In any litigation, but possibly more so in times of economic downturn, considering offers of settlement is crucial. If an offer is accepted you will save on legal and management costs. If you are the receiving party you obtain payment quicker. If an offer is made under Part 36 of the Civil Procedure Rules (CPR) and your opponent does not accept the offer but then fails to obtain a more (or equally) advantageous outcome at trial, you are likely to be awarded your costs. For a claimant, this can include indemnity costs and enhanced interest on those costs. Failure to make or accept reasonable offers of settlement at an appropriate time can therefore have serious costs consequences.

Remember the following when considering or making a Part 36 offer of settlement.

Choose the most appropriate way (for the circumstances of your case) to make an offer of settlement

If in writing, usually the choice is between making a:

  • Part 36 offer. This must comply with the strict requirements set out in CPR 36. Such an offer automatically entitles a claimant to its reasonable costs, in addition to the sum offered, if accepted within 21 days of the date the offer is made (the relevant period). This is so whether the offer is made by the claimant or defendant, or
  • a 'without prejudice save as to costs' offer. This can be made in whatever terms a party chooses and can be inclusive of costs

Both are made 'without prejudice save as to costs' meaning they can only be referred to the judge when the issue of costs arises after judgment. Part 36 has the benefit of providing greater costs recovery if the offer is successful, i.e. your opponent does not accept the offer and then fails to obtain a more (or equally) advantageous result at court. However, there may be very valid reasons why making a 'without prejudice' offer, outside the ambit of Part 36, is more appropriate. For more on this see part 8 of our survival guide on cost effective litigation.

Ensure any Part 36 offer is compliant

It must:

  • be in writing
  • state on its face that it is intended to have the consequences of Part 36
  • specify a period of not less than 21 days (i.e. the relevant period) within which the defendant will be liable for the claimant's costs in accordance with rule 36.10 if the offer is accepted
  • state whether it relates to the whole of the claim, to part of it or to an issue that arises in it and if so to which part or issue
  • state whether it takes into account any counterclaim

If an offer is not compliant with the above, it will not attract the more advantageous cost consequences which attach to a successful Part 36 offer. However, it will still be a valid offer of settlement, and will be considered by the court when deciding the most appropriate costs order to make.

Watch out for the Part 36 pitfalls

A Part 36 offer:

  • cannot be withdrawn during the relevant period without permission of the court
  • remains open for acceptance after the relevant period unless and until written notice is given to withdraw or reduce the offer. Such notice must be given before the offer is accepted. Therefore, keep an eye on any change in circumstances affecting the strength or weakness of the case so that the value of the offer made or received can be reviewed and the offer either accepted or withdrawn as appropriate before it is withdrawn or accepted by your opponent
  • made by a defendant, once accepted, means that the defendant must make payment of the sum offered in settlement within 14 days of acceptance, unless the parties agree otherwise. Failure to do so entitles the claimant to enter judgment for the unpaid sum

Don't forget interest

If you are a claimant then, when making a Part 36 offer, include provision in your offer to claim the interest that will accrue after the end of the relevant period until the date it is accepted. Part 36 deems interest to be included in the sum offered until the expiry of the relevant period. However, Part 36 is silent as to interest accruing after that date. If you don't include provision for interest after that date you may have difficulty in persuading the defendant to pay it. If acceptance of your offer takes place some months or years after the offer was first made, this sum could be a considerable amount of money.

Is confidentiality important?

If so, insert provision in your offer that a term of the offer of settlement is that it will be kept confidential.