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The courts want parties to settle their disputes. Those who do
not attempt any realistic settlement can expect the court to
penalise them with costs orders and requirements to pay interest.
One way of attempting settlement is by making a Part 36 offer. The
name comes from Part 36 of the Civil Procedure Rules which governs
the specific mechanisms for these settlement offers.
If a party does not "beat" a Part 36 offer at trial,
the inference is that they should have accepted that Part 36 offer
and were unreasonable to force the case to continue to trial. The
key feature of Part 36 is that it allows the Court to impose
penalties for that unreasonableness in the form of enhanced
interest and costs. The purpose of making a Part 36 offer is to put
pressure on the other side to settle the dispute without the need
to go to trial.
The risk of rejecting a Part 36 offer and proceeding to
trial
Cost and interest penalties can be imposed if Part 36 offers are
not accepted within the relevant period (usually 21 days from the
date of the offer), the case proceeds to trial and either:
(a) a claimant fails to obtain a judgment more advantageous than
a defendant's Part 36 offer; or
(b) judgment against the defendant is at least as advantageous
to the claimant as the proposals contained in a claimant's Part
36 offer.
A claimant who does not "beat" a defendant's Part
36 offer at trial, can be ordered to pay the defendant's costs
from the end of the relevant period. This is a significant
departure from the usual position that "costs follow the
event" where the losing party pays the winner's costs.
If a defendant does not accept a claimant's Part 36 offer
and continues the case to trial but the judgment from the Court is
the same or better for the defendant than the claimant's offer,
then the defendant can be ordered to pay the claimant's costs
on the indemnity basis (where a higher proportion of costs are
generally recoverable) and pay interest on damages and costs at an
enhanced rate of up to 10% above base rate from the end of the
relevant period.
Accepting a Part 36 offer
If a Part 36 offer is accepted, the defendant will pay the
claimant's costs up to the end of the relevant period. If
parties cannot agree liability for costs after the relevant period,
the court will usually order that the party who accepted the offer
should pay the offeror's costs from the end of the relevant
period to the date of acceptance.
When to make a Part 36 offer?
A Part 36 offer can be made at any time, including before the
commencement of proceedings. However, if the offer is made less
than 21 days before trial, or after the trial has started, the
costs consequences in Part 36 will not be automatic but rather at
the court's discretion.
Other considerations
Parties should be aware that Part 36 offers must comply with
the requirements set out in Part 36 in order to attract the cost
consequences mentioned above.
Part 36 offers remain open until written notice of the
withdrawal is served on the other side. This means that Part 36
offers can be accepted at any time up until withdrawal.
Part 36 is a "self-contained" code and so normal
contractual principles do not apply. This means that rejection of a
Part 36 offer is of no effect and the party rejecting the offer may
later accept it unless the offer has been withdrawn. It also means
that subsequent offers do not revoke or amend earlier ones.
Part 36 offers cannot be time limited – only a Part
36 offer which remains open until trial will attract the benefits
of Part 36.
Part 36 offers are "without prejudice" which means
that the trial judge cannot be told about the offer before judgment
is given and so it will not affect the outcome of the
litigation.
Summary
Due to the potential costs consequences which can flow from Part
36 offers, they can be one of the most useful tactical weapons in a
litigant's armoury. It is important to consider at all stages
of a dispute whether a Part 36 offer should be made, accepted or
withdrawn. Part 36 offers which have already been made need to be
kept under continual review and re-assessed in light of any new
developments in the claim - particularly at key stages of
proceedings such as disclosure, exchange of witness statements and
expert reports.
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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