Part 36 of the Civil Procedure Rules 1998 (CPR) is, on the face of it, a laudable set of provisions.

It spices up the old offers to settle by presenting an incentive both to offeror and offeree - beat the other side's offer and you have a chance of indemnity costs and interest on costs and damages of up to 10% above base rate; offer too little and you may be hit with that penalty.The efficacy of this has already been recognised by the courts.

In All-In-One Design & Build Ltd v (1) Motcomb Estates Ltd (2) Whiteswan (Worldwide) Ltd (2000), The Times, April 4, Technology & Construction Court, it was stated that 'the enhanced rate of interest provided for by CPR 36.21 is not a penalty, nor is it ultra vires the Civil Procedure Act 1997.

The power to award enhanced interest is a power to sanction a party for failing to accept a reasonable offer.'No trialTo qualify as a Part 36 offer, conditions are attached.

CPR 36.1(2) states: 'Nothing in this Part prevents a party making an offer to settle in whatever way he chooses, but if that offer is not made in accordance with this Part, it will only have the consequences specified in this Part if the court so orders.'To get the 'bonus', the offer must, therefore, comply with the formalities of Part 36.

This includes CPR 36.21(1), which states: 'This rule applies where at trial: (a) a defendant is held liable for more; or (b) the judgment against a defendant is more advantageous to the claimant, than the proposals contained in a claimant's Part 36 offer.'Thus it is a condition of claiming the bonus that the final award must have been made 'at trial'.

But what if there has been no trial, but nevertheless the court has made an award which beats a Part 36 offer, for example on an application for summary judgment? This is what happened in Petrotrade Inc v Texaco Ltd, The Times, (2000) 14 June, CA, presided over by Lord Woolf.

The claimant appealed against the judge's refusal at first instance to award the 'bonus', although the claimant had beaten his own offer, as he did not regard the summary proceedings as a 'trial'.The court did not go so far as to say that Part 36 did apply to summary proceedings, but took a more sweeping approach: 'Where an offer is made by a claimant, that offer is not accepted and the claimant recovers more as a result of summary judgment, it is possible for the court, exercising its general jurisdiction, to award a higher rate of interest than the standard rate.

Courts should bear this in mind, otherwise claimants might not wish to apply for summary judgment because they could achieve higher rates by going to trial.'In other words, the offer need not be Part 36 compliant to attract the 'bonus'.

This is all part, no doubt, of the 'overriding objective' and Lord Woolf confirmed that the whole process of effective offers and penalties for failing to beat them was a feature of a culture aimed at dissuading parties from going to litigation at all.

Referring again to CPR 36.1(2), above: Nothing in this Part prevents a party making an offer to settle in whatever way he chooses, but if that offer is not made in accordance with this Part, it will only have the consequences specified in this Part if the court so orders.

So the court can override the formalities of Part 36.Elsewhere in the CPRCuriously, Lord Woolf did not fall back on something which partially covers this situation and is within the rules.

CPR 44.3 deals with the circumstances to be taken into account when the court exercises its discretion as to costs.

Sub-paragraph 4(c) states: 'In deciding what order (if any) to make about costs, the court must have regard to all the circumstances, including any payment into court or admissible offer to settle made by a party which is drawn to the court's attention (whether or not made in accordance with Part 36)' (our italics).As regards costs, therefore, the fact that an offer is not Part 36 compliant does not prevent the court from making such order as it regards appropriate, where an offer has been made.

This can include making an order for indemnity costs and interest on those costs (see CPR 44.3(7)(g)).To reinforce the point, CPR 44.5 deals with factors to be taken into account in deciding the amount of costs.

Among other things to be considered are, under sub-paragraph 3(a)(ii), 'the efforts made, if any, before and during the proceedings in order to try to resolve the dispute'.

That is, offers, whether Part 36 compliant or not.

Never mind the formalities: offer!In effect, the fact that a dispute is resolved other than by a trial, and that an offer does not necessarily comply with the formalities of Part 36, does not prevent the court from exercising its discretion to reward or penalise as appropriate in relation to offers and counter offers.

The message for solicitors is clear: it may be advantageous to make effective offers, before or after proceedings, whether Part 36 compliant or otherwise.

Failure could be costly.