Part 36 Offers and Costs Recovery: A Practical Guide for Litigators

Few procedural mechanisms shape the economics of civil litigation as decisively as Part 36 of the Civil Procedure Rules. Get an offer right and it can transform a case's costs risk profile, force an early settlement, or deliver a substantial costs windfall at trial. Get it wrong — through a drafting slip, a misjudged figure, or a failure to understand how it now sits alongside Fixed Recoverable Costs and the courts' growing enthusiasm for ADR — and the offer can lose its teeth entirely, or backfire on the client who made it. This guide sets out how Part 36 actually works, where litigators most often trip up, and how to use it tactically in the current costs landscape.

What Part 36 Is and Why It Exists

Part 36 offers a formal, rule-based alternative to an ordinary "without prejudice" settlement offer. A validly made Part 36 offer is treated as "without prejudice save as to costs": the court cannot be told of it during the trial on liability or quantum, but once judgment is given, the offer is disclosed and the court applies a set of automatic costs consequences depending on how the outcome compares with the offer.

The policy rationale is straightforward. Litigation is expensive and uncertain, and the civil justice system has a strong institutional interest in parties settling early rather than fighting cases to trial. Part 36 achieves this by attaching real financial risk to a refusal to settle on reasonable terms: a party who rejects an offer and then fails to do better at trial pays a costs penalty, regardless of who "won" on liability. It is this automatic, largely non-discretionary costs consequence — distinct from the court's general costs discretion under CPR 44.2 — that gives Part 36 its tactical force and makes it the single most important costs-shifting tool available to litigators.

Formal Requirements for a Valid Part 36 Offer

To attract Part 36's automatic consequences, an offer must satisfy the formal requirements set out in CPR 36.5. In summary, it must:

• Be in writing;
• State on its face that it is intended to have the consequences of Part 36;
• Specify a "relevant period" of not less than 21 days within which the defendant will be liable for the claimant's costs if the offer is accepted (or, for a defendant's offer, the offeree can accept without needing the court's permission);
• State whether it relates to the whole of the claim, part of it, or an issue in the claim, and if part, which part; and
• State whether it takes into account any counterclaim.

Unless the offer states otherwise, it is treated as inclusive of all interest up to the end of the relevant period. Offers made less than 21 days before trial require a modified approach, since a full 21-day relevant period is not available — the offer must instead specify that the offeree may accept within 21 days or, if earlier, by the start of trial. Practitioners should treat these formalities as a checklist, not a formality to be assumed: a Part 36 offer that misses one of these requirements does not automatically fail, but it exposes the offer to challenge, and at best the court is left exercising an ordinary CPR 44.2 discretion instead of applying the more powerful automatic Part 36 consequences.

Costs Consequences: Acceptance, Rejection and the Trial Outcome

The consequences differ depending on when an offer is accepted, and depending on whether it is the claimant's or the defendant's offer that goes unbeaten at trial.

Acceptance within the relevant period

Where an offer is accepted within the relevant period, the claimant is entitled to its costs of the proceedings up to the date the notice of acceptance was served, on the standard basis, to be assessed if not agreed (CPR 36.13).

Late acceptance

Where an offer is accepted after the relevant period has expired, the default position under CPR 36.13(5) is that the claimant recovers costs up to expiry of the relevant period, but the offeree (the party accepting late) pays the offeror's costs from expiry of the relevant period until acceptance, unless the court considers that unjust. This is a significant trap for a party who sits on an offer too long before accepting it.

Failure to beat the offer at trial

This is where Part 36's real force lies. Under CPR 36.17:

• If a claimant fails to obtain a judgment more advantageous than a defendant's Part 36 offer, the claimant will normally be ordered to pay the defendant's costs from the date the relevant period expired, plus interest on those costs, unless the court considers this unjust.
• If a defendant is held liable for more, or the claimant obtains a judgment at least as advantageous as its own Part 36 offer, the court must, unless it considers it unjust, order the defendant to pay: interest on the sum awarded at a rate of up to 10% above base rate for some or all of the period from expiry of the relevant period; costs on the indemnity basis from that date; interest on those costs at up to 10% above base rate; and an additional amount calculated on a sliding scale of the sum awarded (10% on the first £500,000 and 5% on any amount above that, subject to an overall cap), often called the "Part 36 uplift".

That additional amount exists specifically to give claimants a strong financial incentive to make Part 36 offers rather than relying solely on standard costs orders, and it is why a well-pitched claimant's offer is such a powerful tool. In deciding whether it would be unjust to apply the usual consequences, the court weighs factors under CPR 36.17(5): the terms of the offer, the stage of proceedings when it was made, the information available to the parties at the time, and each party's conduct in relation to giving or refusing information to enable the offer to be properly evaluated.

Common Drafting Pitfalls That Invalidate a Part 36 Offer

Even experienced litigators periodically draft offers that fail to secure Part 36 status. The most frequent errors are:

• Ambiguity about scope. An offer that does not clearly state whether it settles the whole claim or only part of it — or that is internally inconsistent about what is and is not included — risks being found not to comply with CPR 36.5(1)(d), or being construed against the offeror.
• Automatic expiry clauses. A "time-limited" offer that purports to lapse automatically if not accepted within the relevant period is not a valid Part 36 offer. Part 36 offers remain open for acceptance after the relevant period unless formally withdrawn under CPR 36.9 and 36.17 procedure; drafting an offer to self-destruct undermines this and can strip it of Part 36 status.
• Silence on interest. Failing to state whether the sum offered is inclusive or exclusive of interest creates uncertainty at the point of comparison with the eventual judgment sum — exactly the comparison CPR 36.17 requires the court to make cleanly.
• Failure to address a counterclaim. Where a counterclaim exists, an offer that does not state whether it takes the counterclaim into account leaves its Part 36 status vulnerable to challenge.
• Reserving the wrong rights. An offer that seeks to reserve a right to refer to it for purposes beyond costs undermines the "without prejudice save as to costs" nature the rule requires.
• Offers pitched with no real evidential basis. An offer made without any genuine attempt to reflect the merits, made purely for tactical costs protection, is more vulnerable to an "unjust" finding under CPR 36.17(5), even if technically compliant.

The lesson is consistent: Part 36 rewards precision. A short, clearly worded letter that tracks the rule's checklist protects the offer far better than a longer, more "commercial" letter that blurs the formal requirements.

Part 36 and the Expanded Fixed Recoverable Costs Regime

The October 2023 extension of Fixed Recoverable Costs (FRC) under CPR 45 was the most significant change to the costs landscape in a decade. Fixed costs now apply to most fast track claims and to a new intermediate track for claims generally valued between £25,000 and £100,000, with recoverable costs set by complexity band and litigation stage rather than assessed individually. This changes, but does not remove, the tactical value of Part 36.

Two points matter most for litigators working in the fixed-costs environment. First, the fixed-costs tables still interact with Part 36's automatic consequences: a claimant who beats their own Part 36 offer can still obtain indemnity costs, enhanced interest and the additional amount under CPR 36.17(4) for the post-relevant-period phase of the claim, even though the underlying base costs for earlier stages remain fixed by the applicable band. Part 36 therefore remains one of the few routes by which a claimant in a fixed-costs case can secure costs recovery beyond the fixed tariff. Second, because the fixed tables narrow the ordinary costs risk a defendant faces for continuing to litigate, offers need to be pitched with particular care in FRC cases — the "penalty" for a defendant failing to beat a claimant's offer is proportionately more significant when set against otherwise-capped base costs, which can make claimant Part 36 offers a sharper tool in fixed-costs litigation than practitioners sometimes assume. Given how fact-sensitive the current CPR 45 tables and band allocations are, litigators should always check the current rules and any relevant Practice Direction before pricing an offer or advising a client on likely costs exposure, rather than relying on pre-2023 costs assumptions.

Part 36, ADR and the Churchill v Merthyr Tydfil Landscape

The Court of Appeal's decision in Churchill v Merthyr Tydfil County Borough Council confirmed that courts can lawfully stay proceedings or otherwise order parties to engage in alternative dispute resolution, provided any such order does not impair the claimant's right to a fair trial and is proportionate. That decision, and the accompanying update to the Civil Procedure Rules on the court's case management powers to order ADR, has materially changed the risk calculus around refusing to engage with settlement processes.

The practical effect for costs is that a party's conduct around ADR now sits alongside Part 36 as a second, discretionary route by which unreasonable settlement conduct can be penalised in costs, under the CPR 44.2 factors governing the court's general costs discretion, which expressly include the efforts made (or not made) to resolve the dispute. Where a party ignores a reasonable invitation to mediate, or refuses to engage meaningfully once ADR is underway, the court can depart from the general rule that costs follow the event, even outside the automatic Part 36 framework. For litigators, this means the two mechanisms should be used together rather than treated as alternatives: a well-drafted Part 36 offer sets the automatic costs benchmark, while a documented, reasonable approach to ADR protects the client against a separate costs penalty for failing to engage with settlement efforts more broadly. Firms advising on litigation strategy and client costs communications should build both threads into their standard case-management approach from the outset of a dispute.

Tactical Guidance: Making an Effective Part 36 Offer

A handful of practical habits separate an effective Part 36 strategy from a merely compliant one:

• Offer early, on the real evidence available. An offer made once key evidence or expert reports are in hand carries far more tactical and psychological weight, and is harder to challenge as unjust under CPR 36.17(5) if unbeaten.
• Revisit and refresh offers as the case develops. A single static offer made at the outset loses relevance as disclosure and evidence change the picture; serial, updated offers preserve costs protection as the case matures.
• Price the offer to genuinely test the other side's confidence in their case, not simply to secure automatic costs cover — offers that look purely tactical are more vulnerable to challenge and less likely to be accepted.
• Keep a clear paper trail on ADR alongside any Part 36 offer, since conduct around settlement discussions now carries its own costs consequences post-Churchill.
• Model the fixed-costs exposure in any case within the FRC regime before setting an offer figure, since the interaction between the fixed tariff and the CPR 36.17(4) uplift changes the effective costs risk on both sides.
• Communicate the strategy to the client in plain terms — what accepting, rejecting or ignoring the offer will mean for their costs exposure — both to manage expectations and to meet the profession's transparency expectations around costs advice.

Litigators who build Part 36 strategy into case management from day one, rather than treating it as a late-stage tactical afterthought, consistently achieve better costs outcomes for their clients and stronger negotiating positions throughout the life of a case.

Frequently Asked Questions

Can a Part 36 offer be withdrawn once made?

Yes, but only by following the formal withdrawal or variation procedure in CPR 36.9 and 36.17. An offer does not lapse automatically at the end of the relevant period; it remains open for acceptance until formally withdrawn, which is one reason offers should never be drafted as self-expiring.

Does Part 36 apply to counterclaims and Part 20 claims?

Yes. Part 36 applies to any money or non-money claim, including counterclaims and additional claims under Part 20, with the roles of claimant and defendant read accordingly for the purposes of the rule.

What happens if a Part 36 offer does not comply with CPR 36.5?

It does not automatically fail, but it loses the guarantee of Part 36's automatic costs consequences. The court can still treat it as a relevant offer when exercising its general costs discretion under CPR 44.2, but the strong, largely non-discretionary consequences under CPR 36.17 will not apply in the same way.

How does Fixed Recoverable Costs change the value of making a Part 36 offer?

It narrows, but does not remove, the costs risk facing a defendant, since base costs are set by band rather than assessed. A claimant's Part 36 offer remains valuable because the indemnity costs, enhanced interest and additional amount under CPR 36.17(4) still apply for the period after the relevant period expires, on top of the fixed tariff for earlier stages.

Part 36 remains the sharpest costs-shifting tool available to litigators, but its power depends entirely on precise drafting, careful timing, and an up-to-date understanding of how it now interacts with Fixed Recoverable Costs and the court's expanding willingness to penalise poor ADR conduct. For solicitors and costs lawyers who want to keep pace with this fast-moving area — and the wider civil procedure and dispute resolution changes reshaping litigation strategy — structured CPD is the most efficient way to stay current. Learnsignal's CPD courses for legal professionals cover Part 36, costs recovery and related litigation skills in practical, exam-relevant detail, including courses that build the negotiation skills litigators need to make settlement offers land.