The intersection between these two provisions of the CPR needs reform, writes Sean Linley
“The one great principle of English law is to make business for itself” – Charles Dickens, Bleak House
Whilst the recent Court of Appeal decision in Laura Attersley v UK Insurance Limited [2026] EWCA Civ 217 raised concerns over the application of part 36, it is not the only issue residing in plain sight.
Navigating part 36 requires acknowledging it as a complex arena of competing interpretations. Since its inception in 1999, it has undergone numerous changes.
These include the 2007 simplification of formal requirements for making an offer, the 2013 LASPO reforms (introducing the ‘additional amount’ for beating an offer, amongst other things), and most recently, the October 2023 extension of fixed recoverable costs (FRC), which brought changes to the interplay between part 36 and FRC. It is this latest iteration that warrants further exploration.
The rules
Post-October 2023, CPR 36.23 governs the intersection of part 36 and FRC, superseding the old 36.20. While the rules expressly outline the position when an offer is accepted within the relevant period, or when a defendant’s offer is accepted late, they are conspicuously silent on a defendant accepting a claimant’s part 36 offer late.
The closest provision that we have is CPR 36.23(7), which provides: “Where the parties do not agree the liability for costs, the court must make an order as to costs.”
This gives rise to ambiguity with no firm or clear answer on what the applicable costs for the claimant in this scenario would equate to. What’s clear is that, where there is no agreement on the liability for costs, an application would be required. Presumably the starting point of any applications costs would fall under PD 45 table 1 (£250-333 plus VAT).
It is unclear whether this omission was intentional or an oversight. It may reflect a view that, since a claimant is generally restricted to FRC (following the reversal of the Broadhurst v Tan principle for post October 2023 cases that indemnity costs equate to hourly rates), there was no need to address late acceptance.
Under the post October 2023 regime, indemnity costs are a blunted tool; they do not displace the FRC, merely potentially aiding disbursement arguments. Since ‘unreasonable behaviour’ and ‘exceptional circumstances’ are now housed under part 45, the rule-makers may have deemed a specific part 36 mechanism for late defendant acceptance unnecessary.
So what’s the problem?
Imagine this scenario:
- Claimant makes a part 36 offer pre-issue on an intermediate track (IMT) claim.
- Claimant ends up having to issue proceedings.
- Defendant accepts the claimant’s part 36 offer late but before service of the defence. The timing is crucial because stage 1 costs under IMT cover all work done up to the date of the defence.
In this instance, the starting point of the defendant’s costs liability remains identical to what it would have been had they accepted within the relevant period. Despite the claimant incurring all of the time after expiry of the relevant period, including the issuing of proceedings.
The stage-based nature of FRC means the defendant effectively gets a free ride on the delay.
In a non-FRC environment, the claimant would at least recover additional time costs. For FRC matters, even the threat of indemnity costs would be hollow, as Hislop v Perde confirmed late acceptance doesn’t automatically trigger them, and even if it did, they no longer break the FRC ceiling.
Part 45 has two provisions which prospectively could help in this scenario: unreasonable behaviour (50% uplift or decrease) and exceptional circumstances.
The issue is that neither is guaranteed and both have to be applied for at the end. If late acceptance of a part 36 does not meet the threshold for indemnity costs, then would it do so for unreasonable behaviour? It will likely be fact specific.
Other commentators have lamented the lack of clarity on the unreasonable behaviour test itself but it is fair to conclude that accepting an offer late will not automatically be so.
As to exceptional circumstances, would the court view late acceptance as such? That remains open for debate but clearly again will not automatically apply.
It’s worth adding that, under exceptional circumstances or unreasonable behaviour, you would have to provide an N260. Exceptional circumstances require a recovery of 20% above FRC, whilst unreasonable behaviour awards a 50% uplift.
So the additional time actually spent might directly influence how the judge determines whether to award additional costs. The fact unreasonable behaviour requires an N260 at all remains somewhat baffling given it is ought to be a punitive fixed costs enhancement or reduction based on a fixed percentage and not the assessment of any time spent.
So, in the scenario of late acceptance of a claimant’s part 36 offer, where acceptance is by the defendant in the same stage, then there is no express punishment for late acceptance.
Re-cap – Are you still with me?
To summarise so far:
- Non-FRC: generally you will at least recover time spent to the date of acceptance.
- FRC: accepted late within the same stage, then the starting point is that the applicable time costs are the same (that is the fixed costs). So a party could feasibly be put to more work with no further costs compensation.
Given what we have seen in Attersley, we can see part 36 is really weakened in fixed costs cases and the Jackson reforms have arguable left this more so for post October 2023 cases.
Imbalance of consequences
The disparity between consequences can be illustrated briefly below:
Defendant late acceptance of claimant’s part 36 offer: Generally carries no automatic financial penalty beyond prospective recovery of any further disbursements incurred after the relevant period or potentially specialist legal representative bolt-ons under PD 45 table 14. The claimant must hurdle the high bars of either unreasonable behaviour (CPR 45.13) or exceptional circumstances (CPR 45.9) to see any uplift.
Claimant late acceptance: Accepting even one day late can be consequential. The defendant becomes entitled to adverse costs which, in some cases, may significantly dilute or even eclipse the claimant’s FRC entitlement.
It may well be said that this is the swings and roundabouts of part 36 but there is a clear imbalance between claimant and defendant late acceptance in FRC matters which is exemplified by the staging in IMT cases (the next stage of FRC is not reached until defence is received, as opposed to on issue for fast-track).
Is there a need for reform?
Given that, for non-FRC matters, there are obvious and natural penalties for late acceptance by a claimant (additional time and disbursement costs), I believe there is a cogent argument for an open discussion on whether this aspect of part 36 works fairly.
If the goal of part 36 is to encourage early settlement, the current FRC framework fails by allowing defendants to wait and see until the very end of a stage without incurring additional costs. This could place a heavy burden on the lay client, who may face an increased shortfall in their solicitor’s fees for work that—while necessary—is not captured by the fixed stage.
The burden of proof on unreasonable behaviour and exceptional circumstances would fall on the claimant. Late acceptance alone may not meet either criteria.
Views will almost certainly not be universal but I believe we must ask:
- Is the current balance of part 36 consequences equitable?
- Are part 45 failsafes sufficient when they require cost bearing, uncertain applications?
- If there is no punitive sanction for late acceptance by a defendant, then is it right for a claimant to potentially be left with a more significant shortfall on costs? Is this really swings and roundabouts when a party can chose when to accept a part 36 offer?
Lord Woolf described the CPR as a “rolling programme of reform”. As Attersley and the gaps in CPR 36.23 demonstrate, that rolling reform must continue if part 36 is to retain a meaningful bite rather than a toothless bark in the era of fixed costs.
In the meantime, the pervasive arguments around part 36 and its consequences are likely to persist and it is almost certain that there will be more changes to come.
