Is Your Part 36 Offer a Genuine Attempt To Settle?

4th January, 2024

Part 36 offers can provide parties to litigation significant benefits in respect of costs, whether they are accepted or not. But do those costs benefits always apply? Recent developments would suggest not.

What is a Part 36 offer?

A ‘Part 36 offer’ is a settlement offer made under Part 36 of the Civil Procedure Rules (CPR) and can carry cost benefits – or risks, depending which side of the offer you are on.

An offer can be made by either the Claimant or Defendant, and at any time (although there are certain rules regarding their efficacy before proceedings are issued, or their acceptance during a trial). They are made ‘without prejudice save as to costs’ and therefore a court cannot consider Part 36 offers until liability and quantum has been decided and the issue of costs arises.

Whilst the consequences of a part 36 offer (whether made by Claimant or Defendant) are somewhat complicated, they can be broadly summarised as thus:

An offer must specify a ‘relevant period’ of at least 21 days for acceptance. If it is accepted within the relevant period, the claimant will receive the settlement sum and their costs up to the date of acceptance on the ‘standard basis’.
If an offer is accepted after the expiry of the relevant period, then the parties must agree liability for costs and if they cannot do so, the court will decide. The claimant will receive the settlement sum plus their costs up to the date of acceptance, if they made the offer. If the defendant made the offer, the claimant will receive the settlement sum, plus their costs up to the expiry of the relevant period but may have to pay the defendant’s costs from expiry of the relevant period to the date of acceptance.
If an offer is not accepted and it is beaten at trial (e.g. a claimant rejects an offer of £250,000 but is awarded damages of £300,000 at trial), then the Part 36 offer has no effect on costs.
If the offer is not beaten at trial (e.g. an offer of £250,000 is received and at trial an order for £250,000 or less is made), then the court can order that costs are paid on the standard basis to the expiry of the relevant period, and then:-

Interest on some or all of the damages awarded at a rate of up to 10% above base rate for the period from the date of expiry of the relevant period to trial; and
Costs on an indemnity basis from expiry of the relevant period plus interest on those costs of up to 10% above base rate. The indemnity basis means a higher percentage of costs will be recovered compared to the standard basis as costs only need to be reasonable not proportionate; and
An additional amount not exceeding £75,000, calculated by 10% of any damages up to £500,000 plus 5% of any damages above £500,000

However, the court will only impose the cost consequences if they consider it fair to do so. When considering this, the court will look at when the offer was made, the terms of the offer, information available to the parties at the time the offer was made and the conduct of the parties.

Gohil v Advantage Insurance Company Limited

The Birmingham County Court heard a RTA case and judgment was granted for the claimant. Prior to the trial, the claimant had made a Part 36 offer to settle on 99.999% of the sum claimed. This worked out to be a 7p discount on the full value of the claim.

The court did not consider the claimant’s offer to be a genuine attempt to settle and rather just an attempt to receive the cost benefits of a Part 36 offer. The court did not allow the claimant to benefit from the part 36 cost consequences. The defendant was ordered to pay costs on the standard basis and no interest or indemnity costs were added.

As such, the offer must be a ‘genuine attempt to settle’. Whilst it is tempting to look at the percentage discount, and this will be a factor, it is not necessarily conclusive.

In the case of Rawbank SA v Travelex Banknotes Ltd a Part 36 offer of 99.7% of the total claim was held to be a genuine attempt to settle, but this 0.3% amounted to a discount of £150,000.

Clearly then, the context of the offers are important. Given the potential benefit in making, or risks in receiving, part 36 offers, it is important that parties get them right.

If you would like some advice regarding an offer that you have received, please contact the dispute resolution team who will be able to advise you.

The information on this site about legal matters is provided as a general guide only. Although we try to ensure that all of the information on this site is accurate and up to date, this cannot be guaranteed. The information on this site should not be relied upon or construed as constituting legal advice and Howes Percival LLP disclaims liability in relation to its use. You should seek appropriate legal advice before taking or refraining from taking any action.

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