Earlier this month, in the case Mr Francis King v City of London Corporation, The Court of Appeal gave a Judgment concerning a key issue relating to Part 36 proposals, namely can a Part 36 offer generally exclude interest?

The case was an appeal of a decision in 2017 which concluded that an offer exclusive of interest cannot be a valid Part 36 offer.

However in another case, (Horne v Prescot (No 1) Ltd), the court had concluded that, at least in the context of detailed assessment proceedings, an offer excluding interest can be an effective Part 36 offer. Differing opinions have also been expressed by other Costs Judges.

Background:

On 15 February 2017, the parties agreed a consent order settling a claim by the appellant, Mr Francis King. The order provided for the respondent, City of London Corporation ("the City"), to pay Mr King £250,000 plus costs "to be assessed if not agreed on the standard basis".

A settlement offer was made on Mr King's behalf in a letter to the City's solicitors. The letter was headed "Part 36 offer" and said:

"The Claimant hereby offers to accept £50,000.00 in full and final settlement of the costs detailed within the Bill only.

"This offer is made pursuant to CPR 36. The offer is open for 21 days from deemed service of this letter. If the offer is accepted in this time the Defendant shall be liable for the Claimants costs in accordance with CPR 36.13.

"The offer relates to the whole of the claim for costs within the Bill and takes into account any counterclaim, but excludes interest."

The City did not accept the offer. Rule 36.5 states that such offers must “(a) be in writing' – it was – '(b) make clear that it is made pursuant to Part 36' – it was – '(c) specify a period of not less than 21 days' and so on – it appears to have been. However, the rule then deals with interest and says that:

'(4) 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 … '

However the offer of 12th December 2017 stated it was in full and final settlement of the costs detailed within the bill only and excludes interest.

In looking at the offer made in the context of the Rules, the original judge had said:

"It is, effectively, a construction argument that requires us to excise the last three words 'but excludes interest']. For those reasons, therefore, in my judgment, it is not open to the Court to treat an offer which purports to exclude interest as included and, therefore, render it a Part 36 compliant offer."

In summary this meant:

• A Part 36 offer cannot generally exclude interest.
• An offer exclusive of costs cannot be a valid Part 36 offer even if made in respect of detailed assessment proceedings.
• The true position was 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). As Mr Carpenter said, the effect of CPR 36.5(4) is not to deem non-compliant offers to be compliant. It is to lay down a requirement of a compliant offer.

In the Court of Appeal, Lord Justice Arnold agreed with the original judge and commented:

“I have reluctantly come to the conclusion that I agree that the appeal should be dismissed. It seems to me, however, that the issue merits consideration by the Civil Procedure Rules Committee. 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.”

So for now, the law has settled in favour of Part 36 offers being unable to exclude interest.  But watch this space – it seems likely there will soon be rule amendments which may in effect reverse these decisions.

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