Part 36 offers: how they work and what they mean for costs

CPR Part 36 sets out a self-contained code for settlement offers. To qualify, an offer must be in writing, state that 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 accepted (the relevant period), and state whether it relates to the whole claim, part of it or an issue, and whether it takes account of any counterclaim.

Offers that miss these requirements may still be relevant to costs as ordinary admissible offers, but they will not attract the automatic Part 36 consequences. Calderbank offers, made without prejudice save as to costs, remain useful where flexibility is needed, yet the court has a wider discretion over how much weight to give them.

Both claimants and defendants can make Part 36 offers, and they can be made at any time, including before proceedings and in costs-only proceedings such as detailed assessment.

Where an offer is accepted within the relevant period, the claimant is generally entitled to costs of the proceedings up to the date of acceptance, assessed on the standard basis if not agreed. The claim is stayed on the terms of the offer.

Late acceptance changes the picture. Unless the court orders otherwise, a claimant who accepts a defendant’s offer after the relevant period has expired will usually recover costs to the end of that period but pay the defendant’s costs from then until acceptance. That shift can significantly erode the value of a settlement, and it is one reason offers should be considered promptly rather than left on file.

Where a claimant fails to obtain a judgment more advantageous than a defendant’s Part 36 offer, the court will ordinarily order the claimant to pay the defendant’s costs from the expiry of the relevant period, with interest on those costs. In many claims, those costs may be set off against damages.

Where a claimant obtains a judgment at least as advantageous as their own Part 36 offer, the court will ordinarily award enhanced consequences under CPR 36.17(4): interest on the sum awarded at up to 10% above base rate for some or all of the period from expiry of the relevant period, costs on the indemnity basis from that date, interest on those costs at up to 10% above base rate, and an additional amount. The additional amount is 10% of the sum awarded up to £500,000 and 5% above that, subject to an overall cap of £75,000.

The court will make these orders unless it considers it unjust to do so, having regard to all the circumstances, including the terms and timing of the offer, information available to the parties, and their conduct. The burden of showing injustice is a formidable one.

Special rules apply in some fixed costs regimes, where the consequences are adapted to the fixed sums recoverable. Since the extension of fixed recoverable costs in October 2023, parties should check which provisions of Section IIIA or other modified rules govern a particular claim before assuming the general consequences apply.

In detailed assessment, Part 36 offers on costs are a powerful tool. A well-pitched offer, made early and supported by a realistic analysis of the bill, can shift the costs of the assessment proceedings themselves. Paying parties can use them to cap their exposure; receiving parties can use them to bring pressure for a realistic settlement. Our Costs Lawyers routinely advise on where to pitch an offer in light of points of dispute and likely outcomes on assessment.