Can a Part 36 Offer be Valid When Made Exclusive of Interest?
Accepting or rejecting a Part 36 Offer can come with some very significant consequences which are set out in in Sections 13 and 17 of CPR 36. These consequences highlight the importance of ensuring that the Part 36 Offer being made is valid as it can have a large impact on the level of costs which can be recovered. The judgment in the recent case of King V City of London Corporation is of great value to costs lawyers as it highlights the significance of the structure and contents of a valid Part 36 Offer. In this case, the validity of a Part 36 was questioned as the offer was made exclusive of interest. In the case of Horne v Prescot (No 1) Ltd  EWHC 1322 (QB), it was held that a Part 36 Offer made exclusive of interest can be effective in the context of detailed assessment proceedings however, the Court of Appeal has now clarified their position on the matter in King V City of London Corporation and held that a Part 36 Offer cannot be valid when interest has not been included in the offer.
What is a Part 36 Offer?
A Part 36 Offer is usually made as a tactical step to settle the claim early without having to proceed to Court or a Trial. It is an offer to settle all, or any part of a claim, which can be made by either a Defendant or Claimant, without prejudice save as to costs. The rules for making such an offer can be found under Part 36 of the Civil Procedure Rules.
Making and Accepting a Part 36 Offer
A Part 36 Offer can be made at any time in the claim and can be made before the commencement of proceedings. The offer should be made in writing, clarifying which part of the claim the offer applies to and confirming that it is a Part 36 offer. The offer should be open for acceptance for at least 21 days.
If a Claimant rejects a Part 36 Offer and proceeds to trial, they will be required to pay the Defendant costs “from the date on which the relevant period expired to the date of judgment” in the event that they fail to obtain a judgment which is better than the Defendant’s Part 36 Offer.
If a Claimant makes a Part 36 Offer which the Defendant fails to beat at trial, the Claimant will be awarded a 10% uplift on damages as well as the entitlement to recover costs from the date of expiry of the relevant period, on an indemnity basis, including interest on those costs up to 10% above the base rate.
If a Defendant accepts a Part 36, the claim will be stayed from the date of acceptance.
King V City of London- Facts of the Case
On 15th February 2017, a consent order was agreed stating that City of London Corporation should pay the Claimant, £250,000 plus costs “to be assessed if not agreed on the standard basis.” Detailed assessment proceedings were commenced after the Claimant served his bill of costs. On 12th December 2017, a letter was sent on the Claimant’s behalf and was headed “Part 36 Offer” and stated that they would accept £50,000 in full and final settlement of the costs detailed within the Bill. They also stated;
“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.”
On 13th June 2018, a detailed assessment was held as the City of London did not accept the offer to settle costs. The bill was assessed at £52,470 excluding interest. This meant that the amount offered to the Claimant was higher than their offer and, if the Part 36 Offer was indeed valid, the Claimant should be entitled to the interest on the costs of up to 10% above the base rate. The question for the Court now, was to decide whether the Part 36 was valid as it expressly stated that it excluded interest. The Judge at the Court of Appeal held that a part 36 Offer cannot exclude interest and stated;
“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.”
The Claimants then presented the argument that the offer could be construed as an offer to include interest, this was also rejected by the Court with the Judge stating;
“To my mind, however, it is inconceivable that CPR 36.5(4) was meant to turn an offer specifically stated to be exclusive of interest into one including interest. That would grossly distort the offeror’s intentions. Had the City accepted the offer, Mr King would have found himself unable to claim interest even though he had said in terms that interest was to be excluded.”
Why is the Decision in this Case Important?
The decision in this case highlights the importance of making sure your offers are valid and compliant with the rules set out in Part 36 of the CPR. It demonstrates how an invalid Part 36 Offer can have major consequences for the recovery of your firm’s legal costs.
How Can we Assist?
The Legal Practice Support team are always happy to help with any costs issues, and the author can be contacted via email at email@example.com
Our Costs Director, Robert Collington, can be contacted via email on firstname.lastname@example.org or by telephone on 01204 397302.
In addition, if you would like any information on how your Proclaim system can be developed to ensure the content of your Part 36 Offers are automated to ensure validity, or to assist with with the preparation of the new electronic bill of costs, get in touch with our Head Proclaim Developer, James Denby, via e-mail on email@example.com
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