A key part of our role as litigators is to settle claims. Claiming compensation involves more than following a court process – skilled negotiation, knowledge of the rules and how to play them is required to get the desired result.
At Crime Zone Legal we regularly compromise complex disputes on favourable terms, by using our experience to make tactical moves, geared to obtain the best results for our clients.
Arguably the most important rule is that of Part 36 of the Civil Procedure Rules (“the Rules”) which allows a party to litigation to make a settlement offer before trial on terms that if the offer is not accepted, and the opposing party fails to beat the offer at trial, the Court can impose severe costs and/or interest on penalties.
The Part 36 offer procedure can, if used wisely, be a very powerful negotiating tool and it provides a great incentive to settle. The court encourages it and has been supported by the recent “beefing up” of the Rules which provide additional penalties.
Who can make an offer?
Part 36 offers can be made either party. This will put its opponent at risk of serious costs or interest penalties if a well-pitched offer is refused.
There is no longer a requirement to support a Part 36 offer with a payment into court, which means an increasing number of Defendants are using this procedure. If an offer is made by a Defendant who is then unable to pay within 14 days of its acceptance, judgment will be entered against him, without the need for a trial. If the offer is not accepted and a trial takes place the offer remains “without prejudice as to costs” during the proceedings and the court will not be aware of it, until the outcome of the case and the issue of costs is being determined.
If a party fails to beat a Part 36 offer, when considering the costs award to be made, the Court will take into account the stage in the proceedings when the offer was made, the information available to the parties at the time and their conduct in exchanging information to properly enable an offer to be considered.
An offer will remain open for acceptance beyond the 21-day limit, unless the offering party has withdrawn it. Therefore both parties should review an unaccepted offer throughout the proceedings. However, the cost consequences vary depending on whether the offer is accepted in the “relevant period”.
The effect of acceptance means that the proceedings are stayed until the court is able to approve the terms agreed between the parties.
There are a number of different scenarios, which could occur where a Part 36 offer is made, the most common of which are described below:
The Defendant makes a Part 36 Offer
|The Claimant accepts The Offer within 21 Days||The Claimant does not accept the offer (1)||The Claimant does not accept the offer (2)|
|The Claimant wins at trial, but is awarded less than the amount that the Defendant offered.||The Claimant wins at trial and is awarded more than the amount that the Defendant offered.|
|The Defendant pays the offer figure and the Claimant’s standard costs up to the date on which the offer was accepted.||Even though the Claimant has won the case it will recover standard costs only to the last date the Part 36 offer could have been accepted. The Claimant will normally be ordered to pay the Defendant’s standard costs from the last date on which the offer could have been accepted plus interest on those costs. In this scenario, as trial costs are high, the Claimant could end up paying more of the costs of the action than the Defendant!||The Defendant will be ordered to pay the Claimant’s standard costs in the usual way (i.e. as if no Part 36 offer had ever been made).|
The Claimant makes a Part 36 offer
|The Defendant accepts The offer within 21 Days.||The Defendant does not accept the offer (1)||The Defendant does not accept the offer (2)|
|The Claimant wins at trial but is awarded less than the amount that the Claimant offered to accept.||The Claimant wins at trial and is awarded more than the amount of the offer.|
|The Defendant will be ordered to pay the Claimant’s standard costs up to the date on which the offer was accepted.||The Defendant will be ordered to pay the Claimant’s standard costs in the usual way (i.e. as if no Part 36 offer had ever been made).||The Claimant may be awarded interest of up to 10% above the base rate on any damages and costs on an indemnity basis and interest on costs from the last day after which the Defendant was expressed to be able to accept the offer.|
A Defendant will aim to pitch his offer at a level that is just high enough for the Claimant to be worried about the risk of not accepting it.
A Claimant will try to pitch an offer low enough that the Defendant would be unwise to refuse but, that is not significantly below what they could expect at trial.
The court’s take on additional penalties
The courts are still exercising discretion and beating a Part 36 offers doesn’t always deliver a predicable outcome. The case of Feltham v Bouskell is one of the first cases considering the additional penalties and, in particular, when the court will consider it unjust to award the additional new penalty of damages of 10%, plus interest which the old rules did not provide for. In Feltham the judge concluded that it would be unjust to award any additional amount taking into account that the offer had been made just over 21 days prior to trial and, more significantly, that the claimant had failed to plead a key allegation until after the trial had begun.
This allegation was the main ground on which liability had been decided in the claimant’s favour and was not in issue during 21 day period when the defendant could have accepted the Part 36 offer without adverse consequences. The judge awarded enhanced interest on damages and costs at 3.5% above base rate from the date the 21 day “relevant” period expired. However, he said it would be wrong to order a sum anywhere near the maximum of 10% above base rate as that would represent a disproportionate penalty taking into account current interest rates.
Potential pitfalls of Part 36
- You’d think it common sense that a rejection of an offer means it is no longer open for acceptance, and that a counteroffer is an implied rejection. However, as mentioned a Part 36 offer remains open until expressly withdrawn by written notice. If circumstances change such that a previous offer is no longer appropriate (for example new evidence is obtained) an express withdrawal must be made.
- Also, a Part 36 offer must specify a period of not less than 21 days within which the Defendant will be liable to the Claimant for costs if not accepted. This does not mean that a Part 36 offer can be expressed to expire after 21 days because Part 36 offers cannot be time limited.
- Part 36 offers also cannot incorporate offers on costs, whereas offers made outside of Part 36 can, but they have limited costs protection.
- They are very formal – a specific court form must be used (N242A) to ensure a Part 36 offer is valid and it must be in writing, so offers made by telephone cannot carry Part 36 consequences. This can stifle fast-paced negotiations conducted by phone.
Navigating the Rules
Using the Rules to gain advantage is a tricky business, but we don’t shy away from them which is why we can offer our clients forward-thinking solutions which get the best results across the broad spectrum of our work covering professional negligence claims against free legal advisors and financial advisers, wills disputes, complex commercial claims and more. Contact Crime Zone Legal if you want a fast and effective resolution of your dispute.