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Part 36 Offers – What is ‘Without Prejudice?’
As we approach the later stages of our series of posts on Top Ten Tips for Managing a Civil or Commercial Dispute, this post will take you on a whistle stop tour of Part 36 offers and Without Prejudice offers within the context of a civil or commercial dispute /court proceedings.
Whilst a Part 36 offer is a without prejudice offer made with the intention of settling a dispute or proceedings out of Court; not all Without Prejudice offers are Part 36 offers! It is important for clients and prospective litigators to understand this distinction.
What is a “Without Prejudice” offer?
An open settlement offer that is made in open correspondence between the parties may be visible to all parties to the proceedings, including the Judge. Parties to litigation often prefer making “Without Prejudice” offers rather than an open offer, as a Without Prejudice offer, if it is not accepted, cannot be referred to during the course of proceedings. Without Prejudice offers, including Part 36 offers, are confidential in that the trial judge in the proceedings will not be notified of the existence of any offer until after the trial.
As noted above, a Without Prejudice offer may only be seen by the Judge after the proceedings have been concluded, when deciding the issue of costs. At this stage, the Judge may take into account any Without Prejudice offers that were made and not accepted. The court is not obligated to make a prescribed type of costs order however it may use its discretion and penalize a party by taking into account factors such as the parties’ conduct throughout the proceedings which includes failure to accept a reasonable offer.
A party who makes a Without Prejudice offer can set any deadline for the acceptance and expiry of the offer and can withdraw the offer at any time.
Without Prejudice offers may be seen as preferable to some parties to litigation because it provides more flexibility than the strict rules of a Part 36 offer, which are highlighted below.
What is a Part 36 offer?
The key feature of a Part 36 offer is that it is governed by Court rules which set out how it should be formulated; how and when it can be withdrawn; and vitally, the costs consequences of it.
A Part 36 offer is an offer to settle an existing claim or prospective claim, in full or in part. The intention behind this type of offer is to encourage settlement between parties to civil claims and potentially provide cost protection.
Key points on Part 36 offers
A Part 36 offer can be made by any party at any time in the proceedings.
There are multiple conditions that a Part 36 offer must meet in order to be a valid offer on which a party can rely. A party who is considering making a settlement offer of this kind should therefore seek legal advice to ensure that it is drafted correctly and meets these conditions. If a Part 36 offer is drafted incorrectly, it may not provide the cost protection referred to above.
Once a valid Part 36 offer has been received, a party ought to take legal advice on whether they should accept it and also as to the consequences of not accepting it. Advice should also be sought on making a counteroffer which may or may not be a Part 36 offer.
A party who has made a Part 36 offer should keep in mind that they are able to withdraw or vary the terms of the offer should they wish to do so, subject to certain conditions. Legal advice should be sought before withdrawing or varying a Part 36 offer,
It should be remembered throughout the life of any court proceedings that a Part 36 offer remains open for acceptance indefinitely, provided that the terms of the offer do not provide for it to automatically expire after a specified date or event and it has not been withdrawn by the offeror. The offeree must provide written acceptance of the offer to the offeror or their legal representative.
Potential costs consequences of a Part 36 offer
The rules governing Part 36 offers prescribe how costs are dealt with in various situations.
Parties who do not accept a Part 36 offer can face costs penalties, even if that party is successful at trial.
The costs consequences of Part 36 offers depend on many factors, including:
If a party rejects a Part 36 offer and receives a judgment of a higher value than the offer, the court will make a costs order in their favour.
If a party rejects a Part 36 offer and receives a judgment of lesser value than the offer, the court will make a costs order in favour of the party who made the Part 36 offer.
A party that receives a costs order in their favour as a result of a Part 36 offer being rejected will be awarded the following
Here are our Top Ten Tips on Part 36 offers to settle:
1. Part 36 offers – before issue? – A potential Claimant should take advice from their legal team on whether a Part 36 offer ought to be made before issuing proceedings.
2. Part 36 offers are confidential– It is not a sign of weakness to make a Part 36 offer. It can be a way of putting pressure on the other side. The party making the offer is protected in that the Court will only be made aware of any Part 36 offers that have been made, accepted and/or rejected after a judgment has been given.
3. A Part 36 offer must be valid to be effective. – A valid Part 36 offer must be in writing, state that it is intended to be an offer under Part 36 and specify whether it applies to the whole of the claim or only to specified issues. The offer must also specify the length of the relevant period for acceptance of the offer.
4. Consider the costs consequences of rejecting a Part 36 offer – Claimant – The costs consequences of rejecting a Part 36 offer will vary depending on whether you are the Claimant or Defendant. If a Claimant fails to accept a Defendant’s Part 36 offer and then fails to receive a judgment at trial that is of a higher value than the offer, adverse cost consequences will apply to the Claimant.
5. Consider the costs consequences of rejecting a Part 36 offer – Defendant – If a Defendant rejects a Claimant’s Part 36 offer and the Claimant is later awarded a judgment at trial that either matches or exceeds the value of the offer, the Defendant will suffer adverse cost consequences.
6. Consider whether making a Part 36 counter-offer is appropriate. – Where a Part 36 offer is made but is not acceptable in the circumstances of the case, it may be worth putting forward a counter-offer.
7. Continue to monitor your offer after it has been made. – Most Part 36 offers are made with the intention of leaving it open for acceptance at any point until trial. However, new information may arise during the course of the proceedings that result in an offer no longer being appropriate and in need of varying or withdrawal.
8. Effect of Part 36 offer – If the terms of the offer provide that the Defendant must pay the Claimant a sum of money, that sum must be paid within 14 days of acceptance unless the offer specifies otherwise. It is therefore important to ensure that, prior to accepting a Part 36 offer, you are able to comply with its terms.
9. The parties have flexibility and discretion as to the terms of settlement in the Part 36 offer, but little to no flexibility with the costs consequences imposed by the Court. – The Court may decide to vary the prescribed cost rules by taking into account circumstances such as when the offer was made, the information available to the parties at the time it was made and the conduct of the parties in providing or failing to provide additional information to clarify the offer.
10. Is a Part 36 offer appropriate? – Once a party accepts a Part 36 offer, they automatically become liable for the other party’s costs up to the date the offer was accepted. A Part 36 offer will therefore not be desirable to a party who, for example, wishes to make a “drop hands” settlement offer, which involves the parties agreeing to withdraw the proceedings against each other and bear their own costs.
In our latest exploration of civil and commercial dispute management, we delve into the vital distinctions between Part 36 and Without Prejudice offers, shedding light on their impact on legal proceedings and settlement negotiations. Understanding these nuances is essential for navigating disputes effectively. For further guidance and expert assistance in resolving disputes, don’t hesitate to reach out to our dedicated Dispute Management team here at Lupton Fawcett . With their expertise, clarity, and strategic insights, you can navigate the complexities of dispute resolution with confidence.