N.B. This section applies to the ‘old’ Part 36, much of which has now changed. This part will be updated to reflect the changes.

Part 36 offers explained

Details of the procedure for making Part 36 offers and payments in civil cases are set out within CPR Part 36. Generally the idea of a Part 36 offer is to compel the other party to the proceedings, whether claimant or defendant, to bring a matter to a swifter conclusion by making a realistic offer to settle. A Part 36 offer may be made in respect of liability and/or in relation to a material monetary amount. Where a defendant makes a Part 36 offer in litigated proceedings that party must make a payment into court whereupon the claimant will have 21 days to consider the offer. If the offer is not accepted and the matter proceeds to a trial and the claimant recovers less than the amount recovered by the defendant he will generally have to pay the defendant's costs from the date of that payment in.

A Part 36 offer is really only made where it is not possible to make a Part 36 Payment into Court. As soon as proceedings are issued, obviously assuming the offer relates to a monetary item, the defendant has to make a Part 36 payment within 14 days of service of the claim form. A Part 36 offer made by either party to the proceedings must be made in writing headed "Without Prejudice Save As To Costs" and state that the offer made is open for 21 days. It must also specifically exactly whether the offer relates to the whole or part of the claim and whether the offer is inclusive of interest.

CPR Part 36.5(6) states that a Part 36 offer may only be accepted on expiry of the 21 days if (a) the parties agree liability for costs; or (b) the court gives permission. In the past the Court would only give permission for late acceptance of an offer where there had been a significant changes in the risk of litigation in the case. If the offer relates to the whole of the claim then, if accepted the claim is stayed. If the offer relates to part of the claims then the claim is stayed as to that part with liability for costs to be agreed or decided by the court.

 The Claimant's Part 36 offer

The claimant may make a Part 36 offer on the same terms as a defendant Part 36 offer at any stage in the proceedings, the difference of course being that no payment into court is made once the proceedings are issued. If the offer is accepted by the defendant the claimant will be entitled to his costs up to the date that a Notice of Acceptance is filed. In addition the claimant is entitled to interest on his costs from the date of that acceptance. If the claimant's Part 36 offer is rejected and the claimant is awarded more at trial than he had offered to accept then CPR Part 36.21 applies. In this part, where a claimant does better than his Part 36 offer, the court, unless it considers it unjust to do so, may award costs on the greater indemnity basis and with enhanced interest on the damages and/or the costs, up to 10% above the base rate. Interest in these circumstances can even be awarded on damages that would otherwise not attract interest, like future losses. CPR Part 36.21(5) sets out the considerations given by he courts when making such an order. It should be noted that the court would also consider the terms of the offer, when the offer was made, the information available to the parties at the time the offer was made and the conduct of the parties.

In the case of Earl -v Cantor Fitzgerald International (No. 2) [2001] 3 May 2001 the claimant had made a Part 36 offer in August 1999 and then a further, lower Part 36 offer in February 2000. The matter proceeded to trial and the claimant did better than both of the offers. The issues of great significance of the case were that the defendant could have concluded the matter much earlier. The period from which the enhanced rate of interest that was allowed ran from the date of the first offer. When considering the rate of interest to be awarded the court considered whether such an award would be of disproportionate benefit to the claimant or disproportionate forfeit on the defendant.

Defendants will often argue that orders for costs awards on the indemnity basis with enhanced interest will only be made when a case is settled at trial. In reality this is not the case. The Court of Appeal decision in Petrograde Inc -v- Texaco Ltd [2002] 1 WLR 947 provides for orders to be made by the Court for costs on the indemnity basis with enhanced interest even though the offer was not beaten at trial. Lord Woolf stated that

"If a defendant involves a claimant in proceedings after an offer has been made, and in the event the result is no more favourable to the defendant that that which would have been achieved if the claimant's offer had been accepted without the need for those proceedings, the message of Part 36.21 is that, prima facie, it is just to make an indemnity order for costs and for interest at an enhanced rate to be awarded".

The emphasis in this case was for claimants to make reasonable offers to settle. A great benefit to the claimant is that if the he fails to meet or beat his own offer there are no adverse costs consequences. This is further discussed below.

 Unclear Waters: What happens if the Claimant equals his offer?

A common scenario is where a claimant makes a Part 36 offer to settle and three months later the defendant indicates that he wishes to accept the offer after. Where does this leave the claimant? Certainly under CPR Part 36.21 there are no provisions that would entitle the claimant to enhanced interest and indemnity costs. Under CPR Part 36.20(2) the court, unless it is considered unjust to do so, would order that the offeree (the claimant) pay the offeror's (defendant's) costs from the latest date on which the offer could have been accepted. In Gaynor -v- Blackpool Football Club, NLJ July 5, 2002, p.1028 the claimant had made a Part 36 offer of 100% on liability. It was therefore impossible for the claimant to better the offer. The court was consequently unable to award indemnity costs. One should consider the case of Huck -v- Robson [2002] 3 All ER 263, CA in this regard.

Tactics

It is advisable that, certainly from a tactical point of view, a claimant should, whenever possible put the pressure on the defendant by making a Part 36 offer at an early stage. Clearly the spirit of the Overriding Objective should be considered. Placing such pressure upon the defendant should save expense, assist a more expeditious conclusion and above all protect the client's interests on the question of costs. However, the quantification of the damages must be accurate and the timing of the offer correct. Many practitioners are of the opinion that it is an even better tactic to put pressure on the defendant to make the Part 36 offer. Indeed, it could well be that the defendant's valuation of the claim is significantly greater and one would always want to act in the client's best interests. If the defendant's offer is not accepted and there is a reasonable prospect of the claimant recovering more, a Part 36 offer should be put forwarded by the claimant. Without such a tool the claimant could almost be bullied into accepting an offer by defendants threatening costs consequences. The possible benefits to a claimant, if a matter goes to trial, are indemnity costs, interest at up to 10% above base rate on costs and interest at up to 10% above base rate on damages. It would be a foolhardy approach to ignore the benefits of making a claimant's Part 36 offer and furthermore may be little point in making such an offer. Such an approach indeed would not uphold the Overriding Objective of CPR Part 1, and is likely to give cause to greater costs being incurred, therefore hardly heeding the principle of proportionality, and in fact could place the claimant client at risk.

Changes to Part 36

Part 36 has been re-written. As from April 2007 Defendants will no longer need to make payments into court in support of Part 36 offer to settle.