Why Part 36 Offers Are Critical in Resolving Legal Disputes
A Part 36 offer is a powerful settlement tool under the Civil Procedure Rules (CPR) in England and Wales, designed to facilitate early resolution of disputes. In litigation, a well-crafted Part 36 offer can pressure the opposing party to settle, thereby avoiding a costly trial. If the offer is not accepted and the other party fails to achieve a better outcome in court, they may face significant financial penalties.
Understanding how to use a Part 36 offer effectively can dramatically influence the case’s financial outcome for businesses and individuals involved in contractual disputes, shareholder disagreements, or professional negligence claims. Our expert litigation lawyers set out a step-by-step breakdown of drafting a Part 36 offer, share some Part 36 offer examples, discuss the implications of Part 36, and practical strategies for maximising your settlement.
Are you considering making a Part 36 offer or have received an offer? Contact our experienced commercial litigation team at 0207 459 4037 for a Free Consultation or use our online booking form to discuss your case today.
What Is a Part 36 Offer?
A Part 36 offer is a written proposal to settle a dispute that adheres to specific requirements under the CPR. It serves as a formal settlement tool that, if used strategically, can lead to significant cost benefits for the party making the offer. The primary purpose is to encourage early settlements by imposing cost penalties if the offer is rejected and the rejecting party fails to achieve a more favourable result at trial.
Properly drafted Part 36 offers can apply cost pressure on the other party, thereby enhancing your position in settlement negotiations.
Why Use a Part 36 Offer in Litigation?
1. Cost Consequences for Non-Acceptance
If the opposing party rejects your Part 36 offer and fails to obtain a more advantageous outcome at trial, they may be ordered to pay your legal costs on an indemnity basis. Indemnity costs often cover a larger proportion of your legal fees than standard costs, significantly increasing the financial risk for the rejecting party.
2. Enhanced Interest Rates
The court can award interest on the judgment sum at a rate of up to 10% above the base rate if the Part 36 offer is not beaten. This can substantially increase the amount the opposing party is liable to pay, thereby incentivising early settlement.
3. Additional Damages
Under CPR 36.17, if you win an amount equal to or greater than your Part 36 offer, the court may award you an additional payment of up to 10% of the judgment value (capped at £75,000). This additional sum serves both as a reward for your strategic use of the offer and a penalty for the opposing party’s refusal to settle.
4. Strategic Leverage
The threat of adverse cost consequences makes Part 36 offers a crucial tactic to encourage early settlement, potentially saving time, legal fees, and court expenses.
How to Draft a Legally Valid Part 36 Offer
To ensure that a Part 36 offer is enforceable and carries full cost consequences, it must meet specific requirements under the CPR Part 36:
- Clear Statement: Clearly state in writing that the offer is made under Part 36 of the CPR.
- Scope: Specify if the offer is intended to cover the entire claim, part of the claim, or specific issues within the claim. It should also indicate whether any counterclaims are included.
- Relevant Period: Include a “relevant period” of at least 21 days within which the offer can be accepted. The cost implications hinge on this period, making it a critical element.
- Defendant’s Payment Terms: If the offer is made by a defendant, it must state that payment will be made as a single sum within 14 days of acceptance.
- Costs: Clarify that the defendant will be liable for the claimant’s costs if the offer is accepted within the relevant period.
Important: Failure to comply with these requirements may weaken the cost consequences of the offer, reducing its impact on settlement negotiations.
The Part 36 Offer Form: Making Your Offer
To formalise a Part 36 offer, you should use the N242A form, which is specifically designed for this purpose. This form ensures that all the necessary information is included and that the offer is compliant with Part 36 requirements. The form requires details such as:
- The parties involved.
- The terms of the offer, including the settlement amount.
- The relevant period (at least 21 days).
- A statement that the offer is made under Part 36.
Properly completing this form is crucial for ensuring the offer has the intended legal and cost consequences.
Part 36 Offer Example: Practical Scenario in a Contract Dispute
A claimant, a software development company, seeks £400,000 in damages for breach of contract against a client who failed to make payment for services rendered. The claimant decides to make a Part 36 offer to settle the dispute for £350,000, providing a 21-day acceptance period.
- Drafting the Offer: The claimant completes the N242A Part 36 form, specifying the £350,000 settlement sum and explicitly stating that the offer is made under Part 36.
- Stipulating Terms: The offer outlines the 21-day relevant period for acceptance and clarifies that the claimant’s costs are payable up to the date of acceptance.
- If Accepted: The defendant agrees to pay £350,000 within 14 days and covers the claimant’s legal costs up to the acceptance date, resolving the dispute without a trial.
- If Rejected: The case proceeds to trial, where the claimant secures a judgment of £380,000.
Consequences of Rejection
- Indemnity Costs: The court orders the defendant to pay the claimant’s costs on an indemnity basis from the expiry of the 21-day period.
- Enhanced Interest: The court awards interest on the judgment sum at a rate of 8% above the base rate.
- Additional Damages: The court awards an additional 10% of the judgment amount (£38,000) under CPR 36.17.
A strategically pitched Part 36 offer can significantly impact the opposing party’s financial risk, compelling them to settle on favourable terms.
Successful Case Study: Securing a £550,000 Judgment Using a Part 36 Offer
Our expert lawyers recently represented a claimant in a shareholder dispute involving a claim for over £600,000. The case was complex, involving multiple contractual issues. We advised our client to make a Part 36 offer of £500,000 to exert settlement pressure taking into account litigation risk.
- The offer was drafted using the N242A form and included a 21-day acceptance period.
- The defendant rejected the offer. Our client was awarded £550,000 judgment.
- Since our client’s offer was beaten, the court ordered the defendant to – pay indemnity costs from the expiry of the relevant period and interest on the judgment at 9% above the base rate.
A well-calculated Part 36 offer not only maximised our client’s cost recovery but also added punitive financial consequences for the defendant.
Does Part 36 Apply to Small Claims, Fast Track, and Multi-Track Cases?
No, Part 36 offers do not apply to small claims track cases. They are primarily designed for use in fast track and multi-track cases where cost consequences can have a substantial impact on settlement negotiations.
Small Claims Track
Part 36 offers do not apply to small claims track cases, typically those under £10,000. In the small claims track, cost recovery is limited, and the court’s focus is on resolving disputes cost-effectively.
Instead, the small claims process now includes a compulsory mediation regime. Effective from 22 May 2024, parties in money claims up to £10,000 must participate in a free, one-hour mediation session provided by the HMCTS Small Claims Mediation Service. This move aims to reduce the number of claims reaching court and encourages early settlement without the need for a full hearing.
Mediation is an opportunity for parties to discuss their dispute in a neutral environment, often resulting in quicker resolutions. If a party fails to attend the required mediation without a valid reason, the judge may impose sanctions at the final hearing, which could include fines or even the dismissal of a claim or defence.
While compulsory mediation does not carry the formal cost consequences of a Part 36 offer, it offers a structured opportunity for settlement and helps parties avoid the stress, time, and expense of court proceedings. It also aligns with the broader goals of the court system to promote amicable dispute resolution.
Fast Track and Multi-Track
Part 36 offers do apply in fast track (claims typically between £10,000 and £25,000) and multi-track cases (claims over £25,000 or involving complex legal issues). In these cases, rejecting a Part 36 offer can lead to significant cost penalties, such as indemnity costs, enhanced interest and additional damages as set out above.
While Part 36 offers are not applicable to small claims, the compulsory mediation regime introduced in 2024 plays a crucial role in facilitating early settlement in these cases. For fast track and multi-track cases, Part 36 offers remain a powerful tool for applying pressure to settle and mitigating cost risks.
Our Winning Approach to Part 36 Offers and Commercial Litigation
Effectively leveraging Part 36 offers requires strategic planning and expertise. Our commercial litigation team has a proven track record in using Part 36 offers to secure favourable settlements in cases ranging from £50,000 to multi-million-pound disputes. Our approach includes:
- Free Initial Consultation: Get tailored advice from a qualified lawyer on making or responding to a Part 36 offer.
- Customised Strategy: We develop a bespoke strategy to maximise settlement prospects.
- Expert Analysis: We assess the cost implications and benefits of Part 36.
- Secure Communication: Use our secure portal, Go Transfer, for document sharing.
- 24/7 Support: Access to a WhatsApp group with your legal team and a 24/7 chat feature for prompt responses.
- Flexible Funding: Fixed fees and “no win, no fee” arrangements to suit your needs.
Contact our commercial litigation team at 0207 459 4037 or book a Free Consultation through our online form.
Fixed Fees and Flexible Funding Options
Litigation can be financially demanding. We offer flexible funding options, including Fixed Fees with Transparent pricing with no hidden costs and No Win, No Fee Arrangements.
Call us on 0207 459 4037 or use our online form for expert advice on using Part 36 offers to your advantage.
Part 36 Offers FAQs
Q: What happens if the opposing party rejects my Part 36 offer?
If the opposing party rejects your Part 36 offer and fails to obtain a more favourable outcome at trial, they may face several cost consequences:
- Indemnity Costs: You may be awarded costs on an indemnity basis from the date the relevant period expired, which often covers a greater proportion of legal fees than standard costs.
- Enhanced Interest: The court can order the opposing party to pay interest on the judgment sum at a rate of up to 10% above the base rate.
- Additional Damages: The court may award an additional sum of up to 10% of the judgment value, capped at £75,000.
Q: Can I withdraw a Part 36 offer, and how does it affect the cost consequences?
Yes, a Part 36 offer can be withdrawn or amended at any time after the 21-day relevant period. Withdrawing the offer before the 21-day period expires may reduce its potential cost consequences. If you wish to withdraw an offer within the relevant period, you must serve a notice of withdrawal, and in certain circumstances, the court’s permission may be required.
Q: What if my Part 36 offer is accepted after the 21-day period?
If the opposing party accepts your Part 36 offer after the 21-day period, the court will generally decide on the costs. Typically, you are entitled to recover costs up to the end of the relevant period, but the court may make different cost orders for the period following the expiry date.
Q: How do I submit a Part 36 offer using the N242A form?
To submit a Part 36 offer, complete the N242A form, available on the HM Courts & Tribunals Service website. The form requires details such as the parties involved, the proposed settlement amount, the relevant period (at least 21 days), and a clear statement that the offer is made under Part 36.
Q: Can I make more than one Part 36 offer during the same case?
Yes, multiple Part 36 offers can be made at different stages of the case. Each offer must comply with CPR Part 36 requirements to carry the intended cost consequences. Making successive offers can be strategically advantageous, especially as new evidence or developments arise in the case.
Q: What is the “relevant period” in a Part 36 offer, and why is it important?
The “relevant period” is a minimum of 21 days during which the opposing party can accept the offer without risking adverse cost consequences. If the offer is not accepted within this period, and the opposing party fails to achieve a more advantageous result at trial, they may face severe cost penalties, including indemnity costs, enhanced interest, and additional damages.
Q: Does a Part 36 offer need to be in a specific format?
While a Part 36 offer does not require a specific format, it must meet certain criteria to be valid under CPR Part 36:
- Clearly state that it is made pursuant to Part 36.
- Include a settlement amount or terms.
- Specify the relevant period. Using the N242A form is recommended, as it provides a standard template that includes all necessary information.
Q: What happens if the opposing party fails to pay after accepting a Part 36 offer?
If the opposing party accepts a Part 36 offer but fails to make the payment within the stipulated 14-day period (or another agreed timeframe), you can seek enforcement of the offer through the court. The court may issue an order for the unpaid amount, and additional enforcement actions can be taken to recover the sum due.
Q: Can a Part 36 offer include non-monetary terms, such as an admission of liability?
Yes, a Part 36 offer can include non-monetary terms. However, including such terms may affect how the court assesses whether the offer was “more advantageous” than the judgment at trial. It’s advisable to seek legal advice when incorporating complex terms into a Part 36 offer.
Q: What if both parties make Part 36 offers?
When both parties make Part 36 offers, the cost consequences will depend on the trial’s outcome relative to the terms of each offer. The court will compare the judgment against each offer to determine which party, if any, is entitled to the favourable cost consequences of Part 36.
Q: Are Part 36 offers confidential?
Yes, Part 36 offers are generally “without prejudice save as to costs,” meaning they are not disclosed to the court until after the judgment is given. This ensures that the offer does not prejudice the court’s decision regarding the merits of the case.
Q: What happens if the court judgment is lower than the claimant’s Part 36 offer?
If the judgment amount is lower than the claimant’s Part 36 offer, the claimant may not benefit from the cost consequences of Part 36. In this scenario, the defendant may avoid paying enhanced costs, interest, and additional damages, highlighting the importance of making a realistic and strategic Part 36 offer.
Q: Can I appeal a decision related to Part 36 cost consequences?
Yes, it is possible to appeal a decision regarding Part 36 cost consequences, but this will depend on the specific circumstances of the case and whether there are grounds for appeal. Appeals in cost-related matters can be complex and usually require the expertise of a solicitor experienced in commercial litigation and costs disputes.
