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This article deals with the question of whether it is permissible for a party in detailed assessment proceedings to make a Part 36 offer that is exclusive of interest. Written by Dr Mark Friston, barrister at Hailsham Chambers and general editor of ‘Friston on Costs’.
King v City of London Corp  EWCA Civ 2266
The Court of Appeal has now clarified that, under the present iteration of the Part 36 as modified by CPR 47.20, it is not possible to make a valid Part 36 offer that is exclusive of interest. This means that if a party wishes to make a Part 36 offer in detailed assessment proceedings, that offer must include interest calculated up to the end of the ‘relevant period’.
In the vast majority of detailed assessments this will not cause difficulties; this is because the amount of interest will usually be uncontroversial and will merely be a matter of arithmetic. Even where this is so, however, the details of any payments on account need to be known both for the purposes of formulating the offer and for the purposes of considering the offer. Practitioners would be well advised to have those details immediately to hand and to be ready to carry out the necessary calculations immediately upon conclusion of any detailed assessment.
There will be cases, however, where the question of interest will be more than merely a matter of arithmetic. If, for example, the offer has been made at a time when the receiving party had not requested a hearing within the relevant time constraints, then interest may be disallowed for a period of time. At present, it is commonly the case that the court disallows interest without stating the date on which the period of disallowance commences; the parties ought to be aware of this, and ought to ensure that the court has decided all issues relating to interest before any Part 36 offers are brought to its attention. Particular care ought to be taken in provisional assessments (where Part 36 offers are commonly addressed by way of brief, often informal, written submissions)—it would be a mistake to write to the court to ask it to decide whether a Part 36 offer has been ‘beaten’ without having first asked it to determine all relevant issues relating to interest.
King v City of London Corp is the latest in a series of decisions dealing with whether a Part 36 offer made in detailed assessment proceedings may be exclusive of interest. This topic has given rise to uncertainty because CPR 36.5(4) says that ‘a Part 36 offer which offers to pay or offers to accept a sum of money will be treated as inclusive of all interest’, yet CPR PD 47, para 19 implies that an offer may either be inclusive or exclusive of interest. Furthermore, as a matter of long-standing practice, there is a tradition of offers in detailed assessment being made exclusive of interest, this being for the simple reason that it is generally far easier to determine whether an offer has been ‘beaten’ if interest is disregarded.
On the facts of King, the putative Part 36 offer had been made by the receiving party (namely, to accept £50,000 exclusive of interest). The paying party did not accept that offer. On assessment, the costs were assessed at £52,470 excluding interest. As a result, the receiving party claimed to be entitled to enhanced interest, the ‘additional amount’, etc. Both courts below had found that the offer was not a Part 36 offer because it was exclusive of interest. This, however, was at variance with Horne v Prescot (No.1) Ltd  EWHC 1322 (QB), in which Nicol J had found that a Part 36 offer may be made exclusive of interest.
What did the court decide?
Newey LJ found that a Part 36 offer could not exclude interest; he rejected the argument that an offer may exclude interest by reason of the fact that Part 36 allowed an offer to be limited to ‘part’ of a claim: interest is ancillary to a claim, not a severable part of it.
Newey LJ also rejected the submission that CPR 36.5(4) was not mandatory in requiring Part 36 offers to pay or receive sums of money to be inclusive of interest but was merely a deeming provision. He rejected the submission that CPR PD 47, para 19 was a reliable aid to interpretation of CPR 36.5(4), this being on the basis that the rules take precedence over the practice direction (especially where the relevant part of the Practice Direction predated the most recent iteration of the relevant part of the rules). Newey LJ also found that an offer that is stated to be exclusive of interest cannot be interpreted as being inclusive of interest.
Coulson LJ essentially agreed with Newey LJ’s analysis. Arnold LJ also agreed, but he did so reluctantly. In particular, he could ‘not help feeling that rule 36.5(4) is not intended to apply in these circumstances’ and that ‘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’. He concluded by saying that the issue merits consideration by the Civil Procedure Rules Committee.
Dr Mark Friston is a barrister at Hailsham Chambers, general editor of ‘Friston on Costs’, and a member of LexisPSL’s Case Analysis Expert Panel.
This analysis was first published on Lexis®PSL Dispute Resolution on 24 December 2019
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