Part 36 Offers — The Art of Allocating Risk
Litigation is uncertain. Even the strongest case carries risk — the witness who doesn't perform, the document that emerges at the wrong moment, the judge who sees things differently. Part 36 of the Civil Procedure Rules exists, in part, as a mechanism for managing that uncertainty. Used well, it is one of the most powerful tactical tools in commercial litigation. Used poorly, or worse still ignored, it can produce results that neither party intended.
What a Part 36 offer is
A Part 36 offer is a formal offer to settle, made in accordance with the specific requirements of CPR 36. It can be made by either party — claimant or defendant — at any stage of proceedings. It carries automatic costs consequences if it is not beaten at trial, which is what gives it its teeth and what separates it from any other kind of offer to settle.
The mechanics are precise. A Part 36 offer must be in writing, it must state that it is a Part 36 offer, it must state that it is intended to have Part 36 consequences, it must specify a relevant period of not less than 21 days during which the defendant will be liable for the claimant's costs if the offer is accepted, and it must either offer to pay a sum of money or make some other offer that meets the formal requirements. It can offer to settle all or part of a claim. For example, it might settle a counterclaim, or the damages aspect to a claim seeking monetary and non-monetary relief.
Getting the form right matters. An offer that doesn't comply with the rule doesn't carry Part 36 consequences, even if it's expressed as a Part 36 offer. It is surprising how many people get this wrong, and I don’t just mean litigants in person. Solicitors can be known to overcomplicate Part 36 offers and get them wrong as a result.
The costs consequences
The consequences of failing to beat a Part 36 offer at trial are where the rule's leverage lies.
If a claimant makes a Part 36 offer and the defendant fails to accept it, and the claimant obtains a judgment at least as advantageous as the offer, the court will, unless it considers it unjust, award the claimant indemnity costs from the date the relevant period expired, interest on those costs, and an additional amount of up to 10% of the sum awarded, subject to the limits set out in the Rule. That's a significant premium on top of the judgment sum.
If a defendant makes a Part 36 offer and the claimant fails to accept it, and the claimant fails to obtain a judgment more advantageous than the offer, the defendant will pay the Claimant’s costs of the action to the point at which the offer’s relevant period expired, but it will recover its own costs from that point onwards. Again, a significant consequence for a claimant who pressed on when they shouldn't have.
If a defendant makes a strong, early Part 36 offer, that offer can be long since forgotten about when the trial rolls around, and that’s where the teeth really can bite hard.
The rule allocates risk in both directions. It rewards parties who make realistic offers and penalises those who reject them unreasonably.
Why it matters regardless of your position
The tactical value of Part 36 is not limited to cases where you're confident of winning. A well-pitched offer, made at the right time, changes the risk calculation for the other side regardless of the underlying merits.
A defendant facing a claim they may lose has an obvious interest in making a Part 36 offer that creates costs exposure for a claimant who rejects it and then fails to beat it. But a claimant in a weaker position can also use Part 36 strategically. An offer pitched at a level the defendant ought seriously to consider accepting places the costs risk squarely on the defendant if they refuse and the case goes to trial.
The offer communicates something beyond its financial terms. It tells the other side that you've assessed the case, you've put a number on it, and you're prepared to stand behind that assessment with costs consequences. That's information that focusses minds.
The skill is to make the offer high or low enough (depending on whether you are claiming or defending) that it transfers the risk away from you while leaving you reasonably comfortable if the offer is accepted. You still need to be careful with that because if a Part 36 offer is accepted, the sum agreed is payable within 14 days.
When it goes wrong
I was instructed in a contentious shareholder dispute some years ago. The parties had been negotiating the terms of a buy-out. Both sides had made Part 36 offers. Negotiations were progressing. At the last moment, the other side pulled back. The reason was tax. The structure of the proposed deal was going to produce tax consequences for them that they hadn't adequately anticipated, and they wanted to revisit the terms.
What they had forgotten, in the complexity of the negotiation, was that their own Part 36 offer was still on the table, available for acceptance. We accepted it. We accepted it late — outside the relevant period — which meant we absorbed a degree of adverse costs consequences for the period of our delay. But even after accounting for that, the outcome was significantly more favourable than the revised terms the other side had been proposing in light of their tax concerns.
The other party had made an offer, forgotten about it, and paid the price of that oversight. Part 36 doesn't pause because the parties are talking. It runs in the background throughout the litigation, and ignoring it, even temporarily, can be expensive.
The practical question
Whether you're a claimant or a defendant, and whatever the current state of your litigation, the question of whether a Part 36 offer should be made, or whether one you've received should be accepted, deserves serious attention at every stage.
It's not just a question for the end of the case. It's a live question throughout, and the answer changes as the evidence develops, as the costs accumulate, and as the trial date approaches.
A well-timed Part 36 offer doesn't just offer money. It offers the other side a decision. And sometimes the most powerful thing you can do in litigation is force the other side to make one.
Part 36 strategy is one of the areas where good advice early makes a material difference to the outcome.
If you're in live litigation and want to talk through your position, book a call, I’m happy to discuss it with you.