UK: Part 36 Offer Update

Last Updated: 8 August 2011
Article by Nigel Brook and Davinder Chhatwal


A party to English court proceedings can mitigate its costs exposure (as a defendant) or enhance its costs recovery (as a claimant) by making a well-judged settlement offer that complies with Part 36 of the Civil Procedural Rules.

The current version of Part 36 dates back to 2007. If the changes made then were intended to reduce the legal wrangling surrounding such offers post-trial, they do not appear to have achieved that aim. Recent months have seen a flurry of cases concerning Part 36 offers and a further amendment to the rules is anticipated this October. We set out below some of the key areas which have attracted judicial comment in the last year and provide tips on how to avoid the potential Part 36 pitfalls.

Is your offer a Part 36 offer at all?

1) Is it even an offer? This may seem an obvious point, but the recent case of AB v CD & Ors1 demonstrates the potential problems of "strategic" offers. The concept of an "offer to settle" is not defined in Part 36. However, the judge said it was clear that a request to a defendant to submit to judgment for the entirety of the relief sought by the claimant cannot be an offer to settle within Part 36: "In my judgment, the offer must contain some genuine element of concession". For claimant offers, this can be something which it is in the claimant's power to give up either at the time the offer is made or only at or after the trial (provided that agreeing to forgo the opportunity to obtain it is not "merely an empty gesture").

On the facts of the case, the claimant had not made a valid Part 36 offer because he had not stated any specific sum which he would be prepared to accept and nor had he made any real concession of significant value. Forgoing an advantage which could have been used in future proceedings against third parties was not a genuine concession either.

2) What does it say about costs? CPR r36.10(1) provides that "where a Part 36 offer is accepted within the relevant period the claimant will be entitled to the costs of the proceedings up to the date on which notice of acceptance was served on the offeror".

In London Tara Hotel Ltd v Kensington Close Hotel Ltd2 an offer was sent by the claimant to the defendant. The letter in question was headed "Claimant's Part 36 Offer to Settle made on the Counterclaim - Without Prejudice save as to costs". One of the terms of the offer was that the defendant would pay only 10% of its costs of the litigation. Roth J held that the result of that term was that the offer was not a valid Part 36 offer. When a Part 36 offer is accepted, the claimant is entitled to its costs up to the date of acceptance and: "This is not a matter of discretion but results by operation of the rules. The court has no power to disallow a proportion of those costs".

Similarly, in Howell & Ors v Lees-Millais & Ors3, the offer letter offered the claimant 75% of her costs of an application. The Master of the Rolls said the offer was not Part 36- compliant because it "specifically excluded the offeree from recovering all her costs, as it gave her the option of recovering only a proportion of her costs or a fixed sum in respect of her costs".

3) Is it time-limited?

Although there is no express exclusion in Part 36, it is not possible to make a time-limited offer. CPR r36.2(2)(c) provides that a Part 36 offer must specify "a period of not less than 21 days within which the defendant would be liable for the claimant's costs in accordance with rule 36.10 if the offer was accepted".

In Carillion JM v Phi Group4, the letter sent by one party requested a response within 7 days. Even though the letter was expressly intended to be a Part 36 offer, the judge held that it was not Part 36 compliant: "The failure to spell out a 21 day period is an important one because it provides not only a timetable within which the offeree needs to accept the offer but also points the offeree to the cost consequences of accepting it. This is perhaps even more important when, as here, the offeree was not yet a party to the proceedings ... and the offeree was nowhere near as well informed about the underlying litigation as [the offeror] was."

It should be noted, though, that this case contrasts with the Court of Appeal decision in Onay v Brown5, as well as Crystal Fibres v Fianium6 and Sutherland v Turnbull7 where the failure to specify the period of not less than 21 days (as required under CPR r 36.2(2)(c)) was held to not be fatal to an argument that the offer was a valid Part 36 offer. However, in Onay and Sutherland, there was, at least, a reference to 21 days in the letter itself, whereas in this case there was reference only to a 7 day period.

In C v D8, the claimant made an offer to the defendants in which it was stated that "the offer will be open for 21 days from the date of this letter". This was a common wording for Part 36 offers under the old rules. The Court of Appeal found that the offer in question was not a time-limited offer. Reading the offer as a whole, Rix LJ said: "In the context of Part 36, it seems to me to be entirely feasible and reasonable to read the words "open for 21 days" as meaning that it will not be withdrawn within those 21 days." It also served as a warning that a withdrawal of the offer (see further on this below) after 21 days was "on the cards". Of particular significance here was the fact that the offer was clearly intended to be a Part 36 offer.

4) "Technical challenges"

In C v D, Burnton LJ commented that: "any ambiguity in an offer purporting to be a Part 36 offer should be construed so far as reasonably possible as complying with Part 36". This approach reflects a growing judicial trend not to allow "technical challenges" to Part 36 offers, where possible. Such an approach will normally favour the offeror (although that wasn't the case for the offeror in C v D - the offer he had made, and which remained open, had become unfavourable by the time the other side accepted it).

5) Failure to clarify

CPR r36.8 provides that an offeree may, within 7 days of a Part 36 offer being made, request the offeror to clarify the offer (and, if the offeror does not provide this, the court can order it to do so). In AB v CD & Ors (see above), the defendants had made a valid Part 36 offer but had failed to supply certain financial information requested by the claimant in order to assess the value of the offer. The judge confirmed that, although it is "good practice" to provide clarification, a failure to comply with this obligation does not invalidate a Part 36 offer. If an offeree decides to refuse an offer because of insufficient information, and later fails to match or improve on it, he can argue that the usual adverse consequences should not follow (or should at least be mitigated). In any case, it was not clear that the claimant did not have sufficient information to make an educated decision in this case.

Withdrawal of the Part 36 offer

Part 36 offers cannot lapse. They have to be formally withdrawn. So, for example, in C v D (see above), where the offer was said to be open for 21 days, further correspondence between the parties had only amounted to an extension of the time for acceptance but there had been no formal withdrawal of the offer. Accordingly, it was still open for acceptance. A similar conclusion was reached in Howell & Ors v Lees-Millais & Ors.

Where an offer has been withdrawn, the Part 36 costs consequences will not apply. However, CPR r44.3 provides that in deciding what order to make about costs the court must have regard to an admissible offer which is not a Part 36 offer. In Owners of Samco Europe v Owners of MSC Prestige9 the judge followed a line of caselaw authority in deciding that the key question is what has caused the costs incurred after the offer has been withdrawn to be incurred: "If it is the unreasonable conduct of the offeree in failing to accept an offer which ought to have been accepted then the offeree will usually have to pay those costs. In those cases where an offeree wishes at a later stage to settle on terms which have been withdrawn by the offeror the offeree can protect himself against future costs by making an offer in those terms himself".

Has your offer been beaten?

The 2007 revisions to the Part 36 rules removed the reference to "beating" a Part 36 offer. Instead the rule now refers to (1) a claimant failing to obtain a judgment which is "more advantageous" than a defendant's Part 36 offer; or (2) judgment against the defendant being "at least as advantageous to the claimant" as the proposals contained in a claimant's Part 36 offer.

Shortly after the revised rules came into effect the Court of Appeal held in Carver v BAA Plc10 that the court was entitled to take into account all the circumstances of a case (and go beyond a mere financial comparison) when deciding whether a claimant had failed to obtain a judgment more advantageous than a defendant's Part 36 offer.

Carver has been widely criticised because it is said to give rise to uncertainty. Accordingly, Jackson LJ's final report on Civil Litigation Costs has recommended the reversal of the case. It is now anticipated that the decision will be formally reversed by a change to the Part 36 rules on 1 October 2011.

In a recent case - Acre 1127 Ltd v De Montfort11 - the claimant made a Part 36 offer which it beat (but only marginally) in financial terms. The Court of Appeal referred to Carver and, interestingly, did not criticise the decision. Instead, a distinction was drawn on the facts. Here, there was a claimant offer and the situation with defendants' offers was said not to be analogous. Furthermore, the claimant's offer had been met with no response and so the claimant had "had no option but to continue in order to recover anything". It was not relevant whether or not the defendant had been reasonable in declining to engage with the offer - the rule required only that the court look at the advantage to the claimant.

Court's discretion as to costs

It is worth bearing in mind that judges can refuse to award the enhanced cost benefits set out in Part 36 if they consider it would be unjust to award those higher costs. In Shovelar & Ors v Lane & Ors12, at first instance in this case, the judge refused to apply the costs consequences set out in Part 36 after the claimants beat their (rejected) Part 36 offer to the defendants at trial. The Court of Appeal reversed the decision on the following grounds:

  1. The size of the costs meant that it was not possible for the defendants to accept the offers made: although the Court of Appeal had some sympathy for this argument (here, over £320,000 had been spent fighting over a £134,000 estate), it held that this was not a good reason to refuse the Part 36 consequences because: "the amount of the costs which would have to be paid is a matter for assessment by the costs judge and it is the costs judge who will question, and will no doubt question very closely indeed, whether the costs claimed were necessary and proportionate".
  2. The nature of the case was such that the outcome could not be certainly predicted until after evidence had been given: the Court of Appeal held that this was not a good reason: "It is almost inevitable in all litigation that the nature of the outcome cannot be certainly predicted until after the evidence has been given and even then there is no certainty as to the outcome until the judge has decided the case on that evidence". In this case, it would have been better for the parties to mediate rather than litigate.
  3. The fact that the offer was not accepted could be properly taken into account under Part 44 when determining what order for costs ought to be made: the Court of Appeal held that Part 36 is a separate self-contained code which must be applied - Part 44 cannot be taken into account. In the words of Ward LJ, "Part 36 trumps Part 44".


  • Remember that a Part 36 offer which has not been formally withdrawn can be accepted, without notice, at any time by the other side (even if it has previously been rejected by the other side). Therefore, keep your Part 36 offers under review. Diarise reviews but also remember to reconsider the offer you have made every time new information comes to light.
  • Defendants have less to gain than claimants from the enhanced costs provisions of Part 36. Equally, it will often be the case that they will find their position deteriorating over time as the claimant's costs increase in pursuing the case. Accordingly, it is particularly important for defendants to consider whether to withdraw their offer after the end of the period which they set out in their offer letter for acceptance.
  • Part 36 provides that offers are automatically inclusive of interest but there is no such provision in relation to costs. The parties can agree the costs payable up to the date of acceptance, but if they don't these will be assessed by the court on the standard basis. The need to refer to costs in an offer letter has been described in the decisions above. A common issue, though, is whether it is acceptable to offer £X, inclusive of costs, without breaking down the figure for costs. However, such an offer will not be Part 36- compliant. Accordingly, it is always best to either set out a separate figure for costs (although, tactically, this may be inadvisable since an offer may remain open for a long period of time, during which the figure for costs will inevitably become too low) or to explain that the offer is exclusive of costs. In all cases, the offer should state that if the costs cannot be agreed, they will be assessed by the court.


1 [2011] EWHC 602 (Ch)

2 [2011] EWHC 29 (Ch)

3 [2011] EWCA Civ 786

4 [2011] EWHC 602 (Ch)

5 [2011] EWHC 1581 (TCC)

6 [2009] EWCA Civ 775

7 [2010] EWHC 972

8 [2010] EWHC 2699 (QB)

9 [2011] EWHC 1656 (Admlty)

10 [2008] EWCA Civ 412

11 [2011] EWCA Civ 130

12 [2011] EWCA Civ 802

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Nigel Brook
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