Change to claimants' Part 36 Offers

A Part 36 Offer is a written settlement offer that provides a period of no less than 21 days in which it can be accepted and if it is not accepted within that time and the other party subsequently fails to beat the offer, then there will be costs and other consequences.

If a claimant fails to accept a defendant’s Part 36 Offer within the requisite 21-day period, but accepts at a later date, or a defendant beats its own Part 36 Offer at trial, then the claimant will normally have to pay the defendant’s costs from the date when the 21-day period for acceptance expires, through to the date of acceptance or judgment.

However, the present position is that if a defendant fails to accept a claimant’s Part 36 Offer within the requisite 21-day period, but accepts at a later date, the defendant does not face any specific consequences other than the fact that it will have to pay the claimant’s solicitors’ costs for a longer period of time.

It is only if a claimant beats its own Part 36 Offer at trial that a defendant can suffer any consequences. These include interest on the whole or part of the sum awarded, at rate not exceeding 10% above the base rate, costs on an indemnity basis from the date on which the 21-day period for acceptance expired, interest on those costs at a rate not exceeding 10% above the base rate, and an additional award of damages up to a maximum of £75,000 calculated on the basis of 10% of the damages awarded, up to £500,000, and on an award above £500,000, 10% of the first £500,000 and 5% of any amount above that figure.

However, from 6 April 2021 the Civil Procedure Rules are being amended such that a Part 36 Offer may make provision for accrual of interest on such sum offered after the 21-day period for acceptance. If it does not make such a specific provision, the offer shall continue to be treated as inclusive of all interest up to the date of acceptance, even if it is accepted outside the 21-day period.

This means that after 6 April 2021, claimants’ solicitors will probably, as a matter of course, include a provision for interest to accrue on the offer if it is accepted late.

The Part 36 Rules do not specify the level of interest that can be claimed, but bearing in mind that the judgment debt rate is 8% and the penalty interest rate  set out above is 10% plus the base rate – it is likely that claimants’ solicitors will claim interest of at least 8% or 10%.

This means that if for example the claimant makes a Part 36 Offer of £100,000 on 9 April 2021 with a provision for interest at 10% and the defendant does not accept the offer until 31 October 2021 (six months after the expiry of the 21-day period), then this would result in an additional interest payment of £5000.

Therefore, if this additional interest wording is incorporated into the claimant’s Part 36 Offer, a defendant can no longer afford to delay accepting it on the basis that there will be no consequences as long as it is accepted prior to judgment.

Areas of litigation with regards to this rule change are likely to be in connection as to the level of interest that the court allows a claimant to set out in their offer (ie does the rate have to be reasonable or could it be 50%?) and also what would happen in my above example if the claimant proceeded to judgment and on 31 October 2021 was awarded £104,000. The claimant would no doubt argue that they had beaten their Part 36 Offer of £100,000 and so should receive the additional interest, indemnity costs and lump sum referred to above. However, if I was acting for the defendant, I would argue that the value of the claimant’s Part 36 Offer as at judgment was £105,000 (ie the principal £100,000 + £5000 accrued interest) and therefore the claimant had failed to beat their offer. This argument may be one reason why claimants’ solicitors do not attempt to be too greedy in relation to the level of interest claimed in their Part 36 offers after 6 April 2021.