Is a Part 36 offer excluding interest valid?
Linzi Walker, Costs Consultant at PIC reports on the case of: Evelyn Horne (as Executrix of the estate of Edward Horne, deceased) v Prescot (No.1) Ltd.
The Claimant’s husband contracted mesothelioma from which he later died. The Claimant pursued a claim on behalf of the estate. A settlement of £180,000.00 was agreed, however due to one of the beneficiaries being a protected party, Court approval was necessary. The terms were set out in a Consent Order, the Claimant’s costs were to be subject to detailed assessment if not agreed. The detailed assessment was conducted by Master Nagalingam.
The Claimant received £91,807.96 following an assessment of costs. The Claimant had made an early Part 36 offer to accept £82,000.00 “exclusive of interest”. The offer did not include the costs of assessment. The Claimant’s letter of the 5th March 2018 said this.
Without Prejudice save as to costs – Part 36 offer
The Claimant hereby makes an offer to settle in accordance with CPR Part 36. This offer is intended to have the consequences of Section 1 of Part 36. If the Defendant accepts this offer within 21 days of the date it is received the Defendant will be liable for the Claimant’s costs in accordance with Rule 36.13. After 21 days the Defendant may only accept this offer if we agree the liability as to costs. If this cannot be agreed the Court will make an Order. This offer relates to the whole of the Claimant’s claim for costs of the action excluding interest and excluding the costs of assessment. There is no counter claim to the Claimant’s claim. The offer is that the Claimant shall accept the sum of £82,000.00 in full and final settlement of her claim for costs exclusive of interest and exclusive of the costs of assessment. This offer is acceptable only by serving written notice of acceptance.”
The Master relied upon Practice Direction to Part 47, Paragraph 19 which states “Where an offer to settle is made under Part 36 or otherwise, it should specify whether or not it is intended to be inclusive of the cost of the preparation of the bill, interest and VAT. Unless the offer states otherwise, it will be treated as inclusive of these.”
The Claimant had beaten her own offer, however the Defendant argued that the offer could not be a valid Part 36 offer due to being made exclusive of interest. Master Nagalingam found that this offer was a valid Part 36 offer.
Since the costs assessed substantially exceeded the Claimant’s offer, the Claimant was entitled to the benefits of achieving a Judgement which beat her offer (Rule 36.17).
The Defendant appealed the decision and the appeal was held before Mr Justice Nicol on the 7th May 2019.
Mr Carpenter, on behalf of the Defendant argued that Master Nagalingam was wrong, arguing that the rules did not permit a Part 36 offer to be exclusive of interest. Mr Carpenter argued that the offer was not a valid Part 36 offer to settle part of the claim for the following reasons:
- i) Part 36 was to be construed as a whole. If, on its true construction interest had to be included in a valid Part 36 offer, r.36.2(3) could not permit the claim to be divided up in this way.
- ii) The historical development of Part 36 is against the idea that interest could be treated as a distinct part of the claim.
iii) If interest could be treated as a severable issue, there would be unexpected consequences if the offer was accepted. The offeree would not automatically be entitled to his or her costs – see r.36.14(4)(c).
- iv) If the offer was intended to apply only to part of the claim, it did not comply with r.36.5(1)(d) which requires the offer to ‘state whether it relates to the whole of the claim or part of it or to an issue which arises in it and, if so, to which part or issue.’ This offer was expressed to relate to ‘the whole of the Claimant’s claim for the costs of the action excluding interest and excluding the costs of the assessment.’ The phrase ‘the whole of the claim for costs’ was intended to echo the same phrase in r.36(1)(d). No part or issue as such was identified.
Mr Justice Nicol found that the Claimant’s offer was a valid Part 36 offer and rejected the Defendant’s appeal.
Mr Justice Nicol made a clear distinction between interest on costs and interests on damages. He held that whilst interest on costs accrues from the date of judgment, it is neither claimed nor pleaded, nor need it be, within the claim for costs itself but rather “will follow once the assessment has been completed”. The offer was properly stated to be for the whole claim for costs in the assessment proceedings and was compatible with what was being claimed in those proceedings. The Court referred to the fact that unless stated otherwise, an offer would be inclusive of interest.
There are however dangers in going “off script” when making an offer which the offeror intends to be a Part 36 offer. Master Rowley in Ngassa v The Home Office & Anor (2018) EWHC B21 reached the opposite conclusion. The Court of Appeal will hear King v City of London Corporation on this same point in November this year.
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Linzi Walker – Costs Lawyer – Partners in Costs