Offers to settle a dispute before it proceeds to trial

Historically, a litigant who refused an offer that was not beaten when the case went to trial could incur adverse costs orders and substantial interest.

Part 36 offers were introduced to help avoid this trap. By providing costs protection if an offer is made and then unreasonably refused, the device encourages litigants to settle their claims.

One of the most notable features of Part 36 offers was that a defendant had to make a payment into court to support an offer, whereas a claimant did not have to.

Recent changes

Following an update to the rules in April this year, there have been significant changes. These resulted from the appeal court’s decision in Trustee of Stokes Pension Fund v Western Power Distribution.

Most importantly, it is now no longer necessary for a defendant who wishes to make a Part 36 offer to make a payment into court. This puts defendants and claimants on a more level footing.

There are other changes that affect both claimants and defendants.

• Both parties now need the court’s permission to withdraw or alter a Part 36 offer during the period for acceptance of such an offer (but not after the period expires).
• If the offer has not been withdrawn, in most cases it can now be accepted after the offer period of 21 days or more, without the permission of the court, even if the parties cannot agree liability as to costs. In fact, a Part 36 offer can be accepted by a party even after he has made a counter offer.
• For a defendant to make a valid Part 36 offer in a money claim, it must be an offer of a single sum of money, payable within 14 days of acceptance. If payment is not made within that time, judgment can be entered for the unpaid sum.
• Offers are considered open until they are withdrawn. So if an offer is not withdrawn after 21 days, the other party can still accept, even after expiry of this period.

Practical implications

There are various practical implications: these are potentially the most significant ones.

1. The scrapping of the requirement to pay money into the court may encourage more defendants to make a Part 36 offer. However, a defendant must be in a position to pay the sum within 14 days. If he is backed by insurance, he will need to make sure that the insurers are aware of the deadline and can comply with it.

2. There are fewer circumstances where either party requires the court’s permission to accept or withdraw a Part 36 offer.

3. If the defendant doesn’t pay within 14 days, the claimant is still protected because the judgment can be entered without having to go to trial.

4. Importantly, an offer can now be withdrawn – even if it is expressed to be open for 21 days – providing court permission is obtained.

5. It is important to keep a close eye on developments in your case (eg new evidence) to see whether it is necessary to revise or withdraw your offer.

These provisions are relatively new and it will be interesting to see how they are applied over the next year. It may be that a cautious approach is adopted in the short term: with parties opting to make an offer on a ‘without prejudice’ basis even if this means forgoing the costs protection of Part 36. if the evidence available at the time a Part 36 offer is being contemplated is relatively limited, then this approach may be prudent.

As always, if you need commercial and pragmatic legal advice, we’re here to help so please get in touch.

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