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Part 36 offers cannot exclude interest to be valid

Newey: Interest cannot be hived off

Part 36 offers which specifically exclude interest are not valid, the Court of Appeal has ruled – but one of the judges said this should be reconsidered.

Lord Justice Newey said the fact an offer was made during costs assessment proceedings made no difference.

The Court of Appeal heard that Francis King settled a claim against the City of London Corporation for £250,000 plus costs in February 2017.

On costs, Mr King made what he called a part 36 offer, under which he agreed to accept £50,000 to settle the proceedings, but said the offer “excludes interest”.

The City of London rejected the offer. Mr King’s bill was assessed at £52,470, excluding interest, in June 2018.

His solicitors argued that he was entitled to the benefits of beating his part 36 offer, but Deputy Master Campbell disagreed, on the grounds that an offer exclusive of interest was not valid under part 36. The High Court rejected his appeal.

The Court of Appeal also rejected his appeal, with each of the three judges giving his own reasons.

Delivering the leading judgment in King v City of London Corporation [2019] EWCA Civ 2266 [1], Newey LJ said it was common ground that “an offer which fails to comply with the requirements of CPR part 36 in an essential respect will not take effect as a part 36 offer even if it is expressed to be one”.

He said CPR 36.2 made it clear that in order to be valid, offers must comply with CPR 36.5. CPR 36.5(4) states that an offer “which offers to pay or offers to accept a sum of money will be treated as inclusive of all interest”.

Newey LJ said this was “mandatory” and could “perfectly well be read” as indicating that an offer which is not to include interest cannot be a valid part 36 offer.

He said counsel for Mr King was “seeking to import words” such as ‘unless otherwise stated’ into CPR.36.5(4).

Newey LJ rejected Mr King’s further argument that part 36 allowed offers to be limited to “part” of a claim, in this case being the claim excluding interest.

“Part 36 proceeds on the basis that interest is ancillary to a claim, not a severable part of it. Just as a party cannot make a part 36 offer providing for costs consequences other than those prescribed by part 36, so 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.”

Newey LJ said it was “inconceivable” that CPR 36.5(4) could “turn an offer specifically stated to be exclusive of interest into one including interest”, and this “would grossly distort the offeror’s intentions”.

The judge said making interest inclusive would mean that claimant Francis King would, if the City of London accepted the offer, find himself unable to claim for interest.

“Further, if on detailed assessment Mr King had been awarded, say, £49,000, he could have claimed to have beaten his £50,000 offer on the footing that the £50,000 was to be taken as representing a lesser figure plus interest even though the 12 December letter had said otherwise.

“In my view, the true position is 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).”

Newey LJ dismissed the appeal. Agreeing but giving his own reasons, Lord Justice Coulson commented that “the law reports are over-full of cases in which parties made offers outside the scope of part 36 and then unsuccessfully sought to obtain the part 36 benefits later”.

Lord Justice Arnold said he “reluctantly” agreed that the appeal should be dismissed, but the issue should be considered by the Civil Procedure Rule 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.”