Without prejudice offers to settle  

Defining offers to settle 

The civil litigation rules positively encourage earliest possible settlement between the parties. The provisions require for all parties to consider and if possibly act towards settling and avoiding litigation.

Without prejudice offers to settle are an example of measure to ensure that effect. Those are also known as Part 36 offers because the provisions are contained in Part 36 of the Civil Procedure Rules

How to make an offer

Any party to the proceedings can make an offer to settle. Further, it could be made at any stage of the proceedings which includes before the commencement of proceedings. There are certain conditions to be complied with for the offer to be classed as a Part 36 offer and attract financial advantages as such. Those include:

  • The offer must be made in writing. There is a specific form N242A, however, an ordinary letter could also be sufficient

  • The offer must state that it is intended to have the consequences of Part 36 as considered below

  • If made at least 21 days before trial, it must specify a period of not less than 21 days within which the other side will be liable for their costs in accordance with rule 36.10 if the offer is accepted

  • The offer must state whether it related to the whole of the claim or a part of it or merely relate to liability

  • The offer must also state whether it takes into account any counterclaim

Further it clearly needs to specify the terms on which the settlement is proposed and those need to be as clear as possible. In addition, the offer should specify a period of validity within which it could be accepted by the other party.

Effect of non-compliance with any of the requirements

Whenever a court is considering the validity of such order, a party may seek to establish that such was never made due to non-compliance with the above listed requirements. The judicial consideration on the matter has shown that there is a wide discretion of the court to correct errors in procedure. Therefore, an offer could be upheld even if minor procedural breaches are present. However, the courts have made it clear that significant breaches as well as a conjunction of a number of minor ones could invalidate the offer as Part 36 offer.

Nevertheless, it is a matter for the discretion of the judge to consider the defects and their impact on the validity of the order.                                                                                                                 

Responding to an offer to settle

Acceptance 

A without prejudice offer is accepted by serving a written notice of acceptance. Currently there is no prescribed form, so a letter would be sufficient. Further, a notice of acceptance needs to be filed with the court.

If a Part 36 offer relating only to a part of the claim is accepted, it could result in a settlement of the claim in its entirety only if the offeror abandons the balance of the claim. If the balance is not abandoned and the case proceeds to trial the court has discretion on the costs of the compromised part of the claim.   

If a Part 36 offer is accepted, the claim will be stayed according to rule 36.11. Where the offer relates to the full claim, the stay will be on the terms of the offer.

Further, where Part 36 to pay money is accepted, payment must be made within 14 days of acceptance unless the parties agree otherwise in writing. 

Rejection of an offer and consequences

There is no need for a rejection to be communicated to the party making the offer. Such is inferred from the party’s silence. 

After the offer has been rejected if no other settlement has been reached, the issues would go to trial for judgment. That judgment could be either more or less advantageous than the Part 36 offer. Whether the result of the trial is more advantageous or not is determined by the courts. In the course of doing so the interest entitlement could be taken to account. 

Part 36 offers attract specific financial consequences where the party rejecting it does not obtain more advantageous result at trial. The consequences differentiate depending on which side is making the offer.

Where an offer is made by defendant unless it is considered unjust, the court will order:

  • Defendant to pay the costs of the claimant up to the expiry of the relevant period applying the usual principle that costs follow the event

  • Claimant to pay defendant’s costs from the expiry of the relevant period

  • The claimant to pay the interest on defendant’s costs 

  • Where an offer is made by claimant unless the court considers it unjust to do so, the court will order:

  • Interest on the judgment awarded at a rate not exceeding 10% above base rate for some or all of the period since the expiry of the relevant period

  • Defendant to pay claimant’s costs after the expiry of the relevant period on the indemnity basis

  • Interest on those indemnity based costs at a rate not exceeding 10% above base rate

It is important to note that the consideration of rejected Part 36 offers only come into effect after the issues of liability and quantum have been decided. Therefore, they bear no application in terms of those matters but only relate to costs.