Cases can be settled informally but Part 36 of the Civil Procedure Rules offers a specific way of settling disputes. Part 36 is an important tactical weapon, which can be used by either the Claimant or the Defendant to encourage the other party to settle the claim at an early stage before legal costs escalate.
Part 36 offers are made without prejudice
Any offer made under Part 36 is on a ‘without prejudice save as to costs’ basis (36.16), the court is not made aware of a Part 36 offer the issue of costs falls to be considered.
Either party can make an offer to settle the claim. If the offer is accepted, the claim is resolved, subject to any issues in respect of costs. If the offer is rejected, the parties go to trial and there may be cost consequences to this.
The central rationale behind Part 36 is that parties who make sensible proposals to settle actions should get some benefit if these are not accepted and it turns out, at trial, that they should have been accepted. The ‘penalty’ for not accepting a reasonable offer generally takes the form of costs, damages and/or interest. The overriding objective encourages attempts to settle and, importantly, a party is never penalised for making an offer under Part 36; rather the party’s opponent may be penalised for unreasonably rejecting such an offer.
When Can a Part 36 Offer be made?
A Part 36 offer can be made at any stage of the proceedings, including before proceedings have been issued (CPR 36.7(1)).
Part 36 offer requirements
A Part 36 offer must be in writing, make it clear that it is made pursuant to Part 36, state that it remains open for a period of not less than 21 days (within which the defendant will be liable for the claimant’s costs if the offer is accepted), state whether it relates to the whole of the claim or part of it (for example an offer may be made only in relation to liability) and state whether it takes into account any counterclaim.
What happens once the offer is accepted?
When considering whether to except a Part 36 offer or not, it is important to consider all offers carefully and consult with your solicitor to discuss all eventualities. Assuming the claimant has accepted the offer within the period of time given for acceptance he is entitled to claim legal costs from the defendant up until the date on which he accepted the offer. The defendant has 14 days from acceptance (unless the parties agree otherwise) to pay the settlement amount agreed. If the acceptance comes after the expiry of the relevant period the parties must agree the liability for costs. Failing this the Court will decide liability for costs.
Rejecting the offer
If the offer is rejected, the case continues towards trial. The consequences of rejecting a Part 36 offer will depend on whether the rejection is unreasonable, and this will depend upon the relationship between the offer amount and the amount awarded at trial.