Part 36 Offers

The High Court, in a recent case, has clarified the effect of a Part 36 offer on a previous offer made within proceedings which was not made under Part 36. The Court held that the Part 36 offer, under the Civil Procedure Rules, made by a claimant was a counter-offer amounting to a rejection of the defendant’s earlier offer, which was not made under Part 36 of the Civil Procedure Rules. The earlier offer could therefore no longer be accepted by the claimant.

Offers made under Part 36 of the Civil Procedure Rules are treated as ‘Without Prejudice Except as to Costs’, meaning that they must not be communicated to the Trial Judge until the case is decided and the question of costs is being considered. Another benefit of making offers pursuant to Part 36 is that there are financial consequences for unreasonably rejecting or ignoring reasonable offers depending on the outcome at trial.

The formalities for offers made pursuant to Part 36 are contained in Rule 36.5(1). To be a valid Part 36 offer, the offer must:-

1. Be in writing
2. Make clear that it is made pursuant to Part 36
3. Specify a period of not less than 21 days during which if the offeree accepts the offer, the defendant will pay the claimant’s costs. This period is known as the ‘relevant period’
4. Confirm whether it relates to the whole of the claim or to part of the claim
5. Confirm whether it takes into account any counterclaim

Rule 36.2(2) Civil procedure Rules states that if the offer is not made in accordance with the above formalities, it will not have the costs consequences noted in Section I of Part 36.

The financial penalties imposed are different depending on the circumstance as follows:- 

Claimant does not accept the Defendant’s Part 36 Offer and  fails to obtain Judgment more advantageous than the Offer, but still wins at trial

Where the defendant makes a Part 36 Offer and the claimant does not accept the same, and thereafter fails to obtain Judgment at trial which is more advantageous than the defendant’s Part 36 Offer, there are cost consequences under Rule 36.17(3). In these circumstances, the Court will usually order, unless it is unjust to do so, what is known as a ‘split costs order’. The usual rule will apply in that the defendant will pay the claimant’s costs on the standard basis from when they were first incurred up to and including the last day of the relevant period for the defendant’s Part 36 Offer. The claimant’s costs are paid in this way because the claimant has still won the case at trial. Costs incurred by the defendant after the relevant period expires, however,  are paid by the claimant on the standard basis with interest. This is an adverse consequence on the claimant for not having accepted the defendant’s reasonable offer.

Claimant does not accept the Defendant’s Part 36 Offer and loses at Trial

In these circumstances, the claimant will not receive any damages and will have to pay the defendant’s costs on the standard basis from when they were first incurred. For costs incurred after the expiry of the relevant period, the claimant will have to pay interest on those costs.

Claimant obtains judgment at least as advantageous as his own Part 36 Offer

Rule 36.17(4) states that the court will, unless it considers it unjust to do so, order that the claimant is entitled to:-

1. Interest on the whole or part of damages at a rate up to 10% for some or all of the period after the relevant period expired
2. Costs on the indemnity basis (punitive) from the date of the expiry of the relevant period
3. Interest on those costs at a rate of up to 10%
4. An additional amount, not exceeding £75,000 calculated by a prescribed formula.

Given the above cost consequences, Part 36 offers are often made tactically and a well timed and well judged Part 36 offer is often sufficient to settle a dispute.

The recent case mentioned above has confirmed that a Part 36 offer, made after a non Part 36 offer will amount to a rejection of the previous offer. This is due to the usual rules of contract which suggest that a further offer amounts to a rejection of the previous offer. The recent case is useful in that there was no prior authority on this area of law.