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Settling a Dispute: the Power of Part 36 Offers

Dispute Resolution Associate Richard Raban-Williams considers the benefits of making a Part 36 offer when seeking to settle a dispute.

Parties to a dispute should always have settlement at the back of their minds. The advantages of settling over proceeding with a fully contested court claim are numerous, and include:

  • Avoiding the uncertainty of what a judge’s decision might be following a trial.
  • Escaping the costs, time and resources associated with litigation, and the risk that you may have to pay your opponent’s costs if you lose the case.
  • Not being required to give evidence at court, which can be a daunting and stressful experience.

 

Part 36 Offers

When considering settlement offers, thought should be given to whether a Part 36 offer is appropriate. As the name suggests, Part 36 offers are made in accordance with Part 36 of the Civil Procedure Rules (the “CPR”). They are always made without prejudice, which means the existence of the offer will not be revealed to the court until it has determined who has been successful in the case.

A Part 36 offer can be made at any time (both before and after the issue of legal proceedings) and must state a period of at least 21 days, within which the defendant will be liable for the claimant's [BD1] costs (the “Relevant Period”).

 

The benefits of a Part 36 offer

The attractiveness of Part 36 offers lie in the costs consequences which follow where a party receives such an offer, decides not to accept it, but then fails to do better than the offer at trial. These consequences depend on whether the offer was made by the claimant or the defendant.

 

Where a defendant fails to accept a claimant’s Part 36 offer

Where a defendant fails to accept a Part 36 offer made by a claimant and the claimant goes on to obtain a judgment which is “at least as advantageous” as the offer, the defendant must pay (unless the court considers it unjust[1]):

  • the claimant's costs on the indemnity basis[2] from the expiry of the Relevant Period (plus interest on those costs at up to 10% above base rate);
  • interest on all or part of any sum of money awarded to the claimant at a rate not exceeding 10% above base rate for some or all of the period starting from the expiry of the Relevant Period; and
  • an additional amount, capped at no more than £75,000, on the amount of damages/costs awarded by the court.

 

Where a claimant fails to accept a defendant’s Part 36 offer

Where a claimant does not accept a defendant’s Part 36 offer and fails to obtain a more advantageous judgment the court will order it to pay (again, unless it considers it unjust):  

  • the defendant’s reasonable and proportionate legal costs from expiry of the Relevant Period; and
  • interest on those costs.

 

Part 36 in action

The full force of Part 36 was seen in the High Court case of Hochtief (UK) Construction Ltd. -v- Atkins Ltd. In Hochtief the claimant made a Part 36 offer for the sum of £875,000 which it went on to beat by just £4,847. The defendant argued that it would be unjust for the court to apply Part 36 on the basis that the claimant had only narrowly beaten its offer.

The court disagreed and ordered the defendant to pay: (i) an additional £65,000 to the claimant, (ii) the claimant’s costs on the indemnity basis, and (iii) interest on the claimant’s damages and the costs at 6% above the base rate.

 

Ensuring a Part 36 offer is valid

The CPR contains a strict procedural code which dictates the form and content of Part 36 offers. If an offer does not comply with these requirements, it is liable to be found invalid.

Surprisingly, cases where parties fall foul of these requirements are not uncommon. For example, in the case of Flanagan -v- Royal & Sun Alliance Insurance Plc the judge found that a “not particularly happy set of wording” (which they assumed was based on an out-of-date template) meant that the claimant’s offer did not attract the benefits of Part 36.

In a more extreme example, the Court of Appeal confirmed in King -v- City of London Corporation that the simple statement that an offer excluded interest was enough to make it non-compliant with Part 36.

Another recent case has emphasised how Part 36 offers need to be drafted precisely and served on opponents in accordance with the relevant procedural rules. In Kings Security Systems Ltd. -v- King & Evans the defendants argued that the claimant should not benefit from Part 36 because the Relevant Period was not accurately identified in the offer (in part because the offer had been sent by e-mail when the rules required it to be sent by post).

In this instance the court found in favour of the claimant and held that its offer was compliant with Part 36. However, the decision highlights how care must be taken to avoid any ambiguity.

 

Concluding observations

In the right case a Part 36 offer can be a useful way to exert pressure on an opponent and increase the chances of settlement. Decisions such as the Hochtief case demonstrate how a well-judged Part 36 offer can be an extremely effective weapon in a party’s arsenal. Conversely, a party in receipt of a Part 36 offer should carefully consider it and weigh up the potential consequences of failing to accept.

It should be noted that Part 36 offers may not be appropriate in every case or at every stage of a case. There may be good reasons to make different kinds of settlement offers at different times, potentially alongside or shortly before or after a Part 36 offer. In all cases, however, where Part 36 offers are made, care must be taken to ensure that they are thoroughly drafted and procedurally compliant.

 

If you have any questions regarding the above information, or need dispute resolution related advice, please contact Richard Raban-Williams on richard.raban-williams@seddons.co.uk or 020 7725 8061.

 


[1] When considering whether it would be unjust the court must take into account ‘all the circumstances of the case’ including a set of prescribed factors listed in Part 36.

[2] Payment of costs on the indemnity basis usually results in the paying party receiving around 90% of their costs.


 [BD1]Is this only if the offer to settle is not accepted? Does it matter who made the offer? Would be helpful to clarify this section.

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