Summary and implications

Making offers to settle claims in litigation can be more difficult than may first appear. Recent case law has highlighted the complexity of Part 36 of the Civil Procedure Rules (CPR) and the costly consequences of getting it wrong. When seeking to take advantage of the costs protection afforded by Part 36, it is important to remember the following:

  • make sure you fully understand the consequences of making, accepting or rejecting a Part 36 offer;
  • make sure any offer made is fully compliant with the form prescribed in the CPR;
  • keep offers made under review – an early offer to settle may need to be revised if the litigation continues for a protracted period;
  • formally withdraw in writing any offer you no longer want to be open for acceptance.

Background

Commercial considerations, exacerbated by the current difficult economic outlook, means that those involved in disputes are looking to avoid expensive and protracted court proceedings. Of the settlement options available, the tactical use of Part 36 offers can both encourage settlement whilst at the same time providing protection in relation to costs. A well timed Part 36 offer can significantly increase the pressure on the other side to settle.

What is Part 36?

CPR Part 36 contains a carefully structured and highly prescriptive set of rules dealing with formal offers to settle at any stage in proceedings. The cost consequences of failing to accept a Part 36 offer can be significant, particularly in those cases where a party fails to equal or better the offer made at trial. A party wishing to take advantage of these cost consequences must ensure that any offer is validly made. It is also vital that a party making, as well as accepting or rejecting, a Part 36 offer fully understands the consequences of doing so. As highlighted in the recent case of C v D [2011] EWCA Civ 646, the courts will look at the intention of the parties in relation to settlement and an offer clearly intended to be a Part 36 offer will be construed as such.

Part 36

To access Rule 36 of the CPR please click here

C v D [2011] EWCA Civ 646

C had sold development land to D for a price of just under £12m. A dispute arose between the parties over whether a condition precedent of their contract had been fulfilled and as a result, D declined to complete the transaction. C consequently pursued D for damages.

During the course of the proceedings, a written offer was made by C to D. The letter in question was headed “Offer to Settle under CPR Part 36”. The letter proposed a settlement agreement and ended with the words “regardless of which offer your client chooses, the offer will be open for 21 days from the date of this letter”. D purported to accept the offer by letter shortly before trial. C, however, stated that the offer had lapsed and was no longer capable of acceptance, and it issued an application to the court for a declaration to that effect.

The court held that a time limited offer, such as this, could not constitute a valid Part 36 offer. The judge found that time limited offers were inconsistent with Part 36, since to have effect in terms of costs consequences, the offer must have remained open. The offer in question had expired after 21 days and was no longer capable of acceptance.

The Court of Appeal agreed that Part 36 offers cannot be time limited, but found that as the party making the offer had expressed that it was to have the consequences of Part 36, the wording ‘open for 21 days’ should be construed as meaning that the offer would not be withdrawn within those initial 21 days rather than that the offer would lapse after 21 days. Under CPR Part 36 offers can be withdrawn within 21 days of making the offer (‘the relevant period’), but only with the permission of the court. After the expiry of the relevant period, a Part 36 offer can still be accepted at any time unless the party making the offer serves a notice of withdrawal. This meant the offer survived as a Part 36 offer, with the consequence that as the offer had not been formally withdrawn by C, it was still capable of acceptance by D.

Comments

Although D’s late acceptance of C’s offer may have been opportunistic, this case serves as a reminder that where an offer is presented as a Part 36 offer and otherwise complies with its form, the court will not readily interpret the offer in a way which would prevent it from being an offer for the purposes of Part 36. It is also a clear reminder that unless withdrawn, a Part 36 offer remains open for acceptance; even if subsequent offers are made. As a consequence, Part 36 offers need to be kept under careful review and formally withdrawn in accordance with the CPR if no longer applicable.

Part 36 is a complex area, but when used appropriately it can be a very useful weapon in any litigator’s armoury.

Part 36 – Things to remember

  • Make sure you fully understanding the consequences of accepting, rejecting or making a Part 36 offer.
  • Make sure an offer intended as Part 36 offer is in the prescribed form set out in the CPR.
  • Keep offers under review.
  • Formally withdraw any offer that you no longer want tobe open for acceptance.