weight.
2. Information Available: The court considers what both parties knew when the offer was made, including evidence and factual clarity.
3. Conduct of the Parties: The behaviour of each party throughout the litigation process, including efforts to engage in meaningful settlement negotiations, plays a role in determining fairness.
4. Impact of Settlement Attempts: The court assesses whether parties genuinely tried to resolve the matter or if they acted in a way that prolonged the dispute.

By weighing these factors, the court maintains balance and fairness in the application of Part 36 costs, ensuring justice is done on a case-by-case basis.

Advantages of Making a Part 36 Offer

There are several strategic and financial benefits to making a Part 36 offer, which can enhance your negotiating position and streamline dispute resolution:

1. Encourages Settlement: A Part 36 offer signals a genuine intent to settle, prompting the opposing party to seriously consider resolving the matter rather than incurring additional litigation costs and risks.
2. Cost Protection: If the offer is accepted within the ‘relevant period,’ the party making the offer can recover their costs up to the point of acceptance. Conversely, if the offer is rejected and the rejecting party fails to achieve a better outcome at trial, they may face penalties, including paying enhanced costs and interest.
3. Greater Certainty: By settling early through a Part 36 offer, parties gain certainty over the outcome, avoiding the unpredictable nature of the trial.

Strategic Benefits in Negotiations

Part 36 offers provide a tactical advantage during negotiations by establishing a clear benchmark for settlement discussions. The presence of a Part 36 offer with a short time limit shifts the dynamic, often compelling the opposing party to engage in more meaningful negotiations. Both claimants and defendants can leverage Part 36 offers to strengthen their positions, promote faster settlements, and minimise protracted litigation.

Potential Disadvantages and Risks of Part 36 Offers

While Part 36 offers can be highly beneficial, they are not without their potential drawbacks:

1. All-or-Nothing Nature: If you make a Part 36 offer, the terms must be carefully considered, as misjudgment can lead to unintended outcomes if the offer is accepted or rejected.
2. Complexity in Application: Drafting a compliant Part 36 offer that aligns with the specific rules and achieves the desired objectives requires precision and expertise. Failure to meet technical requirements can render the offer invalid.

Risks and Limitations

The risks associated with Part 36 offers primarily stem from their binding nature and potential cost implications. Misjudging the strength of your case, making a low offer, or relying on a rejected offer that is later used against you can have financial consequences. To mitigate these risks, parties should conduct thorough assessments and seek tailored legal advice.

Circumstances Where Part 36 May Not Be Ideal

In complex or factually uncertain cases, using a Part 36 offer may not be the best option, especially when considering the facts of a particular case and the specific circumstances of their own case. Situations involving reputational risks or broader commercial interests may require a more flexible approach to settlement. Understanding the unique dynamics of your dispute and weighing the pros and cons is essential before committing to a Part 36 strategy.

Strategic Benefits of Effective Use of Part 36 Offers

Effectively utilising Part 36 offers requires strategic planning. When approached correctly, they can offer both claimants and defendants significant leverage, encouraging favourable outcomes and cost savings. Assessing the strengths and weaknesses of your case, considering potential costs, and tailoring your offer to fit your objectives is key to maximising their effectiveness.

For personalised legal advice on making or responding to Part 36 offers, contact our specialist litigation solicitors at 0207 459 4037 or book a Free Consultation through our online booking form below.

Frequently Asked Questions About Part 36 Offers

What is the Relevant Period for a Part 36 Offer?

The ‘relevant period’ is a key component of a Part 36 offer under the Civil Procedure Rules. It refers to the minimum period during which the recipient of a Part 36 offer can accept it without incurring additional cost consequences. Typically, the relevant period must be at least 21 days from the date the offer is made.

During this period, if the offer is accepted, the case is settled on the terms outlined in the offer, and the party making the offer is generally entitled to recover their costs up to the date of acceptance. If the offer is not accepted within this timeframe and the case goes to trial, the court may consider the terms of the rejected offer when deciding on costs, potentially imposing financial penalties on the party who rejected it.

The relevant period is important because it creates a window for serious consideration of settlement and encourages parties to resolve disputes early.

What happens if a Part 36 offer is rejected?

If a Part 36 offer is not accepted and the case proceeds to trial, the trial judge and the court take the rejected offer into account when determining costs related to the claim value. If the rejecting party fails to achieve a better result than the terms of the offer, they may face significant cost consequences. This could involve paying a higher proportion of the opposing party’s costs, potentially on an indemnity basis, and incurring interest penalties.

Can a Part 36 offer be withdrawn or changed?

Yes, a Part 36 offer can be withdrawn or varied, but it must be done with formal written notice to the other party. Once the ‘relevant period’ has expired, changing or withdrawing an offer is subject to additional scrutiny, and the court may intervene if it considers the change to be unjust. This ensures fairness, especially where the opposing party has reasonably relied on the offer.

How does a Part 36 offer impact litigation costs?

A Part 36 offer significantly affects the allocation of legal costs. If the acceptance of the offer occurs within the specified timeframe, the party making the offer can recover their costs up to that point. If an offer is rejected and the party rejecting it fails to achieve a better result at trial, they may be penalised with additional cost liabilities, such as indemnity costs and interest on damages.

Is there a time limit for accepting a Part 36 offer?

Yes, the ‘relevant period’ for a Part 36 offer is a minimum of 21 days from the date of the offer. Within this period, the offeree can accept the offer with cost consequences as outlined in the offer. After the relevant period, acceptance may still be possible, but the court will determine how costs are allocated.

When can a claimant make a Part 36 offer?

A claimant can make a Part 36 offer at any stage of legal proceedings, including before formal court proceedings begin and during the trial process. The timing of the offer can have strategic implications, encouraging earlier settlement or serving as leverage as the case progresses.

What are the main advantages of making a Part 36 offer?

Part 36 offers provide several key benefits, such as encouraging settlement, reducing the uncertainty and costs associated with a trial, and offering cost protection if the offer is accepted. For claimants and defendants, it creates strong incentives to settle on favourable terms.

Are there any risks or drawbacks to using a Part 36 offer?

While Part 36 offers can be highly advantageous, there are potential drawbacks to making different kinds of offers. Misjudging the strength of your case, making an offer that undervalues or overestimates your position, or facing complex legal issues can lead to undesirable outcomes. Therefore, it is important to seek your own legal advice specific to the circumstances of your case when carefully considering the terms and potential consequences of a Part 36 offer.

Can the court override Part 36 cost consequences?

Yes, the court has discretion to override the usual cost consequences if it deems their application would be unjust. The court considers factors such as the reasonableness of the offer, the conduct of both parties, and any relevant circumstances to ensure fairness is upheld.

How does Part 36 offer impact negotiation strategy?

A Part 36 offer often strengthens the position of the party making it by compelling serious consideration from the opposing side. It sets a benchmark for settlement negotiations and can apply pressure on the recipient to settle to avoid potential cost penalties later.