The main objective of the Civil Procedure Rules (CPR) 1999 was to encourage parties to settle and avoid litigation but if they could not, then to encourage the parties to take steps to avoid the case running all the way to trial with disproportionate expenditure of legal costs and time.
Parties wishing to settle a case can do so in any way that they feel easiest, whether by direct negotiation or an exchange of correspondence on a without prejudice basis. However there is a specific procedure promoted by CPR intended to provide a formal basis in which parties can put pressure on each other to settle or suffer costs consequences. That procedure is set out in Part 36 of the CPR, entitled “Offers To Settle”. All litigants should be aware of this rule and its significance and how it may benefit the conduct of their cases, whether they are claimants or defendants.
The basic approach is that if a party makes an offer (and he is then described as the Offerer) to the other party (described as the Offeree) in the terms of Part 36, and that offer is ignored or refused, then the successful Offerer provided he gets a judgement no less advantageous than his offer to settle will be able to impose interest and costs sanctions on the unsuccessful Defendant
An offer to settle soon to Part 36 can be made by either the Claimant or Defendant and in respect of the whole claim, part of the claim, or a counter claim or Part 20 claim. However that offer will only have the consequences I have described above if it is expressly made pursuant to Part 36 and the offer itself complies with the terms of that Order.
Firstly if a party wants to make a Part 36 offer, he must do so in writing and that offer must state on its face that it is intended to have the consequences of Part 36 it must open for acceptance for a specified period of not less than 21 days within which the Offeree will be liable for the Offerers costs if the offer is accepted it must state whether it relates to the whole of the claim or part of it or an issue that arises in it and if so what that is and further whether it takes into account any counter claim.
What must the Offeree do when he receives the offer and what are the consequences?
Firstly the Offeree must accept the Part 36 offer by giving written notice of that acceptance to the Offerer. Secondly a Part 36 offer may be accepted at any time unless the Offerer serves notice on withdrawal of that offer, even after the expiration of the 21 day period although the costs position may then be uncertain.
If the offer is accepted, then the Offerer will be entitled to his costs of the proceedings up to the date he served notice of acceptance.
You can see how the Court rules promote consideration of the risk by both parties when a Part 36 offer is made.
The rules used to require a Defendant making a Part 36 offer to pay the money into Court offered in settlement. That is not now the case. Where a Defendant makes a Part 36 offer which is accepted, the sum offered and accepted must be paid by him within 14 days of acceptance and if not paid judgement may be entered by the Claimant for that unpaid sum and then enforced.
If the Defendant ignores the Claimant’s Part 36 offer (or of course vice versa) and the case runs onto trial and the offer has not been withdrawn, and the Claimant attains judgement at least as advantage as advantageous as its Part 36 offer then:
- The Claimant can claim interest at 10% above base rate on the whole or part of any sum of money awarded in the judgement.
- The Claimant gets his costs paid by the Defendant on an indemnity basis rather than the usual and much lower standard basis.
- The Claimant will be entitled to interest on those costs once they are assessed.
If the Defendant makes a Part 36 offer but the Claimant fails to obtain a judgement more advantageous than the offer then the Defendant is entitled to his costs from the date for acceptance of his Part 36 offer expired, and interest on those costs.
You should note that a Part 36 offer can only be withdrawn or its terms changed within the 21 day period for offer with permission of the Court. Also a Part 36 offer can be open for a period of less than 21 days but where this is so a Defendant may be entitled to accept the Part 36 offer and argue whether or not the normal costs consequently should apply.
Finally if a Part 36 offer is accepted, then the claim will be stayed except for enforcement of the terms of that Part 36 offer out of the balance of the claim which is not the subject of the offer.
Offers under Part 36 can remain at any time in the proceedings and as I’ve already said by any party to another. The consequences to a party who receives a Part 36 offer, but refuses or ignores it then fails to beat it at trial could be of considerable significance. This is therefore a useful tool by which a party can put pressure on the other to settle.
It is important however that anyone wishing to use Part 36 realises that the rule is quite specific as to its terms, and an offer made pursuant to Part 36 which does not comply with those terms may not be effective and simply treated by the other side as a without prejudice offer to settle without the cost consequences of Part 36.
Here at Linder Myers we believe in the early deployment of any means that will resolve disputes without litigation through the mechanisms of alternative dispute resolution or mediation and only as a last resort would we advocate the issue of proceedings. It is always to the benefit of the parties to consider making a Part 36 offer as soon and as early as possible in the hope that this will persuade the other side to see sense and come to terms sooner rather than later, thereby saving you legal fees time and anxiety.