With most parties wishing to avoid the cost and upheaval of prolonged court proceedings, offers to settle are frequently made and can be an effective way to bring resolution. Instinct is to scan the offer and concentrate on the all-important number being offered but beware! Part 36 offers are constructed to allow the offering party costs protection and, as recent case law shows, how you draft an offer and how you respond to an offer can have serious consequences.
A Part 36 offer is an offer to settle a claim, made pursuant to Part 36 of the Civil Procedure Rules (“Part 36”). Part 36 is a self-contained set of rules that were put in place to encourage parties to reach an amicable agreement outside of court proceedings and contains a very specific set of criteria that an offer and the subsequent agreement must comply with.
One of those Part 36 rules is that, if a claimant makes an offer, which is not accepted by the defendant, and the defendant fails to do better than that offer at trial, the claimant is able to recover their legal costs on an indemnity basis as well as receiving an additional 10% award as compensation.
People familiar with the formation of contracts will be aware that one of the requirements to form a binding agreement is that there must be sufficient certainty in the contract terms so that it is capable of being enforced.
While there is some case law to suggest that contractual principles do apply to Part 36 offers (Ho v Adelekun ) the Court of Appeal decided in the recent case of Adams v Options UK Personal Pensions LLP  EWCA Civ 1188 that the contractual requirement for certainty of terms was not necessarily required for a valid Part 36 offer to be made.
In this case, Mr Adams made a claim against the respondent following losses to his private pension when it was transferred to a self-invested personal pension (SIPP). Mr Adams made a Part 36 offer seeking £63,124 as well as ownership of a property that was subject to the SIPP investment.
The respondent’s view was that Mr Adams’ offer was not capable of being accepted as it contained no mechanism for how Mr Adams would take possession of the property if the offer was accepted (ie: the terms of the agreement were not clear enough to be accepted by the respondent).
Ultimately, the Court decided that the respondent was to pay £89,795.22 into Mr Adams’ SIPP and that the property was to be sold, with the proceeds also being paid into the SIPP.
The Court concluded that, while the Part 36 offer did not contain a specific mechanism for transferral of ownership of the property, a valid Part 36 offer could leave more issues unresolved than an equivalent contractual offer. As Part 36 is a self-contained code, there was no requirement in the rules for there to be the same level of certainty as is required for a contractual offer.
This case acts as a reminder that appropriate consideration must be given to all Part 36 offers due to the significant financial consequences should the party to whom it is addressed not beat that offer at trial. Also, it is good practice to seek clarification of any unclear offer pursuant to CPR 36.8, rather than assume an offer fails due to uncertainty.
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