Part 36 Offers: Time for Change?

23 SEPTEMBER 2021 09:25

Part 36 Offers and the Relevant Period

Part 36 Civil Procedure Rules provides a useful framework for making offers in legal proceedings.  If an offer is made in accordance with CPR r 36.5, it will attract costs consequences if the offering party beats the offer at trial. These consequences include indemnity costs, interest on costs of up to 10% and a punitive amount of 10% of the costs or damages awarded. Because of these consequences, Part 36 Offers place pressure on the opposing party to consider the reasonableness of the terms of the offer and the possibility of beating (or not) that offer at trial – and are considered an important tactic to deploy in fast track and multi-track proceedings.

A Part 36 offer must express a “relevant period”. If the offer is accepted during the “relevant period”, the receiving party is liable for the offering party’s costs. The “relevant period” must be not less than 21 days - and is usually 21 days. If a Part 36 Offer is accepted after the relevant period, it falls to the parties to agree costs liability. If the parties cannot agree liability for costs, costs will be determined by the Court. While the presumption is that the offering party will receive their costs, the Court can make an alternative costs order where it considers it just to do so.

Late Acceptance

The scope for different costs orders in a Part 36 framework has led to a trend of receiving parties accepting offers after the “relevant period”, refusing to agree costs with the offering party and raising before the Court arguments against liability for costs.  

The question of whether a party can delay accepting an offer until the expiry of the 21-day period came before the Court in the recent case of Pallett v MGN Ltd [2021] EWHC 76 (Ch). In Pallett, the claimant made a Part 36 Offer of £99,500 with the standard 21-day relevant period. The receiving party accepted the offer 1 minute after the 21-day period expired and sought to subsequently argue that the offering party had not engaged in the settlement process and that its costs should be limited as a result.

Mr Justice Mann took the view that the receiving party had the right to raise the arguments. He commented however that the ability of receiving parties to employ Part 36 in this way was “odd” and created an unattractive option for offering parties who would have factored costs into their settlement approach. Ultimately, the defendant’s argument was not accepted, and the costs were not limited. Following the issues raised by Mr Justice Mann, however, the point is currently being considered by the Civil Procedure Rule Committee

For offering parties, the potential for the rules to be so unfairly applied and for a party to be put to the extra cost of dealing with an application to disapply the presumption of costs, is bound to influence settlement approaches and has the potential to undermine the principal of a Part 36 Offer and the Courts’ promotion of settlement. Pallett highlights the need for change or at the very least clarification so that offering parties can properly factor costs into their settlement figures.

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