Formal offers to settle, or 'Part 36 offers' as they are now known, are a vital weapon in every litigator's armoury.  They increase pressure on an opponent to settle because, if rejected, they can put the party making the offer in a much better position with regards to costs than would otherwise be the case.  If a defendant's offer is not beaten at trial, he receives his post-offer costs from the claimant, with interest (CPR 36.14(2)).  If a claimant's offer is not beaten at trial, he can be awarded his post-offer costs on the indemnity rather than standard basis, punitive interest on those costs and on the judgment sum, and (a new reward introduced with the Jackson reforms in April 2013) an 'additional amount' of up to £75,000 (CPR 36.14(3)).

Because Part 36 has proved effective both as an incentive to settle and a means of gaining costs protection for the offeror, its scope has been expanded gradually over the years, so that it is now possible for claimants as well as defendants to make Part 36 offers (in the old days only a defendant could make a 'payment into court'), and Part 36 offers can also be made before proceedings begin as well as in costs-only proceedings after the main action has finished.

Despite all this, practitioners seem to have a problem with Part 36, or at least with making offers that comply with the formal and other requirements of Part 36 and therefore bring the costs protection desired.  Many litigators have had the experience of receiving 'Part 36 offers' which are either clearly not compliant with Part 36, or are arguably so.  This presents them with a problem.  Should they assume that a non-compliant offer is defective, and so incapable of giving rise to the costs consequences currently spelt out in CPR 36.14, or should they assume that it is essentially valid under Part 36, with all the costs implications that entails?

Unfortunately it is not just a question of taking a calculated risk or playing safe and seeing what the court says about the matter.  A defective offer not only fails to work under Part 36; it is a different animal altogether – a contractual offer to settle, which like all contractual offers may lapse with time, or be killed off by rejection or a counter-offer made by the offeree.  None of that is true of a Part 36 offer, which remains on the table indefinitely unless and until it is withdrawn by the offeror.  It is therefore not sufficient in many cases to assume that the offer is an effective Part 36 one, and to act accordingly.  A view may have to be taken straightaway, which is difficult because the courts have until now given rather confused guidance on compliance with Part 36.

Two recent developments seem to have solved this problem, though, or at least mitigated it to some extent.  In Shaw v Merthyr Tydfil County Borough Council (2014), a case that was decided in June 2014 but only reported in December, the Court of Appeal explained that an offer which fails to comply with the formal requirements of Part 36 cannot be effective under it, and will therefore not lead automatically to the costs consequences set out in CPR 36.14.  Instead, it can only influence the way in which a court exercises its discretion under CPR 44.2, which obliges the court to take into account "all the circumstances" when considering whether or not to depart from the usual 'loser pays' rule.  This contrasts with the position where an offer arguably fails to comply with the substance of Part 36, in which case the court may, if appropriate, invoke normal rules of contractual construction.  This is precisely what happened in C v D (2011), when the Court of Appeal decided that an offer that complied with all the formal requirements of Part 36 was a genuine Part 36 offer despite including inappropriate wording.  The offer said it was "open for 21 days", but that was construed as meaning only that it would not be withdrawn before 21 days had passed, not that it would close at that point, which would have been incompatible with Part 36 as then formulated.

The other development is that the Part 36 regime will change on 6 April 2015.  Offers made from that date will not have to satisfy all the formal requirements that currently apply.  In particular, an offer will not have to "state on its face that it is intended to have the consequences of Section I of Part 36", a requirement that has always seemed pointless when heading a letter 'Part 36 offer' makes its purpose perfectly clear.   Now an offer will only have to "make clear that it is made pursuant to Part 36" (new CPR 36.5(1)(b)).

In addition, an offer that is time-limited (so, unlike the one in C v D, clearly closed for acceptance after a given date) will no longer be invalid under Part 36 for that reason alone.  If the offeror includes a 'sunset clause', as terms of this kind are known, the effect of that will simply be that the offer is deemed to be withdrawn, as if by formal notice, on the date specified in the offer letter (compare new CPR 36.9(2) and 36.9(4)(b)).


Neither of these concessions is quite as beneficial as it appears.  Apart from the possible objection that the authorities are dumbing down Part 36, there are still many ways in which an offer can be formally defective under the new regime (see principally new CPR 36.5).  Also, toleration of 'sunset clauses' in this context does not alter the fact that a Part 36 offer that is withdrawn shortly after it is made is unlikely to have any effect on costs, and will certainly not provide the kind of costs protection that a party expects when making a compliant Part 36 offer.  The revised Part 36 still says in terms that the rewards for making an unbeaten offer, spelt out in new CPR 36.17(3) and (4), "do not apply to a Part 36 offer … which [among other things] has been withdrawn" (new CPR 36.17(7)).  So an offer like the one in Shaw that is invalid under Part 36 in its present form, might not be technically defective under the rules being introduced in April, but it would still be largely ineffective.  This is hardly an advance on the current position.

That said, many improvements will be made to Part 36.  It is now clear, for example, that a counterclaimant may make a 'claimant's offer', offering him appropriate rewards when he expects to be the net recipient of damages (CPR 36.2(3)).  There are also helpful new rules on the acceptance and disclosure of Part 36 offers in split trials (new CPR 36.12 and 36.16), and a number of smaller changes that either codify recent case law or clarify the existing rules in other ways.  However, in terms of finding a way to reduce the number of defective (or borderline defective) offers that are made, and ensuring that the Court of Appeal spends less of its time on the satellite litigation that results from such offers, this revision of Part 36 is something of a disappointment.

Perhaps when the rules are next revised it would be best to require litigants simply to use the existing (and perfectly serviceable) court form N242A when making a Part 36 offer.  Of course, that would not ensure that all 'Part 36 offers' are valid ones, but it would mean that many more of them comply with the formal, and to some extent the substantive, requirements of Part 36 than currently appears to be the case.