Whenever parties are in a civil dispute, the Court will always encourage them to explore a negotiated settlement to avoid going to an expensive, risky and time-consuming trial. What many do not know, is the mechanisms through which they encourage settlement.

A critical tool to negate the need for a trial can be found under the Civil Procedure Rules. This is known as a Part 36 Settlement Offer.

The Part 36 mechanism provides strategic advantages for both Claimants and Defendants, influencing the legal costs consequences for both parties.

This guide will break down what Part 36 offers are, how they work, and the risks and benefits associated with them for a Claimant and a Defendant.

What is a Part 36 Offer?

A Part 36 offer is a formal settlement proposal made in accordance with CPR Part 36 and is designed to incentivise acceptance and swift resolution. They can be used at all stages of the dispute, including before proceedings, making it a flexible mechanism.

If a party rejects an offer and fails to achieve a better result at trial (a higher damages award than what is in the offer), serious financial consequences will apply to the rejecting parties’ legal team.

A Valid Part 36 Offer Will:

✔ Be made in writing (This can be typed).
✔ Be clear as to what part of the claim it relates to.
✔ Be left open for acceptance for at least 21 days (the “Relevant Period”).

What Happens When a Part 36 Offer is Accepted?

If the Part 36 offer is accepted within 21 days, the case will settle on the terms of the offer and the matter will end without the option to re-issue proceedings. If accepted, damages payments must be paid within 14 days.

If a party decides to accept an offer after the 21-day period, the Court may be required to rule on how the post-offer legal costs are handled. However, this may depend on whether the offer has been formally withdrawn.

The Risks of Rejecting a Part 36 Offer: The Defendant Makes the Offer.

Rejecting a Part 36 offer carries significant cost risks for both parties, which incentivises settlement on a basis of financial risk.

If a Defendant makes the offer, but the Claimant rejects it and goes on to recover less than the offer at trial, then the Claimant may be ordered to pay the Defendant’s legal costs from the expiry of the Relevant Period to the end of the trial and will not be able to recover their own costs for that period. The Claimant may also be forced to pay interest on these costs.

The Risks of Rejecting a Part 36 Offer: The Claimant Makes the Offer.

If a Claimant makes a Part 36 offer, which the Defendant rejects, but the Claimant secures a better outcome at trial, then the Defendant may be forced to pay indemnity costs from the expiry of the relevant period, as well as an uplift of up to 10% on damages (capped at £75,000).

There are different hypothetical scenarios covered below, applying to different parties and covering an example of a dispute between Tim and his ex-employer, XYC Ltd.

Tim -v- XYC Ltd: The Claimant Fails to Beat a Defendant’s Part 36 Offer.

XYC Ltd made a Part 36 offer to Tim, a Claimant suing his employer (XYC) in a personal injury matter. Tim decides that the offer XYC made to settle the case is not enough, he is confident in his prospects and rejects the offer in favour of trial.

👉 Tim -v- XYC Ltd: What Happened?

• Tim sues his employer for £10,000 as he was injured at work.
•  XYC formally offers Tim £8,000 as settlement under Part 36.
• Tim rejects the offer, but later only wins £7,000 at his trial.
• As a result, Tim must pay XYC’s legal costs from the expiry of the offer period and interest on those costs.

Tim -v- XYC Ltd: The Defendant Fails to Beat a Claimant’s Part 36 Offer.

Tim’s lawyer made a Part 36 offer of £8,000 to XYC for an early settlement of the whole matter. XYC rejects the offer due to their mistaken belief that Tim has bad prospects at trial and is lying about his injury.

👉 Tim -v- XYC Ltd: What Happened?

• Tim formally offers to settle for £8,000 under Part 36.
• XYC rejects it because they believe his case has no merit.
• Tim issues proceedings and later wins £10,000 in damages at trial.
• As a result, the Judge orders that XYC must pay an extra 10% on Tim’s damages, indemnity costs, and further interest penalties.

Why Would a Defendant Submit a Part 36 Offer to a Claimant?

• To limit risk and costs if they acknowledge potential liability at an early stage.
• To apply strategic pressure on the claimant to settle early and to begin negotiations.
• To encourage settlement even if they believe they will win at trial due to the negative press of a publicised trial.

Why Would a Claimant Submit a Part 36 Offer to a Defendant?

• To achieve a swift damages award to end a matter.
• To pressure the Defendant into settlement before you incur lots of legal costs.
• To enforce a response from the Defendant and to reach a swift conclusion.
• To protect against adverse cost orders against your legal team.

Conclusion

Part 36 Offers are critically important to the result of a legal dispute. The Part 36 mechanism can determine the financial loss or gain in a claim. Whether used by the Claimant or the Defendant, they provide a strong incentive for both parties to accept due to the consequences of rejection.

Before accepting, making or discussing a Part 36 Offer, it is important to seek legal advice with expert solicitors. Part 36 offers are often submitted strategically and at a certain point of a case. It is critical to have a solicitor with the detailed knowledge of industry nuances to be successful when making an offer to settle.

If you are thinking about making a Part 36 Offer, or if you believe that you have a case which merits making a Part 36 Offer, contact Gifford Cairns today for clear and practical advice and a swift resolution to your matter.