Settlement is a key objective in civil litigation, but the way an offer is made can have a significant impact on the recovery of legal costs. While Part 36 offers provide a structured framework with defined consequences, parties frequently rely on settlement offers outside Part 36 to encourage resolution and protect their position on costs.

Unlike formal Part 36 offers, which operate under a specific set of rules within the Civil Procedure Rules, offers made outside the regime do not carry automatic cost penalties. Instead, the court has discretion to consider the circumstances of the case, including whether a party acted reasonably when making or rejecting an offer.

For claimants and defendants alike, understanding how these offers affect costs decisions is essential. A well-timed and realistic offer can influence the outcome of a costs dispute, even where the case ultimately proceeds through full court proceedings.

 

What Are Settlement Offers Outside Part 36?

Offers to settle made outside Part 36 is usually made on a without prejudice save as to costs basis. This means that the offer cannot generally be shown to the court when deciding the substantive issues in the claim, but it can be considered later when the court determines costs.

The purpose of this protection is to encourage parties to negotiate openly. It allows both sides to explore settlement without the concern that making an offer will be interpreted as an admission of liability or weakness.

However, unlike a formal Part 36 offer, there are no automatic consequences if the offer is rejected. The court will instead assess whether the offer was reasonable and whether either party’s conduct justifies departing from the usual costs position.

 

How Settlement Offers Outside Part 36 Differ From Part 36 Offers

The key distinction between the two approaches is certainty. A Part 36 offer is governed by strict procedural requirements and carries defined consequences if it is not beaten at trial.

For example, where a claimant’s Part 36 offer is made and the claimant achieves a better result at trial, enhanced costs consequences may follow. Similarly, a defendant’s Part 36 offer can provide protection if the claimant fails to achieve a more favourable outcome.

A formal offer must usually remain open for a period of at least 21 days, known as the relevant period. If the offer is accepted within the relevant period, the usual costs consequences under Part 36 apply. If it is accepted after that period, the position becomes more dependent on agreement between the parties or the court’s discretion.

By contrast, settlement offers outside Part 36 provide greater flexibility but less certainty. The court is not required to apply specific consequences and will instead consider the overall conduct of the parties.

 

The Court’s Approach to Costs

When deciding costs, the court has a broad discretion. Although the general rule is that the unsuccessful party pays the successful party’s costs, this can be adjusted where the circumstances justify a different approach.

A settlement offer made outside Part 36 may become particularly important if one party can demonstrate that the other acted unreasonably by refusing a sensible opportunity to resolve the dispute.

The court may consider several factors, including:

• The terms of the offer and whether it represented a genuine attempt to settle
• The stage of the litigation when the offer was made
• The information available to the parties at the time
• The conduct of both sides throughout the dispute

The purpose of this approach is to encourage sensible negotiation and prevent unnecessary costs being incurred where settlement could reasonably have been achieved earlier.

 

The Importance of Timing and Strategy

The timing of an offer can significantly affect the weight the court gives it. An early offer may demonstrate that a party has attempted to resolve matters efficiently, whereas an offer made shortly before trial may carry less influence if substantial costs have already been incurred.

Unlike Part 36, there is no fixed point at which a relevant period expired for an informal offer. However, the date on which an offer was made, the evidence available at the time, and the progress of the case will all be relevant when the court assesses costs.

This is particularly important in complex claims, where significant resources may be spent obtaining expert evidence, preparing documents, and progressing the case towards trial. The longer litigation continues, the greater the potential impact of unnecessary costs.

 

When Can Rejecting an Offer Lead to Costs Consequences?

A party is not automatically penalised simply because they reject an offer. Litigation involves uncertainty, and parties are entitled to pursue their case where they have reasonable grounds for doing so.

However, problems can arise where a party is failing to accept an offer that was clearly reasonable in the circumstances.

For example, if a claimant rejects a defendant’s offer that later proves to have been more favourable than the judgment obtained, the court may consider whether the claimant’s conduct justifies a different costs order.

Equally, a defendant who refuses a realistic settlement proposal may face criticism if the claimant ultimately achieves a better outcome. The consequences may include adjustments to costs, such as reducing the amount recoverable or requiring one party to pay the other side’s costs from a particular stage of the claim.

 

Practical Considerations When Making Non-Part 36 Offers

Although settlement offers outside Part 36 lack automatic protection, they remain a valuable litigation tool when used correctly.

Parties should ensure that any offer is carefully considered and clearly communicated. A vague or unrealistic proposal is unlikely to carry significant weight when costs are later considered.

When making or responding to these offers, parties should consider:

• Whether the offer reflects the strengths and weaknesses of the case
• Whether sufficient evidence is available to assess the likely outcome
• The potential costs of continuing litigation, including court fees and further preparation
• Whether the offer provides a genuine opportunity to resolve the dispute

A strategic approach can help demonstrate reasonableness and strengthen arguments on costs if the matter later requires judicial consideration.

 

Settlement Offers and Legal Costs in Practice

In practice, disputes over costs often arise after the main issues in a case have already been resolved. A settlement agreement may conclude the claim itself, but the parties may still require a court order or further negotiations to determine who should pay the costs.

This is particularly common where there is disagreement about whether an offer should influence the final costs position.

The court may consider the amount of work carried out, the complexity of the dispute, and the opportunities available to settle earlier. The time spent progressing unnecessary litigation may become relevant when deciding whether costs should be adjusted.

Certain funding arrangements, including cases involving legal aid, can also introduce additional considerations when assessing recovery and liability for costs.

 

Why Understanding Costs Strategy Matters

Settlement strategy is not simply about achieving a financial resolution. The way offers are made, received, and responded to can have a lasting impact on the overall financial outcome of litigation.

Although Part 36 remains one of the most effective mechanisms for protecting a party’s costs position, offers outside the regime provide valuable flexibility. They allow parties to negotiate commercially while still preserving arguments about conduct and reasonableness.

For solicitors and costs professionals, understanding the distinction between formal Part 36 offers and alternative settlement proposals is essential when advising clients on risk and recovery.

 

FAQs

Do settlement offers outside Part 36 affect legal costs?

Yes. Although they do not have the automatic consequences attached to Part 36, settlement offers outside Part 36 can still influence how the court decides costs. The court may consider whether an offer was reasonable, whether it represented a genuine attempt to resolve the dispute, and whether rejecting it was justified. A party that refuses a sensible offer may face adverse costs consequences, even if the offer did not comply with the formal Part 36 process.

What is the difference between Part 36 offers and settlement offers outside Part 36?

The main difference is that Part 36 offers operate under a strict procedural framework and provide predictable consequences if certain conditions are met. Settlement offers outside Part 36 are more flexible but rely on the court’s discretion. This means a party making an informal offer may still achieve protection on costs, but they cannot rely on the automatic rules that apply to Part 36.

Can the court consider offers made during litigation?

Yes. Once the substantive issues have been resolved, the court can consider relevant settlement discussions when deciding costs. This includes offers marked as without prejudice save as to costs. The purpose is to encourage parties to engage constructively and avoid unnecessary litigation expense.

Does rejecting an offer always mean a party will pay the other side’s costs?

No. The court will consider the circumstances surrounding the rejection. A party is entitled to reject an offer where there are reasonable grounds for doing so. However, where an offer was clearly reasonable and rejecting it resulted in unnecessary expense, the court may take that conduct into account when making its costs decision.

Are settlement offers outside Part 36 used in all types of claims?

They can be used across many areas of civil litigation in England and Wales, including personal injury, commercial disputes, and professional negligence claims. Their usefulness depends on the circumstances of the individual case and the parties’ objectives.

 

How Greener Costs Can Help

Settlement strategy and costs management often go hand in hand. Understanding how different types of offers influence recovery is essential when seeking to protect a client’s financial position.

At Greener Costs, we provide specialist costs advice on settlement strategy, costs budgeting, and recovery issues across complex litigation matters.

If you’d like to discuss costs strategy following settlement negotiations, contact Greener Costs today on 01204 263047 or email info@greenercosts.co.uk.