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Part 36 Offers

Whilst parties involved in litigation have been making Part 36 offers in attempts to settle claims since the Woolf reforms came into effect in 1999 such offers could not be made in detailed assessment proceedings until 2013 following the recommendations of Lord Justice Jackson.

It is important to ensure that any offers made by Claimants purported to be made pursuant to CPR Part 36 are valid to ensure the Claimant has the opportunity to enjoy all the benefits of beating their offer available under CPR 36.17(4).

One issue faced by costs practitioners since 2013 has been whether a Part 36 offer in respect of costs should be inclusive, or exclusive of interest. Interest on costs is ordinarily payable from the date of judgment, or authority for detailed assessment whereas in substantive proceedings the entitlement to interest and the date from which interest is payable can vary. In substantive proceedings interest is included as part of the claim whereas in detailed assessment proceedings it is not included in a bill of costs.

If an offer is made solely in respect of costs claimed in a detailed and/or electronic bill of costs (exclusive of interest and costs of the assessment) it is easy, following an assessment of those costs to see whether or not the bill has been assessed at an amount more, or less than the offer made.

If an offer is made during the course of detailed assessment proceedings inclusive of interest then following the assessment it will be necessary to calculate what the interest would have been on the amount allowed at the time that the offer was made, or deduct the interest from the offer in order to determine what the offer allowed for the costs claimed in the bill. This can be further complicated if payments on account have been made during the course of the proceedings by the paying party.

A Part 36 offer excluding interest would therefore assist the Court and the parties in quickly determining whether an offer has been beaten on assessment.

Whilst we have in the past made such offers on behalf of Claimants there were occasions when the Defendant disputed the validity of the Part 36 offer on the basis that they considered it should be inclusive of interest and therefore we advised our clients to make Part 36 offers inclusive of interest to avoid any issues being raised by the Defendant.

There were then some unreported first instance decisions to include the case of Lydia Potter v Sally Montague Hair and Spa (7 October 2016) supporting this view before the case of Ngassa v The Home Office & Anor [2018] EWHC B21 (30 November 2018) in which Master Rowley found that an offer excluding interest was not a valid Part 36 offer and therefore CPR 36.17(4) did not apply. Master Rowley noted the wording of rule 36.5(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—
(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.”

He also considered that an offer excluding interest “runs against the intention of the rule to provide clarity as to what is being accepted.”

Master Rowley considered that if the Claimant wished to seek an unusual order providing for anything other than interest up to the end of the 21 day period for acceptance then he would have the option of making an offer outside the strict provisions of CPR 36 and made an analogy with the situation where a Defendant wishes to make an offer without a requirement to pay costs within 14 days of acceptance and has to make a “Calderbank” type offer to avoid the need to do so.

The issue was however revisited more recently in Horne v Prescot (No. 1) Ltd  [2019] EWHC 1322 (QB) (24 May 2019). In this case the Claimant’s solicitor had made an offer in the sum of £82,000, exclusive of the costs of the assessment and interest and confirmed that the offer was made “… to settle in accordance with CPR Part 36”.

The costs of the underlying claim were assessed by Master Nagalingam in the SCCO in the sum of £91,807.06. The Claimant had therefore beaten his offer and the Master considered that the offer was a valid Part 36 offer as he did not agree with the Defendant that the wording of CPR 36.5(4) meant that any Part 36 offer excluding interest was automatically non-compliant. He considered that the wording of the rule meant that interest was deemed to be included if not expressly excluded. The Claimant was therefore entitled to the benefits set out in rule 36.17(4).

The Defendant issued an application to appeal the decision and was granted permission after it was noted by Martin Spencer J. that there were conflicting decisions on the issue at a lower level and an authority at a High Court level would be desirable.

During the Claimant referred the Court to paragraph 19 of CPR Practice Direction 47 which states:

“Costs of detailed assessment proceedings – rule 47.20: offers to settle under part 36 or otherwise
Where an offer to settle is made, whether under Part 36 or otherwise, it should specify whether or not it is intended to be inclusive of the cost of preparation of the bill, interest and VAT. Unless the offer states otherwise it will be treated as being inclusive of these.

After hearing the parties submissions Mr Justice Nicol noted that the bill of costs would not have included interest, that the bill of costs was served within the timescale required by CPR 47.7 and therefore there was no argument as to whether interest was payable by the Defendant. He considered that the offer made by the Claimant “was rightly described as relating to the ‘whole of the claim’, that is the whole of the claim in the detailed assessment proceedings.” And that “Interest did not feature in the claim which was the detailed assessment proceedings.” As interest was added automatically by virtue of the Judgments Act and did not need to be claimed. Due to the wording of para 19 of PD 47 he considered it “prudent for the solicitors to specify that the offer was exclusive of interest” but that did not alter the fact that interest was not part of the claim and therefore the offer made was to settle the “whole of the claim”.

Mr Justice Nicol considered that the offer made by the Claimant during the detailed assessment proceedings was a valid Part 36 offer and the appeal was dismissed.

This is a sensible and reasoned analysis of the provisions of Part 36 and, in our opinion it makes sense to make offers excluding interest so that following assessments both parties and the Court will be clear as to whether a party has beaten a Part 36 offer made by them on assessment. This will be particularly useful in cases where costs are dealt with by provisional assessment as it can take some time for the Court to deal with any written submissions as to costs following the assessment.

The Court of Appeal are however due to hear an appeal in the case of King v City of London Corporation in November 2019 as noted in the Horne judgment. Hopefully that will provide further clarity on this issue and enable parties to make Part 36 offers excluding interest without worrying that challenges may be raised as to the validity of their offer.

About the author

Gavin Elliott

Gavin Elliott

Gavin is a specialist Costs Lawyer and member of the Association of Costs Lawyers.

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