In our “How do I explain to the board…” series of articles, Rowan Turrall, Partner and head of our dispute resolution team, answers some of the frequently asked questions that in-house legal teams may face on different topics.
The company is involved in a dispute and “Part 36 offers” have been mentioned as a settlement option. The board wants to know what this means and what the implications are for the business.
What is a Part 36 offer?
A without prejudice save as to costs offer made pursuant to Part 36 of the Civil Procedure Rules (“the CPR”) with enhanced benefits/penalties designed to encourage settlement of court proceedings.
Will the judge be influenced if they know that we’ve made a settlement offer?
"Without prejudice save as to costs” means that the judge does not know about any Part 36 offers until determining the costs position after judgment. If an offer is made, it will therefore have no impact on the judge’s determination of any of the issues at trial if it is not accepted.
When can we make a Part 36 offer – have we got to wait until proceedings have been issued?
A Part 36 offer can be made pre-action or at any time during the proceedings. You can make more than one offer and do not need to withdraw previous offers to make a later offer.
Do we have to pay the other side’s costs if we make an offer to settle?
A Part 36 offer requires the defendant to pay the claimant’s costs (to be assessed if not agreed) incurred until acceptance if the offer is accepted within the relevant period (which is usually 21 days after the offer is made). Liability for costs if the offer is accepted after the end of the relevant period depends on who made the offer and when it is accepted.
What happens if the offer is accepted?
If the offer is in respect of the whole claim, and it is accepted, it brings the case to an end on the terms of the offer, subject to assessment of costs if not agreed. The court still has power to enforce the terms of the offer if needed i.e. if an offer is accepted that the defendant will pay £x but fails to do so, it will not be necessary to start a fresh set of court proceedings to enforce the settlement and the court has power to enter judgment for the agreed settlement amount.
How long is the payment period if an offer is accepted?
Payment usually has to be made within 14 days of acceptance.
If we are the claimant and our offer is not accepted, what happens at trial?
If you are awarded judgment for more than the amount of your offer then, in addition to the judgment sum, costs assessed on the standard basis (up to the end of the relevant period) and interest, you should also be awarded the following, unless the court thinks it unjust to do so:-
An uplift of 10% on the amount awarded up to £500,000
An uplift of 5% on any amount awarded over £500,000, (in total up to a maximum of £75,000)
Interest on the amount awarded at a rate not exceeding 10% above base rate for some or all of the period after expiry of the relevant period.
Costs on an indemnity basis from the end of the relevant period – this usually results in a higher level of recovery than would otherwise be the case.
Enhanced interest on those costs at up to 10% above base rate.
How does that work in practice?
C makes an offer of £500,000 which is not accepted. C recovers £750,000 at trial. As well as paying the judgment sum, enhanced costs and interest, D will have to pay £62,500 uplift (10% of £500,000 and 5% of £250,000).
If we are the defendant and our offer is not accepted, what happens at trial?
If the claimant is successful and your offer was for less than the amount awarded to the claimant, then the offer is of no effect.
If the claimant successfully obtains judgment, but your offer was for more than the amount awarded to the claimant:
You will need to pay the judgment sum;
You will probably need to pay the claimant’s costs up to 21 days after the offer was made (the end of the “relevant period”);
Unless the court considers it unjust to do so, the claimant will have to pay your costs from the end of the relevant period to trial.
If an offer is made early in the case, this can mean the claimant has to pay a substantial costs sum, which may exceed the amount of the judgment it is awarded.
How does this work in practice?
D makes an offer to pay £200,000. C’s costs up to that point are £40,000. Judgment for C is £100,000. D’s costs from the end of the relevant period to judgment are £80,000. C’s costs from the end of the relevant period to judgment are £100,000.
D pays C £100,000 judgment sum and claimant’s costs of up to £40,000 (depending on assessment). It also bears its own costs up to the end of the relevant period.
C pays D’s costs of up to £80,000 (subject to assessment)
C’s net loss taking into account its own irrecoverable could potentially be up to £40,000, even though it was “successful” at trial.
What if the claim is for less than £100,000?
New rules are being introduced from 1 October 2023 for claims under £100,000 to provide for fixed recoverable costs. Part 36 will also be amended. The costs recoverable by a defendant will be based on the fixed recoverable costs set out in a revised Part 44 of the CPR and the costs recoverable by a claimant will not be payable on the indemnity basis but will instead be a sum of additional costs based on a percentage uplift.
Need further help?
Rowan, alongside the rest of our dispute resolution team, have vast experience in providing businesses with critical legal support when facing disputes, particularly assisting in-house legal teams in providing commercial and pragmatic advice. If you would like more information on how we can support your business, then get in touch with our team today.
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.