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What is a part 36 offer?
Part 36 offers are a tactical action used extensively in dispute resolution to persuade the other side to settle. They get their name from part 36 of the the Civil Procudure Rules, which dictate how such offers should be made and treated. Some civil litigators fear receiving Part 36 offers as refusing the settlement can lead to punitive measures further down the line if the recipient loses the case, especially if the judge is of the opinion that the offer was fair.
An offer is normally made when one party involved in a dispute wants to settle the issue early and crucially, before it reaches court. This can be beneficial to both sides as hearings can take up to 2 years to be listed before a judge, not to mention the legal costs of pulling together evidence and witnesses.
Part 36 offers can be made at any point throughout the claim, but are typically less beneficial when made later in the process as the claim may have progressed beyond saving both parties the substantial amounts it could have at the start.
A part 36 offer can be made by either the claimant or the defendant, but it must follow a strict set of rules:
- It must be made in writing
- It must be made clear the offer is being made pursuant to Part 36
- The party receiving the offer must accept it within 21 days
- It has to be clear about whether the offer relates to the claim in its entirety, or a specific part of it
- It has to state whether it takes into account any counterclaims
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Why are part 36 offers useful?
Time equals money, especially when it comes to legal issues. And if you can remove or reduce time from the equation, costs tend to reduce too. This is why Part 36 offers can be so powerful.
Let’s look at an example: Sue owns a lucrative hair salon. She lent John £100,000 as a downpayment 5 years ago on a property, and they drew up a contract that said John would re-pay his debt in 3 years’ time. She wants to open a second salon, but needs the money back from John to do so. John decides he doesn’t want to pay Sue back, which leaves Sue with no option but to raise a claim against John for the money owed. Sue’s solicitor files a claim on her behalf, which John disputes. As the claim is disputed, the court will then intervene with a slew of instructions and paperwork, including:
- Filling out a directions questionnaire
- Waiting for allocation to a track
- Disclosure
- Exchange of witness accounts and statements
- If necessary, exchanging reports compiled by experts
- Filling out and returning pre-trial listing questionnaires
- Trial
In total, this entire process can take up to 2 years or longer depending on where the case is heard and when a trial date at that venue becomes available. This is significant because Sue will not only be facing a deficit of £100,000 in her bank account, but she (and John) will be facing mounting legal costs from their solicitors, and if any other opportunities come up, such as the new salon, Sue may need to pass up on an investment opportunity because of the length of time large claims like this take to proceed to trial.
By putting across an attractive Part 36 offer, Sue may not get the entire sum owed to her, but she stands to reduce her legal bill, and recover a portion of the money owed to her without wasting the time it would take to go to trial. This might mean she can open the other salon and make more in the long term than had she pursued action against John. Simply put, it might just be common sense to not pursue a personal vendetta.
In short, settling early can be beneficial depending on what you want to achieve. And these cases can be expensive incurring tens of thousands in legal and court fees. If Sue’s solicitor estimated it would cost £20,000 in professional fees to recover her money, settling for £80,000 upfront would secure her the same net result in a much shorter space of time. This is why Part 36 offers can be so helpful in settling disputes.
The other reason Part 36 offers are made is because they force the other side to reveal how strong their case is. While disputes are often serious, they can be likened to a game of chance. Rarely do both sides know of or have all of the evidence possessed by the other. If you make a Part 36 offer and the other side refuses, they have either been poorly advised or they believe they have an extremely strong case that the Part 36 offer undervalues. If they’re using a solicitor, it’s unlikely the former will be true, so you can expect to have a fight on your hands.
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What are the benefits and drawbacks of part 36 offers?
While incredibly useful, there are certain situations that parties should be aware of when making a part 36 offer. Consequences of refusing a part 36 offer Refusing a part 36 offer can have extremely punitive consequences if the party who refused goes on to lose the claim altogether. Using the example of John and Sue above, let’s assume Sue goes ahead and offers John a settlement of £80,000 under part 36 and John refuses. Then John goes on to lose the claim. If the judge deems that Sue’s offer was reasonable, they can punish John for his decision and these punishments aren’t to be taken lightly. The punishments can include any or all of the following:
- Interest on the claim award of 10%
- Costs of the other side on an indemnity basis
- Interest on legal costs of 10%
- Uplift in the award of 10%
The judge is also under no obligation to honour the amount that was originally offered to the side who refused the part 36 offer. The punishments are designed to encourage both sides involved in a dispute to come to a reasonable settlement and avoid unnecessary intervention by the judicial system.
What happens if I make an incorrect offer?
This happens more often than you might think and it’s easy to do if you’re not familiar with making part 36 offers. There are two now notorious cases that sum this up perfectly. The first case was between Knight and another v Knight and others 2019. To cut a long story short, the claimants made what they thought was a part 36 offer to the defendants, which was rejected. The defendants then went on to lose the claim, but when the claimants asked the judge to enact punitive measures, the judge advised their part 36 offer was invalid. Their offer was for £35,000, including:
“your client’s costs which we understand to be under £20,000. The offer also excludes any payment by your client of our clients’ costs, which as you know are around £30,000.”
The reason the judge deemed the part 36 offer invalid was because it had imposed conditions on costs as it said the £35,000 offered was to include the defendant’s costs, but exclude those of the claimant. The second case involved King v City of London Corporation 2019 where Mr King, the claimant, made a part 36 offer to settle for £50,000 that excluded interest. The City, the defendant, rejected this offer and eventually, Mr King’s claim was assessed to be £52,470 excluding interest. The judge advised because Mr King had excluded interest in his part 36 offer, his offer to settle was invalidated as a part 36 offer and no punitive measures would be put in place.
Why contact our litigation solicitors?
Part 36 offers are a potential minefield that can backfire on practitioners and litigants who do not know what they are doing. If you have a dispute and are considering making a Part 36 offer to encourage a settlement, then you must ensure the offer is compliant to the Civil Procedure Rules if it is to have any effect and if you want to rely on it later. Part 36 offers are in place to punish the party that does not accept a reasonable offer to settle and therefore it must be done correctly.
If you have any further questions, or you require independent legal advice, then our specialist civil litigation solicitors in Brighton will help you today. You can send us an email through [email protected] or call our civil litigation solicitors directly on 020 3007 5500.
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