How can you benefit by making an early Part 36 offer in a civil dispute?

In court proceedings in a civil dispute between parties, a Part 36 offer to settle is a very important tool that can be used to provide protection on costs. The earlier a Part 36 offer is made, the greater the potential costs protection. This article explains what these offers are and their potential benefits.

A Part 36 offer is a special type of settlement offer, which can be made by claimants and defendants and can be used to settle all or any part of a claim. An offer can be made at any time, including before proceedings have commenced. For an offer to fall within Part 36 it has to be:

• a genuine offer to settle (as opposed to a tactical offer made purely to attract Part 36 costs consequences); and
• made in accordance with the strict requirements of Part 36 (which are not onerous).

Benefits of a claimant making an early Part 36 offer

The claimant that makes a Part 36 offer and then goes on to secure an award that is equal to or better than the offer, can have substantial advantages. Whilst they would automatically be entitled to recover the standard basis legal costs and interest of around 2% above base rate (pursuant to CPR 36.17(4)), the successful claimant can potentially secure the following four enhancements as a result of the early Part 36 offer:

• indemnity costs from the end of the relevant period (usually 21 days after the offer was made);
• enhanced interest on those costs of up to 10% above base rate;
• enhanced interest on the sum awarded of up to 10% above base rate from expiry of the relevant period; and
• an additional 10% of the amount awarded by the court, capped at £75,000.

Benefits of a defendant making an early Part 36 offer

For a defendant, the advantage of a Part 36 offer is the protection afforded by two of its rules, so long as the court does not consider them unjust. These include:  

• protection by 36.13(5); if the claimant does not accept the offer by the date of expiry of the relevant period for acceptance, but decides to accept it later (for instance if the claimant’s perception of the strength of their case then weakens), the claimant will have to pay the defendant’s costs from the date of expiry of the relevant period;
• protection by 36.17(3); if the claimant does not accept the offer, but fails to obtain a judgment more advantageous than the offer, the claimant will have to pay the defendant’s costs from the date of expiry of the relevant period, together with interest on costs.

It should be noted that if a claimant fails to beat an offer by a defendant which does not comply with Part 36, the defendant could still argue that the claimant should pay the defendant’s costs from after the offer, but this would not be an automatic result. It would depend on the exercise of the court’s general discretion on costs under CPR 44.2.

If the claim is dismissed or the claimant recovers nothing, the Part 36 offer has not improved the defendant's position on costs as they would have been entitled to them regardless of the Part 36 offer. Consequently, claimants are able to use Part 36 offers to much greater effect in "all or nothing" claims.

Conclusion

The benefits of making a well-judged Part 36 offer early on are potentially substantial, although it is important to remember the court’s caveat of “unless it considers it unjust to do so”, which does allow some muddying of the waters. Nonetheless, a well-judged Part 36 offer is an excellent way of bringing considerable pressure to bear on an opposing party to consider settling a claim at an early stage in the dispute. The opposing party risks facing stringent costs orders and other consequences if it is unsuccessful.

As well as benefits, there are also a number of downsides to making a Part 36 offer to bear in mind. These include that if the Part 36 offer is accepted, the paying party will be automatically liable for the receiving party’s costs and that the payment period for the amount of the offer is 14 days from the date of acceptance. If the Part 36 offer proposed a longer payment period, it would not be treated as a Part 36 offer unless the offeree accepts the offer. It follows that if the paying party needs longer than 14 days to pay the offer amount, a Part 36 will not generally be an option for them.

Click to read Part 36 of the Civil Procedure Rules for a full understanding of Part 36 offers, or contact Jonathan Copping or any member of Stone King’s Dispute Resolution & Litigation Team.