8. Settlement

Question 1

The role of Part 36

Answer 1

The court and the CPR, including Part 36, encourage the parties to settle. Part 36 of the CPR:

• Describes a kind of offer that a party can make.
• Sets out consequences if an offer of that kind is made and accepted.
• Sets out different consequences if an offer of that kind is made and not accepted and the matter proceeds to trial (and those consequences depend on the outcome at trial).

The court generally has a wide discretion when awarding costs, and will consider the behaviour of both parties, including their efforts to settle the case (CPR 44.2). However, the advantage of Part 36 is that the financial incentives contained within it are more certain than the court’s general discretion and go beyond what the court can generally order.

The central rationale behind Part 36 is that parties who make realistic proposals to settle actions should get some benefit if these are not accepted and it turns out, at trial, that they should have been accepted. A party who is ‘dragged to trial’ having tried to be reasonable should be ‘compensated’, and an unreasonable party who insists on a trial should be subject to a penalty. The ‘penalty’ stipulated in Part 36 generally takes the form of adjusting the costs, damages and/or interest.

Question 2

When can a Part 36 offer be made?

Answer 2

• Part 36 offers can be made at any stage of proceedings, including before proceedings are issued.
• A Part 36 offer can be made by either party.

Examples: The claimant can write to the defendant words to the effect: ‘I will accept £x from you to settle these proceedings’ and if the settlement offer conforms with certain other formalities (CPR 36.5) then it is a valid Part 36 offer.

In a similar vein, the defendant can write to the claimant words to the effect: ‘I will pay £y to you to settle these proceedings’ and if the settlement offer conforms with certain other formalities (CPR 36.5 and 36.6) then it is a valid Part 36 offer.

Question 3

Part 36 offers contrasted with Calderbank offers

Answer 3

Part 36 is quite specific that nothing within Part 36 prevents a party from making an offer in whatever way it chooses, including by making a Calderbank offer:

Key word: ‘Calderbank offer’: An offer, usually communicated in writing, and written ‘without prejudice save as to costs’, such that it cannot be referred to the judge until costs are considered after trial, but at that point can be relied upon. Such an offer does not need to comply with Part 36.

Although the specific consequences of Part 36 do not apply the court will have regard to a Calderbank offer when it exercises its discretion on costs (pursuant to CPR Part 44).

However, if a party wants to avail itself of the specific cost consequences and protection afforded by Part 36 it must make the offer in compliance with the rules set out in Part 36.

• Part 36 is a self-contained procedural code which describes a kind of offer, sets out consequences if an offer of that kind is made and accepted, and sets out different consequences if any offer of that kind is made and not accepted and the matter proceeds to trial.

Question 4

How to make a valid Part 36 offer

Answer 4

Within the rules the party making the offer is defined as the ‘offeror’ and the party receiving the offer is the ‘offeree’. The rules (CPR 36.5) state that the Part 36 offer must:

• Be in writing;
• Make clear it is made pursuant to Part 36;
• Specify a period of not less than 21 days within which the defendant will be liable for the claimant’s costs if the offer is accepted (called the ‘relevant period’);
• State whether it relates to the whole or part of the claim; and
• State whether it takes into account any counterclaim.

These rules apply to both claimants’ and defendants’ offers. There are two further rules that apply to defendants’ offers only (CPR 36.6):

• With limited exceptions, a Part 36 offer by a defendant to pay a sum of money in settlement of a claim must be an offer to pay a single sum of money.
• A defendant’s offer that includes an offer to pay all or part of the sum at a date later than 14 days following the date of acceptance will not be treated as a Part 36 offer unless the offeree accepts the offer.

Question 5

Key word: ‘Relevant period’

Answer 5

Key word: ‘Relevant period’: A period of not less than 21 days, specified in a Part 36 offer, within which the defendant will be liable for the claimant’s costs if the offer is accepted.

A part 36 offer can be made at any time, including before the issue of proceedings (CPR 36.7(1)).

Note that Part 36 offers can be made by the claimant and the defendant – so the rules (and this element) refer to offeror, which could be either the claimant or the defendant.

The wide definition of writing means that a party could make a Part 36 offer in a letter, and this is usually what takes place.

If a letter is used, then somewhere in the letter it should state that it is made pursuant to Part 36. Alternatively, there is a prescribed form, N242A, which if completed properly would mean that the Part 36 offer would comply with the rules.

If the offer complies with these rules then it will be a valid and proper Part 36 offer.

Question 6

When is a Part 36 offer made?

Answer 6

When it is served on the offeree (CPR 36.7(2)).

The rules of service (CPR 6) apply. A party need not wait until proceedings are issued to make a Part 36 offer as they can be made before proceedings have been commenced. This means that pre-issue Part 36 offers have the usual Part 36 consequences (including recoverable pre-action costs) upon acceptance after issue of proceedings or upon judgment being given. Where a Part 36 offer is both made and accepted before proceedings are commenced, the Part 36 consequences of acceptance (CPR 36.13 and 36.14) considered in this element have no effect since the consequences are dependent upon there being extant proceedings. The consequences of a Part 36 offer later in this element assume proceedings have been issued.

Question 7

How to clarify a Part 36 offer?

Answer 7

The offeree can seek clarification of the terms of the offer, for example a breakdown of the components of the offer, within 7 days of service (CPR 36.8 ).

Question 8

Withdrawal of a Part 36 offer

Answer 8

If the offer has already been accepted… it cannot be withdrawn, or its terms changed (CPR 36.9(1)).

If the trial has already started…the court’s permission is required to withdraw the offer.

Otherwise, has the relevant period expired?

If yes: The offer can be withdrawn or its terms changed without the court’s permission. The offer can also be withdrawn automatically if its terms state so. This allows the offeror to make an offer that is time limited (CPR 36.9(4)).

If no: Any notice of withdrawal / change during the relevant period (CPR 36.10) will take effect at the end of the relevant period, if the offeree does not serve notice of acceptance during the relevant period. If they do serve notice of acceptance during the relevant period (despite the notice of withdrawal / change) then the offeror can either allow the acceptance or apply to the court for permission to withdraw the offer or to change its terms. This must be done within 7 days of the notice of acceptance or if earlier before the first day of the trial. The court may give permission for the original offer to be withdrawn or its terms changed if satisfied that there has been a change of circumstances since the making of the original offer and that it is in the interests of justice to give permission.

Question 9

Consequences of a part 36 offer

Answer 9

If a part 36 offer has been made and it is not withdrawn, two things can happen:

• It is accepted – you then need to know the consequences of the acceptance;
• It is not accepted – you then need to know whether the court will impose a ‘penalty’ after trial because the offeree did not accept the offer, and if so, what that penalty will / might be.

Question 10

How to accept a Part 36 offer

Answer 10

Serve written notice of acceptance on the offeror (CPR 36.11(1)).

If the case is issued the acceptance also needs to be filed at court.

There is no prescribed form for this - a letter will be sufficient.

Important: An offer remains open for acceptance unless it has been withdrawn (CPR 36.11(2)). This remains the case even after the relevant period has expired, unless offer is expressed to be withdrawn automatically at the end of the relevant period.

Question 11

Consequence of accepting a Part 36 offer

Answer 11

Stay - The claim will be stayed and will not continue to trial – CPR 36.14(1)).

Settlement sum - For any Part 36 offer which is, or includes, an offer to pay / accept a single sum of money, the defendant has 14 days from acceptance to pay the settlement amount agreed unless otherwise agreed in writing (36.14(6)), failing which the claimant can enter judgment against the defendant (CPR 36.14(7)).

If the Part 36 offer does not include an offer to pay / accept a single sum of money, then in the event that a party fails to comply with whatever was agreed, the aggrieved party can apply to court to enforce the terms of the offer without the need to start separate court proceedings (CPR 36.14(8)).

Question 12

Cost consequences of accepting a part 36 offer

Answer 12

Cost consequences of acceptance in the relevant period

If accepted before the expiry of the relevant period, the claimant is entitled to its costs of the proceedings up to the date the notice of acceptance was served on the offeror (CPR 36.13(1)).

The rationale for this cost consequence of accepting an offer is that the claimant will receive a sum of money in settlement and has therefore ‘won’ its claim and so should be entitled to its costs of the proceedings. This is the case regardless of which party made the offer to settle.

Cost consequences of acceptance outside the relevant period

If accepted after expiry of the relevant period, then (see CPR 36.13(4)):

a) The court will determine liability for costs unless the parties agree them; BUT

b) The court must, unless it considers it unjust to do so, order that—

• the claimant be awarded costs up to the date the relevant period expired; and
• the offeree do pay the offeror’s costs for the period from the date of expiry of the relevant period to the date of acceptance.

The rationale is that the claimant has ‘won’ its claim in the sense that the defendant is making a payment to the claimant, and so the claimant should have its costs up to the end of the relevant period. However, from the end of the relevant period up to when the offer was accepted, the offeree (which could be the claimant or the defendant) should pay the costs as a punishment for not accepting within the relevant period when it had the chance.

Cost consequences: special rules where the offer was made less than 21 days before trial

Different rules apply where an offeree accepts an offer but the offer was made less than 21 days before trial. In this situation, if the parties do not agree liability for costs the court must determine liability (36.13(4)).

Question 13

Accepting a Part 36 offer which relates to part of a claim

Answer 13

It is possible to make a Part 36 offer which relates to part of a claim only (CPR 36.5(1)(d)). Special rules apply if such an offer is accepted.

If, at the time of acceptance, the claimant abandons the remainder of the claim… the claimant will only be entitled to the costs relating to the part of the claim contained in the offer, unless the court orders otherwise (CPR 36.13(2)).

If, at the time of acceptance, the claimant does not abandon the remainder of the claim… the liability for costs will be determined by the court, unless the parties can reach an agreement about the liability (CPR 36.13(4)).

Question 14

Consequences of unaccepted Part 36 offers at trial

Answer 14

The central rationale behind Part 36 is that parties who make realistic proposals to settle actions should get some benefit if these are not accepted and it turns out, at trial, that they should have been accepted. A party who is ‘dragged to trial’ having tried to be reasonable should be compensated, and an unreasonable party who insists on a trial should be penalised. That is the subject of this element.

Where a Part 36 offer is not accepted and the claim proceeds to trial, the court has to determine whether a penalty should be imposed, which (broadly) turns on whether a Part 36 offer should have been accepted.

How the court approaches this question depends on whether the offer concerned is a claimant’s offer or a defendant’s offer.

Defendant’s offer, not accepted

You need to consider two issues:

• Trigger: does the failure to accept the defendant’s offer trigger any consequences?
• Consequences: if so, what are those consequences?

Question 15

Trigger

Answer 15

The ‘trigger’ (CPR 36.17(1)(a)) is where “A claimant fails to obtain a judgment more advantageous than a defendant’s part 36 offer”.

‘More advantageous’ means better in money terms, however small the amount. So unless the result at trial is better in money terms than the defendant’s Part 36 offer, then the failure to accept that offer will have consequences. This is logical – if the result at trial is not ‘better’ than the defendant’s offer, then that offer should have been accepted, and a penalty will be imposed on the claimant for not accepting it.

When ascertaining whether the judgment is ‘more advantageous’, the comparison in money terms is made at the date of judgment. Since the Part 36 offer is deemed to include interest up to the end of the relevant period (CPR 36.5(4)), interest after that date is to be ignored. So, one must compare the sum set out in the Part 36 offer with combined quantum of judgment plus what the judge awards by way of interest up to the end of the relevant period.

Question 16

Consequences

Answer 16

The penalty imposed on the claimant in these circumstances is that unless it considers it unjust to do so, the court must order that:

• The claimant pays the defendant’s costs from the date the relevant period expired; and
• Interest on those costs (CPR 36.17(3)).

Obviously, the claimant must bear their own costs for this period as well.

Who pays whose costs in relation to the period before the relevant period expired? Part 36 does not tell us the answer, so the usual costs rules (CPR 44) apply. This means that if the claimant won and received something at trial, then the normal rule is that the defendant will pay the claimant’s costs in relation to this period. If the defendant won, then the normal rule is that the claimant will pay the defendant’s costs in relation to this period. But the court has a discretion on this issue.

If the ‘trigger’ is not met, for example because the claimant does better at trial than offered by the defendant then the defendant’s Part 36 offer has no effect.

Question 17

Claimant’s offer, not accepted

Answer 17

We turn now to consider the situation when it is a claimant’s offer (rather than a defendant’s offer) which has not been accepted.

Again, you need to consider two issues:

• Trigger: does the failure to accept the claimant’s offer trigger any consequences?
• Consequences: if so, what are the those consequences?

Trigger

The ‘trigger’ (CPR 36.17(1)(b)) is where “Judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant’s Part 36 offer”.

Where claimant does the same or better at trial than its own Part 36 offer, then the failure to accept that offer will have consequences. This is logical – if the defendant could have done just as well by accepting the offer, then a penalty will be imposed on the defendant for not accepting it.

Again, when ascertaining whether the judgment is ‘at least as advantageous’, the comparison in money terms is made at the date of judgment and the approach to interest is as set out under ‘Defendant’s offer, not accepted’ above.

Consequences

The penalty imposed on the defendant in these circumstances is that unless it considers it unjust to do so, the court must order :

• Interest on the award at a rate not exceeding 10% above base rate for some or all of the period from the expiry of the relevant period. This is a penalty because the award of interest is at a higher rate than the usual rate.
• The costs from the end of the relevant period are to be assessed on the indemnity basis (in contrast to the usual basis - the standard basis). Any assessment on the indemnity basis can result in significantly more costs being awarded to the claimant.
• Interest on those costs at a rate not exceeding 10% above base rate. Again this rate of interest is in excess of the usual rate.
• An additional amount based on a percentage of the award. The percentage being 10% up to £500,000 and 5% above £500,000. The total amount is capped at £75,000 (CPR 36.17(4)).

Where the claim does not have any money-claim within it (eg it is a claim for possession of property, without any damages claim) then the penalty in (d) above is calculated with the total amount of costs awarded to the claimant used as the figure in place of the award. If the ‘trigger’ is not met, for example because the claimant does worse at trial than it offered to accept, then the claimant’s Part 36 offer has no effect.

Question 18

‘Unless unjust to do so’…

Answer 18

As already set out, when the Part 36 consequences are triggered, the penalties will be imposed ‘unless the court considers it unjust to do so’.

When deciding what is unjust, the court will take into account:

• The terms of any Part 36 offer;
• The stage in the proceedings when the offer was made;
• The information available to the parties;
• The conduct of the parties in relation to giving / refusing information for the purposing of enabling the offer to be made / evaluated; and
• Whether the offer was a genuine attempt to settle.

(CPR 36.17(5)).

The court’s discretion under this provision is much more limited than the court’s general discretion under the normal costs rules (CPR 44).

Question 19

Claimant’s or defendant’s offer, not accepted – special rules

Answer 19

Where an offer was made within 21 days of the trial, then even if the applicable ‘trigger’ set out above is satisfied, there will be no Part 36 consequences unless the court abridges the relevant period ie shortens it. This is fair because the relevant period (which is always at least 21 days) had not expired before trial. The offeree did not have a fair opportunity to accept the offer.

The Part 36 consequences also do not apply if:

• The Part 36 offer was withdrawn; or
• The Part 36 offer was changed so that its terms are less advantageous to the offeree and the offeree has beaten the less advantageous offer.

If a party wants to get the full costs protection of Part 36 then it needs to:

• Make the offer more than 21 days before trial. Indeed, the earlier the offer is made, the greater the potential benefits to the offeror; and
• Leave the offer open (not withdraw it).

Question 20

Open claimant’s and defendant’s offers effective at the same time

Answer 20

What if both the claimant and the defendant have made Part 36 offers, neither of which have been accepted when the matter goes to trial? You just need to consider each offer in turn. Consider the examples already provided where the defendant’s offer was £2mil and the claimant’s offer was £3.5mil.

If the judge awards, say, £4mil then as the claimant has won the same or more than their offer (of £3.5mil) the claimant’s offer takes effect and Part 36 will apply (CPR 36.17(4)). The defendant’s offer has no effect as the claimant has won more than the defendant’s offer (of £2mil).

If the judge awards, say, £3mil, then neither offer has any effect. The claimant’s offer (of £3.5mil) has no effect as the claimant has not won the same or more than their own offer. The defendant’s offer (of £2mil) has no effect because the claimant has not won the same or less than the defendant’s offer. Costs are likely to be awarded in this situation under the normal principles (CPR 44.2).

If the judge awards, say, £1mil, then as the claimant has won the same or less than the defendant’s offer (of £2mil), the defendant’s offer takes effect and Part 36 will apply (CPR 36.17(3)). The claimant’s offer has no effect as the claimant has not won the same or more than their own offer (of £3.5mil).

Question 21

The nature of discontinuance

Answer 21

Only a claimant can discontinue a claim. The claimant can do so at any time – the claimant is choosing not to pursue the claim against the defendant any further (CPR 38.2(1)).

The claimant can discontinue part of a claim rather than the whole claim (CPR 38.2(1)). The claimant can choose to discontinue the claim against only one defendant, or against all of the defendants (if more than one) (CPR 38.2(3)).

Discontinuance has two major consequences:

It ends the proceedings in relation to the claim / part of claim discontinued (CPR 38.5(2));

The claimant is liable to pay the defendant’s costs up to the point of discontinuance, unless the court orders otherwise (if the claim is only discontinued in part, then the claimant is only liable for costs in relation to the part which is discontinued)(CPR 38.6).

In exceptional circumstances the court’s permission is needed to discontinue proceedings – generally when the claimant has already received some sort of remedy, such as an interim injunction or an interim payment (CPR 38.2(2)).

Question 22

Procedure for discontinuance

Answer 22

• File a notice of discontinuance at court (CPR 38.3(1)(a)) (This must make clear which part of the claim is discontinued (if only part)).
• Serve a copy on every party (CPR 38.3(1)(b))
• Discontinuance takes effect from the date of service (CPR 38.5(1))
• Upon discontinuance, a costs order is deemed to have been made in the defendant’s favour on the standard basis (CPR 38.6 and 44.9(1)(c)).