Litigation can be costly. As such, the possibility of settling a dispute should be considered throughout a case – this is encouraged by the court and is the overriding objective.

Settlement can be achieved informally between the parties, but the method known as a Part 36 offer (CPR 36) – which can be made at almost any stage of proceedings by a claimant or a defendant, including before any proceedings have actually been issued, CPR 36.7(1) – offers certain financial advantages.

When awarding costs, a court will evaluate the behaviour of both parties, which includes efforts made to settle (CPR 44.2) but the financial advantages under a Part 36 offer go beyond this general discretion.

Given the wording, CPR 36 can be difficult to understand but it is, in fact, entirely logical once its function is understood. Formalities of making, accepting, and rejecting a Part 36 offer aside, there are three fundamental parts to Part 36: the offer, the response, and the award given at trial.

The central question is, if an offer were rejected and the parties go to trial, was the award better than the offer? Essentially, was it correct to reject?

Although outcomes at trial can never be guaranteed, the answer flows naturally from the limited possible results of a trial following a rejected offer, as set out below.

If the defendant makes an offer (defendant says it will pay a certain amount to the claimant) which is rejected by the claimant, there are four possible outcomes at trial:

Claimant wins	Claimant wins	Claimant wins	Claimant loses
Award greater than offer	Award equal to offer	Award less than offer	No award
Right to reject offer	Wrong to reject offer	Wrong to reject offer	Wrong to reject offer
Trial (or part) necessary	Trial (or part) unnecessary	Trial (or part) unnecessary	Trial (or part) unnecessary
Defendant not penalised	Split-Costs Order	Split-Costs Order	Claimant may be penalised
Award to claimant D pays C’s costs	D to C – award, costs up to last date of relevant period C to D – costs + interest from last date of relevant period		C pays D’s costs (perhaps plus interest)

In simple terms, the relevant period (RP) splits the proceedings into two sections – the ‘reasonable’ part and the ‘wasted’ part. The former is up to the deadline by which the offer could have (should have) been accepted, and the latter is from that deadline to the end of the proceedings.

If the claimant makes an offer (claimant says it will accept a certain amount from the defendant) which is rejected by the defendant, there are also four possible outcomes at trial:

Claimant wins	Claimant wins	Claimant wins	Claimant loses
Award greater than offer	Award equal to offer	Award less than offer	No award
Wrong to reject offer	Wrong to reject offer	Right to reject offer	Right to reject offer
Trial (or part) unnecessary	Trial (or part) unnecessary	Trial (or part) necessary	Trial (or part) necessary
Defendant penalised unless unjust	Defendant penalised unless unjust	Defendant not penalised	Defendant not penalised
Award to claimant Interest on award re RP D pays C’s costs + interest Additional amount to C	Award to claimant Interest on award re RP D pays C’s costs + interest Additional amount to C	Award to claimant D pays C’s costs	Award to claimant C pays D’s costs

The rationale underlying Part 36 is that if a party makes a reasonable attempt to avoid trial but gets dragged to trial anyway, that party should be compensated – usually in the form of costs, damages, and / or interest – if the rejection turns out to have been ‘incorrect’, as per the outcomes detailed above.

The content here represents a brief explanation of the mechanics of a Part 36 offer and our Dispute Resolution team are available to provide detailed advice on this topic and other aspects of such legal proceedings.

-Ben Greenwood