A Part 36 offer is a settlement offer that can be made throughout court proceedings by either the defendant or claimant. For example –

• A issues a claim against B for alleged outstanding invoices
• During the course of the claim, B makes a Part 36 settlement offer to A
• On making the offer, B specifies how long they want the offer to remain open for acceptance. This is known as the ‘relevant period’ and has to be a minimum of 21 days.
• A accepts the offer and a formal settlement agreement is drawn up and entered into by both parties.
• The settlement agreement provides that B will pay A’s legal costs.

Generally, the exact amount to be paid is agreed by both parties at a later date. Where there is no agreement detailed assessment proceedings are issued by A and determined by the Court.

Where a Part 36 offer is accepted within the relevant period the Claimant will be entitled to the costs of the proceedings up to the date on which notice of acceptance was served on the offeror (CPR 36.13(1)).

In some cases, the claimant may apply to the court after the settlement agreement has been made, and ask for the defendant to pay a proportion of the legal costs, on account, in advance of the parties agreeing or the court deciding on the exact amount to be paid.   In the case of Finnegan v Frank Spiers (2018) where a Part 36 offer had been accepted in the ‘relevant period’, the judge could not order the defendant to pay a proportion of the claimants legal costs on account.

In other cases, a party may decide to withdraw their Part 36 offer, but must be aware of the consequences of doing so.  In BritNed Development v ABB AB & Anor (2018). ABB made a Part 36 offer which was followed by a counter offer (for a larger sum) by BritNed.  ABB’s offer remained opened throughout the course of the trial as well as after the trial. It was however, withdrawn before judgment.  Britned’s offer remained open for acceptance throughout.   Although BritNed won, they recovered only 10% of their Part 36 offer and also failed to beat ABB’s withdrawn Part 36 offer. ABB argued that since BritNed had received nothing like its own Part 36 offer, and had failed to beat ABB’s offer, ABB should have its costs, and interest on them, from the latest point that its Part 36 offer could have been accepted by BritNed. BritNed countered that quantification of damages was particularly difficult in cases of this nature. While accepting that ABB’s Part 36 offer was a factor he had to take into account, the judge noted that ABB should not have withdrawn its offer. Although he declined to grant a costs order in favour of ABB, the judge accepted that it would be unjust for ABB to pay any of BritNed’s costs, given they had made an early commercial offer. He therefore made no costs order.

As a result, parties should think carefully before deciding to withdraw Part 36 offers, albeit that the Court still retains discretion to consider a withdrawn Part 36 offer when assessing costs.

In Shah v Shah [2021] EWHC 1668 (QB) six months before trial, the claimants made a Part 36 offer to settle for the nominal sum of £1 plus payment of costs. This offer was not accepted. At trial, the claimants were awarded £10. Whilst the original claim value was for £30,000, the judge had concluded that as a matter of substance and reality, the claimants had won. Whilst the offer of £1 was nominal, it had been found to be genuine and enforceable, thus attracting the usual costs consequences of Part 36. What is perhaps striking in this case is that the claimants’ costs were over £200,000 and, as they had been successful at trial and had beaten their own Part 36 offer, those costs were to be assessed on the standard basis up to the effective date of the offer, and on the indemnity basis thereafter. It was acknowledged that “the sometimes harsh, even brutal default consequences” of CPR 36 sometimes apply but should nevertheless apply in the case. The claim itself was not an abuse or motivated out of vindictiveness of the claimants towards the defendants.

In Mullaraj v Secretary of State for the Home Department [2021] 4 WLUK 237 the defendant offered to settle the matter (which was in itself a costs claim) for £40,000 but this was not a Part 36 offer. The offer was not accepted and no counter-offer was made. The Senior Courts Cost Office assessed the bill of costs in the sum of £41,436 plus costs of £1,500 and a court fee. As a result of the decision, the claimant had beaten the defendant’s offer, but only by a small margin. Following this, the defendant applied for an alternative costs order under CPR 47.20(1)(b) – for “some other order in relation to all or part of the costs” – but this was dismissed. The court determined that, having failed to protect itself by making an effective Part 36 offer or a “without prejudice save as to costs offer”, the defendant could not then succeed by deploying CPR 47.20(1)(b) as to do so would discourage the making of proper offers.

The judge in the Mullaraj case reiterated guidance given in Global Energy Horizons Corporation v Gray [2021] EWCA Civ 123 which provided: “Where a defendant is faced with an exorbitant claim which he wishes to defend vigorously but where he is vulnerable to a finding that he is liable for a much smaller amount, there is a clear process provided by CPR Part 36 which he can follow to protect his position.”

Conclusion

The strength of the protection offered by a well timed and well pitched Part 36 offer cannot be overstated and in the majority of cases it would be unwise to not make any offers at all before trial. Extra care must of course be paid to ensure that the offer is strictly in compliance with CPR Part 36. This position has been further strengthened by the recent creation of new Civil Procedure Rule 36.5(5). This serves to apply more pressure on opponents (defendants, in particular) to accept a Part 36 offer on the table as a party can no longer assume that they will be entitled to accept a Part 36 Offer after the expiry of the Relevant Period without facing consequences such as the accrual of interest on such offer.

Update June 2024

CPR Part 36 has been updated to reflect the introduction in October 2023 of fixed recoverable costs for small, fast, and intermediate track claims with a value under £100,000. In essence, where a Part 36 offer is accepted by either the Claimant or Defendant within the relevant period (21 days), the Claimant will be entitled to the fixed recoverable costs applicable to the stage the claim has reached, and the appropriate fixed cost band set out in CPR 45.

It is also worth noting that where a Claimant accepts a Defendant’s Part 36 offer outside of the relevant period, the Claimant is only entitled to the fixed recoverable costs applicable at the date of expiry of the relevant period and the Defendant is entitled to its fixed recoverable costs at the stage the offer was accepted (less what is owed to the Claimant).

However, where a Defendant fails to beat a Claimant’s Part 36 offer at trial, the Claimant is entitled to its fixed recoverable costs for the stage applicable at the date of Judgment plus an uplift of 35% on the difference from when the relevant period expired and the date of Judgment.

This new provision appears to be designed with the purpose of creating an additional incentive for encouraging Defendants to accept a Part 36 offer where it is made by a Claimant. However, there is also an argument that this intervention has somewhat upset the balance between the risks of Defendants making a Part 36 offer, and in contrast the considerable benefits bestowed upon Claimants when making their Part 36 offers. Indeed, it was suggested at the 2023 Annual Open Meeting of the Civil Procedure Rule Committee that the Ministry of Justice policy regarding the new Part 36 provisions had focused more on successful Claimants than on Defendants, and the new 35% uplift provision would be an indication of that approach.

Ultimately, it is not yet clear how the Courts will interpret and apply the new rules and only time will tell whether it becomes a help or a hinderance to the parties. Regardless, Part 36 remains a popular tool in the arsenal of litigators when it comes to cost protection.

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