A claimant seeks £80,000 for breach of contract. The defendant offers £60,000 under Part 36. The claimant rejects it, continues to trial and receives £58,000. Your client has won damages, so has the litigation been a success? Not necessarily. The costs consequences may make that result substantially less attractive than accepting the offer.
This is a familiar SQE1 problem: several answers sound commercially sensible, but only one applies the correct procedural rule. For Dispute Resolution in FLK1, you need to distinguish who made the offer, when it was accepted or rejected, and how the eventual judgment compares with it. This guide concentrates on those settlement decisions under the Civil Procedure Rules of England and Wales.
1. SQE1 Dispute Resolution: assess settlement before issuing
Settlement is not something solicitors consider only after preparing for trial. It belongs in the initial assessment of the dispute, alongside liability, evidence, limitation, enforcement and likely costs. A strong legal claim against a defendant with no recoverable assets may have limited practical value.
Start with the client’s objective. A business may want payment quickly, continued supply or confidentiality. Another client may need an injunction rather than compensation. The appropriate settlement proposal depends on the outcome the client actually needs.
Alternative dispute resolution includes methods such as mediation and negotiation. Mediation can accommodate commercial terms that a damages judgment would not ordinarily provide, including revised payment arrangements or changes to an ongoing business relationship.
Do not assume that participation in a non-court process is always voluntary. In Churchill v Merthyr Tydfil County Borough Council [2023] EWCA Civ 1416, the Court of Appeal confirmed that courts can lawfully stay proceedings for, or order parties to engage in, a non-court dispute resolution process. The order must preserve the essence of the right to a judicial hearing and be proportionate to the legitimate aim pursued. The CPR also expressly supports the court’s role in ordering and encouraging ADR.
For an exam question, take three practical steps:
- Identify any applicable pre-action protocol and the information that should be exchanged.
- Consider whether negotiation or mediation could resolve the real dispute.
- Check limitation separately: settlement discussions do not, by themselves, stop time running.
Under the Limitation Act 1980, a simple contract claim generally has a six-year limitation period from accrual of the cause of action. That is not a universal deadline for civil claims. If time is close, protecting the claim requires a separate decision.
2. FLK1 Part 36 offers: recognise a valid proposal
Part 36 is a procedural settlement mechanism with specified costs consequences. It is not simply another name for any reasonable offer. An ordinary settlement proposal may influence the court’s costs discretion without attracting the particular consequences of Part 36.
Under CPR 36.5, a Part 36 offer must be in writing and make clear that it is made pursuant to Part 36. It must identify whether it relates to the whole claim, part of it or a particular issue, and state whether it takes any counterclaim into account.
Normally, it must also specify a period of at least 21 days during which the defendant will be liable for the claimant’s costs under the acceptance rules. This is commonly called the relevant period. The requirement to specify that period does not apply where the offer is made less than 21 days before trial; offers close to trial need separate attention under the rules.
Either party can make a Part 36 offer, including before proceedings begin. Making one is a way to manage litigation risk, not necessarily an admission that the opposing party’s legal case is correct.
A letter saying “we offer £40,000 in full settlement” is not automatically a Part 36 offer. Check the formal requirements before applying the special costs rules.
Part 36 offers are treated as without prejudice except as to costs. Broadly, the offer should not be communicated to the trial judge before the case has been decided, subject to the exceptions in CPR 36.16. Its purpose is to encourage settlement without allowing the offer to distort the determination of the substantive dispute.
When revising, use a validity checklist rather than relying on the heading of a letter. A document labelled “Part 36” still needs compliant terms. Equally, the question may describe a valid offer without reproducing the entire document.
3. SQE1 settlement deadlines: acceptance and late acceptance
The end of the relevant period is not normally the end of the offer. This distinction catches candidates who import ordinary contractual assumptions into the Part 36 regime. An offer can remain available for acceptance after that period, unless it has been withdrawn or its terms provide for automatic withdrawal in accordance with the rules.
Acceptance is generally achieved by serving written notice on the offeror. Permission is required in certain situations, including acceptance during trial. Withdrawal and changes to offers also have their own procedural rules; do not assume that an offeror can remove the protection of the relevant period simply by sending another email.
For an offer covering the whole claim, accepted within the relevant period, the claimant is generally entitled to the costs of the proceedings up to service of the acceptance notice. Where costs are not agreed, they are normally assessed on the standard basis, subject to applicable fixed-costs rules.
Late acceptance requires more care. Suppose a defendant offers £40,000 and the claimant accepts after the relevant period has expired. If costs are not agreed, the usual order, unless unjust, is:
- The claimant receives its costs up to expiry of the relevant period.
- The claimant pays the defendant’s costs from expiry to acceptance.
Those later costs can reduce the practical benefit of the settlement. A candidate who selects “the claimant receives all costs because the claim settled in its favour” has missed the significance of the delay.
Where a money offer is accepted, payment is normally due within 14 days of acceptance, unless the parties agree otherwise in writing. Acceptance generally stays the claim on the offer’s terms, with mechanisms available to enforce the settlement.
I recommend drawing a short timeline whenever dates appear: service of the offer, expiry of the relevant period, acceptance and trial. Apply the CPR rules on service and time calculation rather than casually counting from the date printed on the letter.
4. Dispute Resolution costs: compare the offer with judgment
If the case reaches judgment, CPR 36.17 provides the central comparison. The consequences differ according to whether the relevant offer came from the defendant or the claimant. For money claims, “more advantageous” includes an advantage of any amount, however small.
A defendant’s offer: the claimant must beat it. Return to the opening example. The defendant offered £60,000, but the claimant obtained £58,000. The claimant has failed to obtain a judgment more advantageous than the defendant’s offer. Unless unjust, the defendant is entitled to costs from expiry of the relevant period and interest on those costs.
This does not mean the claimant loses the damages award. It means that winning the underlying claim and obtaining a favourable costs outcome are different questions. Costs for the earlier period remain a separate matter.
If the claimant instead obtains exactly £60,000, it has still not beaten the defendant’s offer. Equality is insufficient on this side of the comparison.
A claimant’s offer: matching it can be enough. Suppose the claimant offers to accept £60,000 and obtains judgment for £60,000 or more. It has obtained a judgment at least as advantageous as its own offer. Unless unjust, the enhanced consequences ordinarily include:
- Interest on all or part of the damages, excluding interest, at a rate not exceeding 10% above base rate for the relevant post-expiry period.
- Costs on the indemnity basis from expiry of the relevant period.
- Interest on those costs at a rate not exceeding 10% above base rate.
- An additional amount calculated under the rule, capped at £75,000.
Do not read “not exceeding” as an automatic award at the maximum rate. Also, fixed recoverable costs regimes contain specific provisions modifying the ordinary position. If the question identifies such a regime, apply those provisions rather than assuming that ordinary indemnity costs follow.
The unjust exception is not a general invitation to ignore the rules. The court considers all the circumstances, including the offer’s terms, its timing, the information available, the parties’ conduct in providing information and whether it was a genuine attempt to settle.
Remember the asymmetry: the claimant must beat the defendant’s offer, but matching the claimant’s own offer can trigger the claimant’s enhanced protection.
5. SQE1 FLK1 practice: turn settlement rules into decisions
Knowing a list of costs consequences is not enough. You need a repeatable method for choosing between plausible answers under time pressure. From the January 2027 sitting, Dispute Resolution is grouped in FLK1 Session 1 with Business Law and Practice and Legal Services. Practise these questions within mixed sets as well as in isolation.
For each settlement problem, write down five short prompts:
- Maker: was this the claimant’s offer or the defendant’s?
- Validity: does Part 36 apply, or is this an ordinary settlement offer?
- Stage: is the question about acceptance, late acceptance or judgment?
- Comparison: has the relevant monetary threshold been met?
- Qualification: do fixed costs, an exception or an express fact alter the usual result?
Try two variations. A defendant offers £50,000 and the claimant obtains £50,001. On a straightforward monetary comparison, the claimant has beaten the offer. Change the judgment to £50,000 and the answer changes. Now make it a claimant’s offer to accept £50,000: a judgment for that same amount meets the claimant’s threshold.
Keep the comparison consistent. Check whether the figures include interest and whether the offer covers the whole claim or only part. A large headline number can distract you from an important qualification.
After each practice question, record the actual error: “confused offeror”, “treated expiry as withdrawal” or “applied claimant consequences to defendant offer”. That is more useful than writing “revise costs”. Repeat the question later with one fact changed.
Ethics also remains pervasive. A solicitor should explain a material offer and its risks so the client can make an informed decision. Do not assume authority to accept, conceal an unattractive offer or promise that winning damages guarantees recovery of all legal costs. The advice should distinguish the legal merits from the likely financial outcome.
6. How CELE SQE can help with SQE1 FLK1
If you want a structured framework for Dispute Resolution revision, CELE SQE offers the SQE1 Short-term Course covering FLK1 + FLK2 for £1,750. The Single FLK Short-term Course is £1,050: 60% of the price of the same course. You can review the options at celebar.com and decide whether whole-exam preparation or FLK1-only study suits your needs.
