Offers to Settle
Pre trial negotiation has become a central feature of modern litigation. Settlement, mediation and proportionality are the new judicial keystones which litigants ignore at their peril.
Part 36 is a considered attempt by the CPR to create a system of offers but there is certainly no requirement that an offer should be made within its terms.. Any offer may be taken into account by the court when the question of costs and interest comes to be considered.
Part 36 was revised as of 6 April 2007. Transitional provisions dealing with offers or payments into court made before this date are dealt with separately at paragraph 6.
2. TACTICAL CONSIDERATIONS
Before making an offer a party should be conscious of its objectives. Relevant considerations include:-
• Is the offer one on which the party intends to rely, or is it a negotiating position?
• Is the purpose to settle or dispose of all or part of a claim now, or to put the opposing party at risk as to costs further down the line?
• Is the party prepared to go to trial at all? If so, what sort of witness will the party make?
• How strong or weak is the case on liability?
• Will the party discontinue if the offer is not accepted?
• Are disclosure and the exchange of evidence likely to help or weaken each party’s case?
The amount of an offer in a money claim needs to be pitched carefully. An offer which is made too low (for a claimant) or too high (for a defendant) risks a negligence claim, but still the offer must pose some risk to the opponent.
3 WHAT KIND OF OFFER SHOULD A PARTY MAKE?
There are broadly three alternatives when considering an approach to settle.
Making an offer that complies with part 36 CPR (“a Part 36 offer”)
A valid offer made pursuant to Part 36 will have the consequences set out in that part.
Making an offer that is not a Part 36 offer but upon which the offeror will rely when costs are considered
Offers that fall outside part 36 are often referred to as “Calderbank offers”. These offers will have none of the automatic consequences set out in part 36 but may be just as potent in procuring favourable costs orders.
Offers to mediate or meet without prejudice
Refusing an offer to mediate or meet may have costs consequences and unreasonableness in these circumstances may be imputed to the party in receipt of the offer unless he can show a good reason why it was reasonable to refuse the offer. The offeree would be well advised to set out these reasons at the time that the offer is made.
4 PART 36 OFFERS
4.1 Making a Part 36 offer
A claimant is generally expected to make a Part 36 offer (Painting v University of Oxford (2005) EWCA Civ. 161). The claimant may be at risk as to costs if he does not make a Part 36 offer, even if he beats an offer made by the defendant.
If an opposing party is refusing to negotiate then a “best” Part 36 offer should be made and relied on. It is not enough to say that the other party was “uncooperative” (Straker v Tudor Rose (2007) EWC Civ 368).
When to offer
A Part 36 offer can be made by either party at any time before or after proceedings are issued (r 36.3 (2)). It can be made less than 21 days before the first day of the trial but then it will not invite the consequences of a Part 36 offer following a judgment unless the court abridges the relevant period (r 36.14 (6) (c))
The form of a Part36 offer
The offer can be made in respect of all of the claim, part of it or an issue within it and can be for liability only (r 36.2 (5)).
In order to carry the consequences set out in part 36, an offer made by either party must:-
• be in writing (including email). Confirmation of a verbal offer by an offeree is not sufficient (Thomas v Home Office ); and
• state that it is intended to have the consequences set out in part 36 (the consequences do not need to be described); and
• specify a period of not less than 21 days during which the defendant will be liable for the claimant’s costs if the offer is accepted (the relevant period). If the offer is made less than 21 days before trial then this is not necessary; and
• state whether it relates to the whole claim, part of a claim, or an issue in the claim and if so to which part or issue it relates; and
• state whether it takes account of any counterclaim.
There is no need to state explicitly that an offer includes interest as it is presumed to include interest up until the end of the relevant period.
To be effective a Part 36 offer made by either party must not
• describe itself as open for a limited time; or
• be conditional upon acceptance of a term about costs other than those set out in part 36 (Mitchell v James (2003) 1 WLR 631 C.A and Ali Reza-Delta Transport v United Arab Shipping  3 All ER 1297).
Requirements in specific circumstances
There are extra requirements if the offer relates to the following situations.
A PERSONAL INJURY CLAIM FOR FUTURE PECUNIARY LOSS (r 36.5)
A claimant is under a duty to consider periodical payments when a claim is made for future pecuniary loss. In order to obtain part 36 consequences, an offer in a claim which includes a claim for future pecuniary loss must be made in accordance with the requirements of this rule which are that:-
(a) the offer must contain an offer to pay/accept the whole or part of the damages for future pecuniary loss in the form of a lump sum; periodical payments; or both (r 36.5 (3) (a)); and
(b) any offer for other heads of loss must still be offered as a lump sum (r 36.5 (3) (b)).
A PERSONAL INJURY CLAIM INCLUDING AN AWARD FOR PROVISIONAL
DAMAGES (r 36.6)
If the claim includes a claim for provisional damages, then a Part 36 offer in that claim must state whether the offer includes an award of provisional damages, and if so state:-
(a) that the sum is offered on the assumption that the claimant will not develop a disease or deteriorate in a way which must be specified in the offer; and
(b) that the offer is subject to the condition that the claimant must make a claim for further damages within a limited period; and
(c) what that period is. The period will depend on the medical evidence.
1. There is no requirement that a defendant should pay money into court or show that he can meet the amount of his offer.
2. An offer by a defendant in a money claim must be an offer to pay a single sum of money within 14 days of acceptance (r 36.4 (2)). An offer to pay over a longer period, or by instalments, will not invite the benefits of part 36 unless the offer is accepted. A defendant who wants to pay a claim by instalments should make a Calderbank offer (see paragraph 7.5 below).
3. The defendant’s solicitor should ensure that his client is able to pay within 14 days to avoid judgment being entered and the solicitor would be well advised to ensure he holds sufficient money in his client account before making the offer. If he does not, then this rather draconian rule may be a good reason to advise the defendant not to make a Part 36 offer. Few defendants want a judgment entered against them.
4. There is no requirement that a defendant take any steps to protect an earlier offer after the claimant has issued proceedings.
CLAIMS IN WHICH RECOVERABLE BENEFITS MAY BE DEDUCTED (r 36.15)
This rule deals with situations in which state benefits paid to the claimant as a result of an accident or injury are deductible from the claimant’s damages under the terms of the Social Security (Recovery of Benefits) Act 1997 and will apply to most personal injury claims where the claimant has claimed benefits as a result of an accident or injury.
When making a Part 36 offer in such a claim the defendant must state whether the offer disregards recoverable benefits (is made net of benefits), or includes deductible benefits (is made gross of benefits). The defendant in the latter circumstances must:-
(a) apply for a certificate of recoverable benefits if he does not already have one that is valid. If the defendant does not have a valid certificate but has applied for one, he may still make a Part 36 offer by making the gross offer and clarifying the amount of benefits and the net offer within 7 days of receipt of the certificate (r 36.15 (7)); and
(b) state the amount of gross compensation offered; and
(c) state the name and amount of deductible benefits by which the gross sum is to be reduced; and
(d) state the net amount after those benefits have been deducted.
Part 36 offers can be made in relation to appeal proceedings. Offers which were made in anticipation of a trial in a lower court will not be considered so if a judgment is appealed then a new Part 36 offer must be made (r 36.3 (4)).
4.2 Withdrawing a Part 36 offer
The application of this rule depends upon whether the offeror wishes to withdraw the offer within the relevant period or outside it.
Withdrawal of a Part 36 offer within the relevant period
Once a Part 36 offer is made it cannot be withdrawn or its terms made less advantageous to the offeree within the relevant period without the permission of the court (r 36.3 (5)).
An application to withdraw a Part 36 offer within the relevant period will need to show a significant change in circumstances which cannot be a foreseeable consequence of a step already taken (Flynn v Sougall (2004) 1 WLR 3069). A new witness or document coming to light may be a sufficient change in circumstances.
Withdrawal of a Part 36 offer outside the relevant period
Outside the relevant period an unaccepted offer can be withdrawn or its terms made less advantageous at any time by giving notice in writing.
Subject to the exceptions described in paragraph 7.4.4, offers are capable of acceptance without permission until notice of withdrawal is served in writing and parties must monitor outstanding offers, including their own, as circumstances change.
Effect of withdrawal of a Part 36 offer
Once a Part 36 offer is withdrawn it will not carry the consequences of part 36 (r 36.14 (6) (a)). If it has been made less advantageous to the offeree then the offeror will be protected only to the extent of the later offer (r 36.14 (6) (b)). However, that is not to say that the court is bound to ignore the offer and r 44.3 gives the court discretion to take it into account. Costs consequences could still follow if the court considers that a good opportunity to settle the case was spurned (Multiplex Construction Ltd v Cleveland Bridge Ltd  Adj.L.R. 02/06).
4.3 Clarifying a Part 36 offer
The offeree may within 7 days request clarification of the offer (r 36.8). If the offer is not clarified as requested then the offeree may apply for an order for clarification on the terms requested.
Rule 36.8 does not permit the offeree to request further extraneous information from the offeror.
A Part 36 offer can be accepted at any time by serving notice of acceptance in writing except that the court’s permission is required (r 36.9 (3)) in these four circumstances:-
1. Where there are multiple defendants; the offer is not made by all the defendants; and the exceptions in r 36.12 (2) and (3) do not apply (see “Multiple defendants” below).
2. Where, outside the relevant period, an offeree wants to accept an offer which is stated to include deductible benefits and further benefits have since been paid to the claimant. If the court gives permission to the claimant to accept the Part 36 offer (r 36.9 (3) (b)) it may at the same time direct that the amount of the offer payable to the claimant shall be reduced by a sum equivalent to the deductible benefits paid to the claimant since the date of the offer (r 36.15 (9)).
3. Where the claim is made on behalf of a deceased person and an apportionment is required to be made between damages arising from the Fatal Accidents Act 1976, and the Law Reform (miscellaneous Provisions) Act 1934 (r 36.9 (3) (c)).
4. When the trial has started (r 36.9 (3) (d)).
Permission may be required if the claimant wishes to accept an offer made by one or more, but not all, defendants (r 36.12) depending upon the nature of the claim. There are three alternatives:-
1. If the claimant sues the defendants jointly or in the alternative then he may accept the offer without permission as long as he discontinues against the other, non offering, defendants and they give written consent to the acceptance of the offer (r 36.12 (2)).
2. If the claimant sues the defendants severally then he may accept the offer without permission and discontinue against the other defendants (r 36.12 (3)).
3. In all other cases the claimant must seek the permission of the court before accepting (r 36.12 (4)).
There are therefore three relevant categories of defendant
(a) Defendants sued jointly
(b) Defendants sued in the alternative
(c) Defendants with several liability
The distinction is important because if the claimant can show that the defendants are sued severally then he may, without the consent of other defendants or the permission of the court, accept offers and continue against the remaining defendants. A detailed examination of the distinctions is beyond the scope of this book but broadly the definitions are as follows:-
(a) Where defendants are sued jointly the claimant has a single cause of action but more than one defendant may be liable to the claimant under it.
(b) Where Defendants are sued in the alternative the claimant alleges that one or other of two (or more) defendants is to blame, but for whatever reason he is unable to say which one. If this is the case then the claim will have been pleaded in the alternative in the particulars of claim.
(c) A separate cause of action exists against defendants with several liability, but the damage caused to the claimant by each defendant is the same. For example, each defendant has breached its, separate, contract with the claimant but all of the breaches have lead to the same damage (Townsend v Stone Toms and Partners  1 W.L.R. 1153).
An offer can still be accepted notwithstanding that a counter offer has been made by the offeree (r 36.9 (2)). It is unclear whether explicit rejection of an offer will render it incapable of acceptance later but there is nothing in the rules to suggest that it will. Rejection is not a concept which is contemplated by part 36 and certainly there is no advantage to be gained by a party explicitly rejecting an offer.
Children and assisted persons
In respect of both children and assisted persons, acceptance will, as ever, be subject to the approval of the court.
4.5 Consequences of acceptance
As soon as an offer for settlement of the whole claim is accepted the claim will be stayed upon the terms of the offer (r 36.11 (2)). Because the case is stayed automatically a consent order is unnecessary but some courts may still require one.
If the offer is for part of the claim then that part of the claim will be stayed on the terms of the offer and the court will decide liability for the costs unless the parties can agree (r 36.11 (3)). If the offer was made by the defendant for part of the claim and the claimant abandons the whole claim when he accepts the offer, then the claimant will generally be entitled to his costs of the whole claim up to the date of acceptance (r 36.10 (2)).
Where the offer is made by the defendant and includes an offer to pay a sum of money, it must be paid within 14 days of acceptance (r 31.11 (6) (a)). If the sum is not paid within 14 days the claimant may enter judgment for the amount of the offer (r 31.11 (7)) or he can choose not to and still pursue the whole claim.
Acceptance within the relevant period
If an offer made by either party more than 21 days before the start of trial is accepted within the relevant period then the claimant will be entitled to his costs up to the date on which the notice of acceptance was served on the offeror (r 36.10 (1)).
Acceptance of an offer made less than 21 days before trial
Where an offer is made less than 21 days before trial, the relevant period is the period up to the end of the trial, unless the parties agree otherwise (r 36.3 (c) (ii)). If such an offer is accepted before the trial has started the court will decide liability for costs unless the parties can agree (r 36.10 (4) (b)) even though it has been accepted within the relevant period as defined by r 36.3 (c) (ii). Once the trial has started the court must give permission before any offer can be accepted (r 36.9 (3) (d)).
Acceptance outside the relevant period
Where an offer is accepted outside the relevant period, with or without the permission of the court, costs will be decided by the court unless the parties can agree (r 36.10 (4) (a)). The usual rule is that:-
1. The claimant will be entitled to his costs up to the end of the relevant period (r 36.10 (5) (a)).
2. The offeror will be entitled to his costs on the standard basis from the expiry of the relevant period until the date of acceptance (r 36.10 (5) (b)).
The court has discretion to make another order, which it might exercise if, for example, a party promptly accepted an earlier offer following disclosure of relevant documents by the offeror that were in his control and should have been, but were not disclosed earlier.
4.6 Non acceptance of a Part 36 offer
If an offeree does not want to accept or clarify an offer, he should reply explaining why the offer is not good enough and, if he has not already, should make his own offer. If the offeree is the claimant he should usually respond with a Part 36 offer.
4.7 Consequences of non acceptance
A summary judgment application is not a trial and therefore the following consequences will not follow a part 24 judgment.
For the claimant
If an offer made by the defendant is not accepted by a claimant who later fails to obtain a more advantageous judgment at trial then the court, unless it considers that it would be unjust to do so, will order that the defendant will be entitled to its costs from the end of the relevant period together with interest on those costs (r 36.14 (2)).
WHERE BENEFITS ARE DEDUCTIBLE
When deciding whether a claimant has been successful in a claim in which benefits are deductable, the court will compare the net sum offered in the defendant’s Part 36 offer with the net sum awarded by the court (r 36.15 (8)).
NON MONEY CLAIMS
In non money claims, a “more advantageous judgment” is not always easy to identify leading to uncertainty and risk that should serve as an encouragement to claimants to exercise caution when not accepting offers.
In a money claim the question of when a more advantageous judgment has been obtained should arguably be straightforward. In fact, it may not simply be a question of receiving a higher monetary award.
Other, less readily measurable considerations including time and emotional expense may be relevant factors which will inform the court’s assessment of the question of “advantage”. In Carver v B.A.A (2008) 3 AER 911 the claimant beat the defendant’s Part 36 offer by £51 (after interest earned since the offer was accounted for). The Court of Appeal agreed with the trial judge that although the claimant was awarded more money than she was offered, she had not obtained a more advantageous judgment because:-
• she would inevitably have incurred further irrecoverable costs since the offer was made; and
• she had gone through the stress and anxiety of a trial; and
• she had suffered delay whilst waiting for it.
She did not recover her costs from the date of an earlier offer that the defendant had made and was ordered to pay the defendant’s costs from the date of the Part 36 offer. The important point is that the court made the order for costs on the basis that she had failed to beat the defendant’s offer.
This interpretation of the revised part 36 is a sign that the court will compare elusive measures – stress, time and delay – with a measurable monetary advantage over a Part 36 offer, and will certainly take into account extra costs spent by a claimant to gain a similar advantage.
The consequences of non acceptance to a claimant may therefore be difficult to predict, although it is probably not irrelevant that the claimant in this case had not made any meaningful offers to settle and her solicitors’ costs vastly exceeded the value of her claim.
OFFERS THAT CANNOT BE EVALUATED
If the claimant cannot evaluate an offer (because for example he is awaiting expert evidence) then he should ask the defendant to agree a stay until the evidence is received so that no costs are incurred (Matthews v Metal Improvements Co Inc (2007) EWCA Civ 215).
For the defendant
If an offer made by the claimant is not accepted by the defendant and the claimant later obtains a judgment that is at least as advantageous as the terms of his offer then unless the court considers that it would be unjust to do so it will order that the claimant will be entitled to (r 36.14 (3)):-
1. Interest at a rate not exceeding 10% above base rate on all or part of any sum of money awarded from the end of the relevant period.
2. Indemnity costs from the end of the relevant period.
3. Interest on those costs at a rate not exceeding 10% above base rate.
The claimant need only match his offer, not improve on it. There is therefore no reason why he should not receive these benefits if he has offered to accept that the defendant is 100% liable and this is what the judgment says. The slight artificiality of this outcome is obvious and it is yet to be tested. The Court of Appeal in Huck v Robson (2001) considered that an offer to accept 99.9% would be “a proper offer” unless it was “merely tactical”.
The court’s discretion to make other part 36 costs orders
The court can refuse to make the usual order if it considers that it would be unjust to do so. In exercising this discretion the court will consider all of the circumstances of the case including the terms of the offer made; the stage that proceedings had reached when the offer was made; the information available to the parties when the offer was made; and the conduct of the parties in sharing information to enable evaluation of the offer.
5 CALDERBANK OFFERS
Part 36 creates a degree of certainty for litigants but does not contemplate offers about costs. Any attempt to make an issue about costs a condition of the offer will render the offer ineffective as a Part 36 offer.
R 44.3 permits the court to take any offer into account. The court will consider:-
(a) the overall conduct of the parties including the parties reasonableness and the manner in which the claim was made/defended, and whether a claimant has exaggerated his claim; and
(b) whether a party has been wholly or partially successful; and
(c) any offers made by the parties to which part 36 does not apply.
Making a Calderbank offer
It is usually the defendant who wishes to bring an end to litigation at a defined cost to him but part 36 does not provide a mechanism to do this. A Part 36 offer will carry with it the costs consequences set out in that part if accepted and the defendant cannot vary the presumption that the claimant will receive his costs up until the end of the relevant period. This may be quite restrictive.
In Hall v Stone (2007) EWCA Civ 1354, the Court of Appeal acknowledged that defendants should not make Part 36 offers in some circumstances. The defendant believed that the claimant was exaggerating (the court agreed) and only wanted to offer small claims costs which is not possible under part 36.
An offer to settle can be made on any terms and can be in relation to any part of a claim or issue within it, including costs. Common examples of Calderbank offers are offers to pay a lump sum including costs; offers to pay by instalments over a period longer than 14 days; offers to drop hands; or offers that are open for a limited period.
The offer should be stated to invite the court’s discretion under r 44.3 and should be available on terms that are as close as possible to a Part 36 offer.
Part 36 offers are more attractive to a claimant because he is able to put the defendant at risk whilst making an offer that will leave him with all of his costs on the standard basis if accepted.
The offer must be expressed to be “without prejudice save as to costs”. An offer expressed to be “without prejudice” cannot be considered or indeed referred to the court at all (Reed v Reed (2004) EWCA 887).
Receiving a Calderbank offer
Claimants must not ignore Calderbank offers that include conditions about costs, including costs inclusive offers. Some claimant solicitors fear that costs inclusive offers put them in conflict with their clients. The situation is unquestionably difficult but the starting point is to advise the client what the balance of the offer means to him after the claimant’s solicitor’s own client costs, and the claimant’s contractual liability for additional liabilities are deducted. A particular problem arises in cases in which a claimant is funded by the Legal Services Commission (“LSC”). In these cases the client is not liable to pay his solicitor the full inter partes rate, just the “legal aid rates” via the statutory charge which are prescribed at a much lower rate. If a solicitor agrees a global settlement on behalf of an LSC funded client he will then have to bill the client privately at his full inter partes rates which he is not allowed to do under his retainer.
In this situation the claimant should, under the terms of r 44.3, be able to refer the court to a reason why it was not reasonable of him to accept a Calderbank offer. But in other cases where there is no good reason, there is nothing to stop the court taking costs inclusive offers, or other offers including terms about costs into account.
6 PART 36 OFFERS OR PAYMENTS INTO COURT MADE BEFORE 6 APRIL 2007
Practice Direction B supplementing part 36 addresses transitional provisions for offers or payments into court made before 6 April 2007.
Any offer or payment into court which was effective under the rules prior to 6 April 2007 will now carry the consequences of a Part 36 offer under the new rules.
Acceptance of offers and payments into court made prior to 6 April 2007
The permission of the court is required to accept an offer or payment into court made prior to 6 April 2007 unless the parties can agree liability for costs.
If liability for costs cannot be agreed then an application should be made for permission to accept the offer.
Money in court
If the parties can agree terms as to costs so permission to accept is not required, and the defendant agrees that the money can be paid out to satisfy a Part 36 offer (made by either party including an offer that is implied by a payment into court) the money can be paid to the claimant without permission (r 37.3). In these circumstances the party simply needs to file a request for payment.
In all other circumstances the permission of the court is required to pay money out of court and an application should be made.
Withdrawal of Part 36 payments made before 6 April 2007
A payment into court made before 6 April 2007 may only be withdrawn with the permission of the court. As long as the claimant has not sought to accept the payment into court and the defendant can show some change of circumstances then the court is likely to give permission.