Costs - Part 36 and other settlement offers

Learning Outcomes

This article outlines the formal requirements for a valid Part 36 offer (drafting, service, scope, and the relevant period); the standard cost consequences under CPR 36.17 when a claimant beats their offer or fails to beat a defendant’s offer, including the court’s “justness” discretion; the costs position on acceptance within or after the relevant period, including late acceptance of a defendant’s offer and the impact of indemnity costs and enhanced interest; withdrawal and variation of Part 36 offers before and after the relevant period, including time‑limited offers and permission to withdraw after acceptance is served; strategic considerations in using Part 36 alongside ADR and requests for clarification, addressing multiple offers, non‑monetary claims, and multi‑defendant scenarios; the distinction between Part 36 and other settlement mechanisms (Calderbank) and how courts treat non‑Part 36 offers when exercising costs discretion; and the interaction between Part 36 outcomes and qualified one‑way costs shifting in personal injury claims, including enforcement limits under CPR 44.14.

SQE1 Syllabus

For SQE1, you are required to understand CPR Part 36 and other settlement offers, with a focus on the following syllabus points:

• The formal requirements for making a valid Part 36 offer under the Civil Procedure Rules.
• The cost consequences for both parties when a Part 36 offer is accepted, rejected, or not beaten at trial.
• The strategic use of Part 36 offers and their interaction with other settlement mechanisms.
• The procedural steps for making, accepting, withdrawing, or varying a Part 36 offer.
• The distinction between Part 36 offers and other types of settlement offers (e.g., Calderbank offers).

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. What are the minimum formal requirements for a valid Part 36 offer?
2. What happens if a claimant beats their own Part 36 offer at trial?
3. If a defendant makes a Part 36 offer and the claimant fails to obtain a more advantageous judgment, what are the usual cost consequences?
4. Can a Part 36 offer be withdrawn, and if so, how does this affect costs?

Introduction

Settlement offers play a central role in civil litigation, both as a means to resolve disputes early and as a tactical tool to influence costs. Part 36 of the Civil Procedure Rules (CPR) sets out a structured process for making formal offers to settle, with significant cost consequences if not accepted. Understanding how Part 36 operates, and how it differs from other settlement offers, is essential.

Part 36 can be deployed at any stage, including pre‑action, and is designed to encourage reasonable settlement decisions and penalise parties who unreasonably refuse. In practice, courts consistently apply the regime unless it would be unjust to do so, having regard to CPR 36.17(5) factors such as the stage of proceedings when the offer was made, the information available, and whether the offer reflected a genuine attempt to settle.

Key Term: Part 36 offer
A formal, written offer to settle made under Part 36 of the Civil Procedure Rules, which carries specific cost consequences if not accepted.

Part 36 Offers: Purpose and Requirements

Part 36 offers are designed to encourage parties to settle disputes without the need for a trial. They are a formal, written proposal to resolve all or part of a claim on specified terms, with built‑in incentives and penalties relating to costs. Part 36 applies to most claims but does not operate on the small claims track.

To be valid, a Part 36 offer must:

• Be in writing.
• State clearly that it is made pursuant to Part 36.
• Specify a period of not less than 21 days (the "relevant period") for acceptance with standard cost consequences.
• State whether it relates to the whole or part of the claim and whether it takes into account any counterclaim.

For monetary claims, a Part 36 offer is treated as inclusive of interest up to the end of the relevant period. For non‑monetary claims (e.g., injunctions or declarations), Part 36 still applies, but care must be taken to draft precisely what relief is proposed so the court can later compare the judgment with the offer.

Key Term: relevant period
The minimum 21‑day period specified in a Part 36 offer during which the offeree can accept the offer with standard cost consequences.

Part 36 offers are “without prejudice save as to costs,” meaning their terms are not disclosed to the trial judge until after judgment on liability and quantum.

Additional procedural points to ensure validity and clarity include:

• Requests for clarification: the offeree can seek clarification within seven days. If the offeror does not clarify, the offeree may apply to the court for clarification.
• Acceptance once trial has begun requires the court’s permission.
• Multiple defendants: in certain cases where liabilities are joint or where apportionment may be affected, accepting a single defendant’s Part 36 offer usually requires the court’s permission.

Key Term: without prejudice save as to costs
A label indicating settlement communications are privileged for merits but may be shown to the court after judgment when deciding costs.

Cost Consequences of Part 36 Offers

The main impact of Part 36 offers is on costs. The rules create a strong incentive to accept reasonable offers and a penalty for failing to do so. The court must, unless it considers it unjust, give effect to CPR 36.17 consequences where the offer is not accepted and is later matched or bettered (claimant’s offer), or not beaten (defendant’s offer). The justness discretion requires the court to consider all the circumstances, including:

• The terms of the offer.
• The stage of proceedings and proximity to trial when the offer was made.
• The information available at the time.
• Conduct regarding providing or refusing information needed to evaluate the offer.
• Whether the offer was a genuine attempt to settle.

Key Term: genuine attempt to settle
A requirement that the offer reflects a realistic compromise; tactical offers with no real prospect of acceptance may not attract automatic Part 36 consequences.

If the Claimant Makes a Part 36 Offer

If the claimant makes a Part 36 offer which the defendant does not accept, and the claimant then obtains a judgment at least as advantageous as their offer, the court will usually order:

• Interest on damages at up to 10% above base rate from the end of the relevant period.
• Costs on the indemnity basis from the end of the relevant period.
• Interest on those costs at up to 10% above base rate.
• An additional amount (up to 10% of damages, capped at £75,000; 10% of the first £500,000 and 5% of any amount above that figure, subject to the cap).

These are discretionary maxima; the court may award less if full penalties would be unjust.

Key Term: indemnity basis
A basis for assessing costs where any doubt is resolved in favour of the receiving party, often resulting in a higher recovery than on the standard basis.

Key Term: additional amount
A discretionary uplift payable by a defendant when the claimant obtains a judgment at least as advantageous as the claimant’s own Part 36 offer; calculated by percentage bands up to a £75,000 cap.

If the Defendant Makes a Part 36 Offer

If the defendant makes a Part 36 offer which is not accepted, and the claimant fails to obtain a more advantageous judgment, the court will usually order:

• The claimant to pay the defendant’s costs from the end of the relevant period.
• Interest on those costs at up to 10% above base rate.

This is often called a “split costs order,” because the liability for costs is divided: the defendant bears the claimant’s costs up to the end of the relevant period, and the claimant bears the defendant’s costs thereafter to judgment.

Key Term: split costs order
A common order where the claimant wins but fails to beat a defendant’s Part 36 offer: the claimant gets costs up to expiry of the relevant period, and pays the defendant’s costs thereafter (usually with interest).

Acceptance of a Part 36 Offer

If a Part 36 offer is accepted within the relevant period, the offeree is entitled to their costs up to the date of acceptance, assessed on the standard basis.

Key Term: standard basis
A basis for assessing costs where any doubt is resolved in favour of the paying party, and only proportionate and reasonably incurred costs are recoverable.

If accepted after the relevant period, the court may order the offeree to pay the offeror’s costs from the end of the relevant period to the date of acceptance (usually on the standard basis), plus interest. This is the default position if the parties cannot agree liability for costs.

Extra procedural points:

• Acceptance must be in writing.
• Acceptance during trial requires the court’s permission.
• In multi‑defendant cases, the court’s permission may be needed to accept an offer from one defendant if apportionment or contribution claims would be affected.

Withdrawal and Variation

A Part 36 offer can be withdrawn or varied to make it less advantageous, but only by written notice. Withdrawal or variation before the end of the relevant period does not take effect until the period expires, unless the offeree accepts the original offer before expiry. After the relevant period, the offer can be withdrawn or varied at any time.

Time‑limited Part 36 offers are permissible, provided the deadline is not shorter than the relevant period. If a time‑limited offer expires according to its terms after the relevant period, Part 36 consequences fall away from that point.

Where an offeree serves a notice of acceptance before the offeror’s withdrawal takes effect, the offeror may apply for permission to withdraw or vary within seven days, but must persuade the court that circumstances have materially changed and that it is in the interests of justice.

Key Term: withdrawal of Part 36 offer
The process by which the offeror formally notifies the offeree that the Part 36 offer is withdrawn or changed, affecting its cost consequences.

Strategic Use of Part 36 Offers

Part 36 offers are a powerful tactical tool. Making a realistic offer early can put pressure on the other party and protect your client on costs. Multiple or revised offers can be made as the case develops. Timing, valuation, and clarity are all important.

Practical points:

• Ensure the offer is a genuine attempt to settle; courts discount contrived offers.
• For monetary claims, reflect a sensible assessment including interest to the end of the relevant period.
• Consider targeted issue‑based offers in complex multi‑track litigation; Part 36 can apply to part‑only resolution.
• Use requests for clarification if terms are unclear; this protects against adverse costs if the offer is later shown to be ambiguous.
• Keep reasons for rejection and contemporaneous advice recorded; this assists with the “justness” test and ADR conduct scrutiny.
• In personal injury, consider QOCS implications; although costs orders may be made under Part 36, enforcement against the claimant is limited by CPR 44.14 (subject to its exceptions).

Key Term: Part 36 offer
A formal, written offer to settle made under Part 36 of the Civil Procedure Rules, which carries specific cost consequences if not accepted.

Worked Example 1.1

A claimant makes a Part 36 offer to settle for £50,000. The defendant rejects the offer. At trial, the claimant is awarded £55,000. What are the likely cost consequences?

Answer:
The claimant has beaten their own Part 36 offer. The court will usually award the claimant interest on damages (up to 10% above base rate), indemnity costs from the end of the relevant period, interest on those costs, and an additional sum (up to 10% of damages, capped at £75,000).

Worked Example 1.2

A defendant makes a Part 36 offer of £30,000. The claimant rejects the offer and is awarded £25,000 at trial. What are the likely cost consequences?

Answer:
The claimant has failed to beat the defendant’s Part 36 offer. The court will usually order the claimant to pay the defendant’s costs from the end of the relevant period, plus interest on those costs (up to 10% above base rate).

Worked Example 1.3

The defendant makes a Part 36 offer of £40,000 on 1 March (relevant period expires 22 March). The claimant accepts on 10 April. What is the usual order on costs?

Answer:
Late acceptance of the defendant’s offer. The claimant will usually recover their costs up to 22 March (expiry of the relevant period), and will be ordered to pay the defendant’s costs from 23 March to 10 April (standard basis), plus interest on those costs.

Worked Example 1.4

The claimant makes a Part 36 offer of £900,000. The court awards £950,000 at trial. Calculate the additional amount.

Answer:
10% of the first £500,000 (£50,000) plus 5% of the remaining £450,000 (£22,500), totalling £72,500, subject to the overall cap of £75,000.

Worked Example 1.5

A claimant brings a claim for an injunction to prevent ongoing trespass and makes a Part 36 offer proposing undertakings. The court later grants a final injunction with terms materially equivalent to the proposal. What are the likely consequences?

Answer:
Part 36 applies to non‑monetary claims. If the judgment is at least as advantageous as the claimant’s offer, the court may award indemnity costs and enhanced interest from expiry of the relevant period, and consider the additional amount calculated by reference to costs if appropriate.

Worked Example 1.6

There are two defendants alleged to be jointly liable. The claimant wishes to accept a Part 36 offer from one defendant only. What must the claimant consider?

Answer:
Acceptance may require the court’s permission to avoid prejudicing apportionment, contribution, or joint liability issues. The court will assess whether acceptance is appropriate and may impose terms to protect the remaining parties’ positions.

Worked Example 1.7

The defendant serves a Part 36 offer fewer than 21 days before trial. The claimant fails to beat it at trial. Do automatic Part 36 consequences apply?

Answer:
Automatic consequences depend on a relevant period of at least 21 days. If an offer is made too close to trial, the court retains discretion on costs rather than applying automatic Part 36 consequences, though the offer can still be a powerful factor in the costs decision.

Worked Example 1.8

In a personal injury claim, the claimant fails to beat a defendant’s Part 36 offer. The defendant seeks to enforce their costs. How does QOCS affect enforcement?

Answer:
Under CPR 44.14, enforcement of the defendant’s costs against a claimant is limited (typically to the level of damages and interest recovered, and subject to set‑off rules and specified exceptions). The precise extent of enforcement and set‑off depends on the current text of CPR 44.14 and its exceptions (e.g., fundamental dishonesty, strike‑out, or failure to beat a Part 36 offer).

Other Settlement Offers

Not all settlement offers are made under Part 36. Offers marked "without prejudice save as to costs" (often called Calderbank offers) can be considered by the court when deciding costs, but do not carry the automatic consequences of Part 36. They are useful where Part 36 cannot be used (e.g., certain appellate situations) or the offeror wishes to propose terms outside Part 36 (such as bespoke cost regimes).

Key Term: Calderbank offer
An offer to settle made "without prejudice save as to costs," which the court may consider when exercising its discretion on costs, but which does not have the automatic cost consequences of a Part 36 offer.

Courts can and do adjust costs at their discretion based on Calderbank offers under CPR 44.2, particularly if a party acted unreasonably in refusing a sensible non‑Part 36 offer. However, where Part 36 can be used, it is generally the safer route to secure automatic consequences.

Interaction with ADR

Part 36 offers can be used alongside mediation or other forms of alternative dispute resolution. Refusal to engage with ADR, especially when a reasonable Part 36 offer has been made, can lead to adverse costs orders. The Practice Direction on Pre‑Action Conduct requires parties to consider ADR before issuing, and the court can stay proceedings for ADR (CPR 26.4). Judges routinely examine the parties’ ADR conduct when deciding costs, including whether information needed to assess offers was provided.

Exam Warning

If a party unreasonably refuses to accept a Part 36 offer or to participate in ADR, the court may penalise them in costs, even if they are successful at trial. Always advise clients to give clear reasons for any refusal.

Summary Table: Cost Consequences of Part 36 Offers

Key Point Checklist

This article has covered the following key knowledge points:

• Part 36 offers are formal settlement offers with specific cost consequences under the Civil Procedure Rules.
• A valid Part 36 offer must be in writing, state it is made under Part 36, and specify a relevant period of at least 21 days; it should also state scope and whether any counterclaim is included.
• For monetary claims, the offer is treated as inclusive of interest up to expiry of the relevant period; Part 36 also applies to non‑monetary relief.
• If a claimant beats their own Part 36 offer at trial, they may receive indemnity costs, enhanced interest, and an additional sum (subject to the £75,000 cap).
• If a claimant fails to beat a defendant’s Part 36 offer, the usual split costs order applies from the end of the relevant period, with interest on the defendant’s costs.
• Acceptance within the relevant period gives the offeree standard‑basis costs to acceptance; late acceptance typically reverses costs for the post‑expiry period.
• Withdrawal or variation requires written notice; early withdrawal takes effect only at the end of the relevant period (subject to acceptance before expiry and possible court permission to withdraw).
• Courts consider the “justness” factors under CPR 36.17(5), including whether the offer was a genuine attempt to settle and the stage/timing of the offer.
• Calderbank offers are settlement offers outside Part 36, considered at the court’s discretion on costs.
• ADR conduct interacts with Part 36; unreasonable refusal to mediate or to provide information needed to evaluate offers can attract costs sanctions.
• In personal injury claims, enforcement of adverse costs orders is constrained by QOCS under CPR 44.14, subject to specified exceptions.

Key Terms and Concepts

• Part 36 offer
• relevant period
• indemnity basis
• standard basis
• withdrawal of Part 36 offer
• Calderbank offer
• split costs order
• additional amount
• genuine attempt to settle
• without prejudice save as to costs