Costs Analysis: The validity of a Part 36 offer which purports to exclude interest

Lauren Dunnill, a trainee solicitor in the Real Estate Disputes team, examines a recent case.

The recent Court of Appeal judgment in Mr Francis King v City of London Corporation [2019] EWCA Civ 2266 concluded that an offer which is made exclusive of interest cannot be a valid Part 36

Background

In early 2017, after substantive litigation, the parties agreed a consent order settling the underlying claim which was brought by the Claimant, Mr Francis King. The order required the Defendant, the City of London Corporation, to pay to the Claimant £250,000 plus costs ‘to be assessed if not agreed on the standard basis’. Mr King served his bills of costs and commenced detailed assessment proceedings. During this time the Claimant’s costs consultants made a settlement offer on Mr King’s behalf in a letter headed ‘Part 36 offer’ for £50,000 in full and final settlement of the costs detailed within the bill. The letter included the following ‘The offer relates to the whole of the claim for costs within the Bill and takes into account any counterclaim, but excludes interest’. 

The offer was not accepted by the Defendant and the Claimant’s bill was assessed at a detailed assessment hearing where it amounted to £52,470 excluding interest. As the assessment was more advantageous than the offer Mr King stated he would originally accept, he went on to argue that the benefits provided by CPR 36.17(4) should therefore apply. By way of a background CPR 36.17(4) deals with the costs consequences following judgment of an unaccepted claimant’s offer that is either matched or bettered by the claimant at trial. If it is just to do so, the court can order that the claimant is entitled to: interest up to 10% above base on the sum of money awarded, costs on an indemnity basis from the expiration of the relevant period, interest on those costs at a rate which doesn’t exceed 10% above base, and an additional amount (up to £75,000) which is calculated by reference to the sum awarded.

In King v City of London, the Deputy Master instead concluded that the original offer was not a valid Part 36 offer because it attempted to exclude interest, and therefore the cost consequences of CPR 36.17(4) did not apply. Mr King went on to appeal this decision in the Court of Appeal.

Decision

The Court of Appeal gave their judgment concerning three main issues relating to Part 36 proposals.

1. ‘Can a Part 36 offer generally exclude interest?’  It was held that a Part 36 offer cannot generally exclude interest if it is to be a valid offer. Further, if there is any confliction between the Rule and any Practice Direction, then the Rule should always be favoured as the Practice Direction ‘has no legislative force’;

2.  ‘If not, can a Part 36 offer nevertheless exclude interest in the context of detailed assessment proceedings?’

     The answer is no, an offer exclusive of interest cannot be a valid Part 36 offer even if made in respect of detailed assessment proceedings.

3. ‘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)?.’  The offer specifically did not include interest and therefore the Claimant could not rely on this Rule to argue it should be treated as impliedly being inclusive of interest despite the correspondence i.e. the Rule could not be used to make a non-compliant offer compliant.

   Conclusion

   The decision provides welcome clarification that, to be a valid Part 36 offer, an offer cannot be exclusive of interest, at least up to the expiry of the relevant period. However it may still be possible to exclude interest after the expiry of the relevant period as CPR 36.5(4) only makes reference to the offer being inclusive of interest until that date. Although this remains a possibility, it was not expressly mentioned by the Court of Appeal. Therefore, when making a Part 36 offer it is essential to have proper regard to the rules set out in Part 36 to ensure that the offer is valid.

   In practice, parties who are in the process of making Part 36 offers need to consider any interest that might be awarded up to the end of the relevant period when they are calculating the level of the offer which they are to put forward.