What is a Part 36 offer?

Part 36 offers are one of the most effective mechanisms for driving settlement in civil litigation. Read on, so that you can add this to your arsenal when you’re navigating a dispute.

What is the Purpose of Part 36 Offers?

Part 36 offers aim to encourage parties to accept reasonable offers rather than risk an unfavourable judgment and higher legal costs. Unlike Calderbank offers that are purely contractual, Part 36 offers are a self-contained procedural code that can provide significant costs protection if an offer is unreasonably refused.

Such offers are made on a “without prejudice save as to costs” basis, meaning the trial judge will not see the offer until deciding costs after judgment.

How Does It Work?

A valid Part 36 offer must:

• Be in writing (optional use of court form known as N242A)
• State that it is made under Part 36
• Include a minimum 21-day acceptance period
• State whether it relates to whole or only part of the claim
• State whether it considers any counterclaim
• Be a genuine offer to settle
• Contain clear terms capable of acceptance

When can a Part 36 offer be made?

A Part 36 offer can be made at any time before a judgment is made, including before court proceedings have commenced. However, they cannot apply to claims that have been designated as small claims, usually those involving less than £10,000.

Can a Part 36 offer be amended or withdrawn?

A Part 36 offer may generally be accepted at any time unless it has been withdrawn, even if the offeree has previously rejected it or made a counter-offer. Acceptance must be made by written notice.

Before the offer has been accepted, the offeror may withdraw the offer or change its terms by serving written notice on the offeree. If the proposed change would make the offer less advantageous to the offeree and notice is served before the expiry of the relevant period, the change or withdrawal will normally take effect only when that period expires. If the offeree accepts the original offer before then, the offeror must obtain the court’s permission for the withdrawal or less advantageous change to take effect. The court may grant permission only if there has been a change of circumstances since the offer was made and it is in the interests of justice to do so.

After expiry of the relevant period, the offeror may withdraw the offer or change its terms without the court’s permission, provided the offer has not already been accepted. A withdrawn offer does not carry the automatic Part 36 costs consequences on judgment, although it may still be relevant to the court’s general discretion on costs. An amendment that is more advantageous to the offeree is treated as a new Part 36 offer and does not withdraw the original offer.

Schedule of Payment

If a Part 36 offer includes payment, the money must be paid in one lump sum within 14 days of acceptance.

A party wishing to accept a Part 36 can do so in writing at any time. If one party makes more than one offer, the other party can still accept the earlier offer, providing it has not already been changed or withdrawn. But once the trial has started, the court’s permission is needed to accept an offer.

Costs Consequences

CPR 36.17 deals with costs consequences following judgment.

Accepting a Part 36 offer

If the offer is accepted within the relevant period and in the terms set out, the claimant usually recovers their costs up to the date of acceptance, and the claim is stayed.

If the Part 36 offer is accepted after the relevant period has expired, the parties are to agree the liability for costs. If no agreement can be reached, the court will determine the liability for costs. The normal position is that the Claimant is entitled to their costs up to the date the relevant period expired, after which, the party making the offer is entitled to their costs up to the date the offer is accepted. The claim will be stayed.

What Happens If I Don’t Accept the Part 36 Offer Before Trial?

For example, if the claim is for £10,000 and the defendant makes an offer.

When the Claimant makes a Part 36 Offer

Example: If the claimant offers £8,000 and is awarded £7,000 at trial: If the Claimant does not beat their own Part 36 offer, there are no costs consequences, and the Defendant will have to pay the Claimant’s costs in the usual way.

Example: Claimant makes a Part 36 offer of £8,000 and is awarded £10,000. If the Claimant equals or beats their own Part 36 offer, the court may order the Defendant to pay:

• An additional 10% of the damages awarded to the Claimant.
• Costs on an indemnity basis from the expiry of the relevant period.
• Interests on the damages and costs of up to 10% from the expiry of the relevant period.

When the Defendant Makes a Part 36 Offer

Example: Defendant makes a Part 36 offer £5,000 and the Claimant is awarded £6,000 at trial: As the Claimant has beaten the Defendant’s offer, the usual costs rules apply, and the Defendant will generally pay the Claimant’s costs on the standard basis.

Example: Defendant makes a Part 36 offer for £5,000 and the Claimant is awarded £4,000 at trial: If the Claimant does not beat the Defendants offer, they will usually pay the Defendant’s costs from the expiry of the relevant period, together with interest. This reflects the Claimant’s refusal of a reasonable settlement offer, which resulted in unnecessary litigation costs.

Advantages and Disadvantages of Part 36 Offers Compared to Calderbank Offers

Advantages of Part 36 Offers

• Demonstrates a genuine willingness to settle, encouraging the other party to resolve the dispute without further litigation.
• If accepted within the relevant period, the offering party can recover costs up to acceptance. If rejected and the rejecting party fails to achieve a better outcome at trial, they may face enhanced costs, interest and other penalties.
• By settling early through a Part 36 offer, parties gain certainty over the outcome, avoiding the unpredictable nature of the trial.

Disadvantages

• An incorrectly judged offer can result in significant costs consequences.
• Part 36 offers must comply with strict procedural rules. Failure to meet these requirements may invalidate the offer.

Calderbank Offers: Advantages

• Calderbank offers provide greater flexibility as they are not subject to strict procedural requirements.
• They are suitable for non-monetary terms that can include confidentiality clauses, undertakings, or other financial settlement terms.

Calderbank Offers: Disadvantages

• It does not attract the same favourable costs consequences, although the Calderbank will be considered when the Court is exercising its discretion on costs under CPR 44.

How Pinpoint Lawyers can help?

We understand the serious cost-related consequences of a Part 36 offer, and we will work with you to decide when such an offer should be made, and whether an offer should be accepted to ensure it is going to work for you.