ALL INCLUSIVE – Part 36 Offers exclusive of interest not Valid!
PIC’s own Costs Lawyer, Tracy Maw, considers the Court of Appeal case of King V City of London Corporation  EWCA CIV 2266.
The main question raised by this appeal is whether an offer exclusive of interest can be made under CPR Part 36 either generally or at least in the context of proceedings for detailed assessment of costs under CPR Part 47. It is a matter on which Judges have taken divergent views.
On a first appeal His Honour Judge Dight CBE, upholding Deputy Master Campbell’s first instance decision, concluded that an offer exclusive of interest cannot be a valid Part 36 offer.
In contrast, in the matter of Horne v Prescot (No 1) Ltd  EWHC 1322 (QB), Nicol J, dismissing an appeal from Master Nagalingam, held that, at least in the context of detailed assessment proceedings, an offer excluding interest can be an effective Part 36 offer.
Background of the case
A Consent Order was agreed between the parties on 15 February 2017 that the Defendant pay the Claimant, Mr King the sum of £250,000 plus costs ‘to be assessed if not agreed on the standard basis.’ A Bill of Costs was served and detailed assessment proceedings ensued. A Part 36 Offer was made on Mr King’s behalf in a letter headed ‘Part 36 offer’ and said “The Claimant hereby offers to accept £50,000 in full and final settlement of the costs detailed in the Bill of Costs only.…but excludes interest.” The offer was not accepted and a detailed assessment hearing took place before Deputy Master Campbell on 13 June 2018, with the Bill being assessed at £52,470 excluding interest.
As the assessed costs were more advantageous than the sum of £50,000 offered, Mr King argued that CPR 36.17 applied and, hence, he was entitled to the benefits of beating his Part 36 offer. The Deputy Master disagreed and concluded that the Part 36 offer made was not valid as it was an offer exclusive of interest and so CPR 36.17 was not applicable. He said CPR 36.2 made it clear that offers must comply with CPR 36.5 to be valid. CPR 36.5(4) states that ‘an offer which offers to pay or offers to accept a sum of money will be treated as inclusive of all interest.’
The offer made by Mr King in December 2017 stated ‘excluding interest’ therefore these terms were considered to be inconsistent with Rule 36.5 in its true form and, accordingly, it is not a valid Part 36 offer and as such the benefits which otherwise would be payable under Rule 36.17(4) are not payable here.
The issues to be considered:
i) Can a Part 36 offer generally exclude interest?
ii) If not, can a Part 36 offer nevertheless exclude interest in the context of detailed assessment proceedings?
iii) Is the offer made on Mr King’s behalf on 12 December 2017 to be treated as inclusive of interest as a result of CPR 36.5(4)?
Newey LJ rejected Mr King’s further argument that the Part 36 allowed offers to be limited to ‘part’ of a claim, being excluding interest as in this case. Newey LJ further stated :-
“Part 36 proceeds on the basis that interest is ancillary to a claim, not a severable part of it. Just as a party cannot make a part 36 offer providing for costs consequences other than those prescribed by part 36, so a part 36 offer must, if it offers to pay or accept a sum of money, be inclusive of all interest, as CPR 36.5(4) says. Interest cannot be hived off. True it is that, on occasion, there may be room for substantial dispute as regards interest and that the amount at stake could be large, but the same could be said about costs.”
It was considered that if on detailed assessment Mr King had been awarded a lesser amount that the Part 36 offer made of £50,000, he could have claimed to have beaten his offer on the footing that this was plus interest. There cannot be any question of taking the offer of 12 December 2017 to have been inclusive of interest when it stated precisely the opposite.” Newey LJ said “turn an offer specifically stated to be exclusive of interest to one including interest would grossly distort the offeror’s intentions.” The true position here is not that Mr King’s offer is to be treated as inclusive of interest, but that it did not comply with CPR 36.5(4).
Lord Justice Arnold said he had “reluctantly” come to the conclusion that he agreed that the appeal should be dismissed. But he added that the issue merited consideration by the Civil Procedure Rules Committee. He said:
“In my opinion there are arguments in favour of permitting Part 36 offers to be made which are exclusive of interest, at least in assessment proceedings if not in the general run of claims. If the Committee decides, however, that offers exclusive of interest should not be permitted, then I would suggest that rule 36.5 be amended to say so in terms. At the very least, PD47 paragraph 19 should be revised.”
Lord Justice Coulson agreed that the appeal should be dismissed.
So, What is the answer?
Agreeing with Deputy Master Campbell and HHJ Dight CBE, the Court of Appeal has now ruled that a Part 36 which excludes interest, either generally or in the context of detailed assessment proceedings, is not a valid Part 36 offer.
Key Learning Points
When making a Part 36 Offer, it must be inclusive of all interest as CPR 36.5(4) provides for:-
- A Part 36 offer which offers to pay or offers to accept a sum of money will be treated as inclusive of all interest until—
(a) the date on which the period specified under rule 36.5(1)(c) expires; or
(b) if rule 36.5(2) applies, a date 21 days after the date the offer was made.
If a Part 36 Offer is deemed not valid, you will lose the benefits under CPR 36.17 including enhanced interest on costs and damages.
If you are in any doubt or have any queries arising from this article, then please do not hesitate to contact our specialists at PIC who can provide assistance.