The importance of trying to settle a disputed claim at an early a stage cannot be overstated.

A court will penalise in costs any party that fails to make reasonable efforts to settle but, more importantly, making an offer under the court rules (known as a Part 36 offer) can give a party a very significant benefit.

Providing the Part 36 offer is made in accordance with the requirements of the rules, then, if at trial a party fails to obtain a judgment which is more advantageous than the offer, the judge must (unless it is unjust to do so) order that that the party pay the offeror:

  1. An additional 10% of the first £500,000 of damages awarded, plus 5% of damages above £50,000 subject to a limit of £75,000 (and if no damages are awarded, 10% on the amount of costs)
  2. Indemnity costs from the end of the 21 day period after the date of the offer
  3. Interest on the sum awarded and on the costs not exceeding 10% per annum above base rate

The offer must be a “genuine attempt to settle”; otherwise it might not attract the benefit of additional damages and costs.

Any Part 36 offer needs to be carefully pitched to give the maximum chance of success, based on the level of risk. Inevitably it requires the offeror to make an offer that is less than they might hope to recover at trial; any offer should include a concession of “significant value”.

In February 2016 in a case in which Michelmores represented the Lord Chancellor (through the Legal Aid Agency), the Lord Chancellor was awarded almost £1m in a successful claim against a legal aid firm for overpaid payments on account.

The case is notable in part for the successful use of a Claimant’s Part 36 offer. The Lord Chancellor made an offer to settle 3 months before trial. The firm was ordered to pay more than the amount offered. Accordingly, under CPR 36.17, the Lord Chancellor was awarded an additional sum of £64,760, and, from the date the offer expired, indemnity costs, and additional interest at 10.5% (total awarded was £133,275.44), and additional interest (again at 10.5%) on costs.