It is designed to encourage early settlement and it works by imposing costs consequences.

Why?

If an offer is accepted within the acceptance period the Claimant is entitled to costs to the date of acceptance. If accepted after the acceptance period the usual order is for the Claimant to pay the Defendant’s costs arising after the end of the period for acceptance.

If the case is decided by a Judge at trial and the Claimant fails to ‘beat’ a Defendant’s offer the usual order is that the Claimant will pay the Defendant’s costs from the end of the period of acceptance and interest on those costs. If the Defendant fails to ‘beat’ a Claimant’s offer the usual order is that the Claimant receives interest on the sum awarded and interest on costs (in both cases up to 10% above base rate), preferential treatment when the costs are assessed and an uplift of up to 10% on the value of the claim.

These consequences put pressure on the other party to settle because of the costs risk.

How?

The offer must be in writing and state that it is intended to have the consequence of Part 36. A Defendant must give the Claimant at least 21 days to accept (the acceptance period). The offer doesn’t expire but it can be withdrawn or reduced at the choice of the offeror after that time in which case it would not have the automatic consequences.

Generally an offer can be accepted after the expiry period if it hasn’t been withdrawn. It does not expire at the end of the acceptance period (commonly 21 days). The proximity of a trial does change things.

The Part 36 offer to settle can be in respect of all or some identified issues. For example liability might be accepted but not the amount claimed. It should also state whether it takes into account any counterclaim and it’s assumed to be inclusive of interest until expiry of the acceptance period.

An offer must comply with Part 36 so it’s worth reading it carefully:

http://www.justice.gov.uk/courts/procedure-rules/civil/rules/part36

There has been a lot of satellite litigation on this issue. If in doubt and particularly in high value or more complex cases do seek solicitor advice. We are happy to help.