If you have been involved in litigation, you will probably have heard of Part 36 offers. Part 36 is a section of the Civil Procedure Rules which creates a mechanism designed to encourage parties to settle a claim before a trial takes place.

The Civil Procedure Rules were designed to speed up the litigation process and make it more cost-efficient. Part 36 is a valuable strategic tool as the financial sanctions and incentives created by it can help put pressure on your opponent to settle and can offer you significant protection in costs.

An example of how Part 36 can work is as follows. Say you are the claimant and you have made a claim for £10,000 but offer to settle the claim for £8,500 plus costs. If the defendant rejects the offer, and at trial you equal your offer or beat it, then the defendant may have to pay interest on the whole or any part of any sum of money he is ordered to pay you at a rate not exceeding 10% above base rate. This can prove to be an expensive exercise for the defendant so, as asked above, can you afford not to make such an offer?

On 6 April 2007 amendments to the Civil Procedure Rules came into force, which include a completely new Part 36, renamed “Part 36: Offers to settle”. The changes were made following the Court of Appeal’s decision in Trustees of Stokes Pension Fund v Western Power Distribution [2005] 1 WLR 3595 where it was held that a Court would consider a written offer by the defendant to have the same effect as a payment into Court so long as it was made without prejudice, was a genuine offer and the defendant was “good for the money”.

The most significant development in the changes to Part 36 is that it will no longer be necessary for a defendant, who wishes to make a Part 36 offer, to make a payment into Court of that sum. Certain bodies were already exempt from this under the old rules (such as Local Authorities) on the basis that they were deemed to be “good for the money”. However, this exemption has now been extended to all defendants.

Other developments include:-

  • Both claimants and defendants will need the Court’s permission to withdraw or alter a Part 36 offer during the period for acceptance of the offer (which is 21 days from the date the offer is made), but no permission is needed to withdraw or alter a Part 36 offer after the expiry of that 21 day period.
  • The offer may be accepted outside the 21 day period without the Court’s permission, even if the parties cannot agree liability as to costs. If costs cannot be agreed, the Court can make an order in this regard.
  • If a defendant rejects an offer to settle then the claimant will only have to equal or beat his own offer to be afforded protection on costs.
  • For a defendant to make a valid Part 36 offer in a money claim, the offer must be an offer to pay a single sum of money and payment must be made within 14 days of acceptance of the offer, failing which judgment can be entered for the unpaid sum.
  • The Court no longer has discretion to apply the Part 36 costs consequences to an offer which falls outside of Part 36.

On a practical level, these changes mean that defendants who wish to make an offer to settle must have funds available to make payment within 14 days of the offer being accepted, failing which judgment will be entered against him unless some alternative agreement (in writing) can be reached with the claimant.

For claimants it means that there will be greater security when considering offers: if the defendant does not pay the money it has offered to pay, judgment can be entered without the need for a trial. Where large sums of money are involved and a lump-sum payment cannot be made then payment by instalments may be possible, assuming the claimant agrees.

As the formerly strict 21-day acceptance period has been watered down, with acceptance outside of that period being possible, offers should be kept under review as the litigation continues to monitor if a withdrawal of, or amendment to, an offer is required. A Part 36 offer could still be withdrawn before the end of the 21 day acceptance period; however the permission of the Court will be required for this.

Due to the now limited involvement of the Court, and reduced circumstances which would trigger the need for its permission, it is hoped that the changes will result in greater use of Part 36.

The big advantage with the changes is that they will allow parties to retain access to millions of pounds that could otherwise have been tied up in Court for prolonged periods of time. For example, the NHS Litigation Authority made £500 million of payments into Court in 2005.