Interest-exclusive Part 36 offers in detailed assessment proceedings (Horne v Prescot)

Interest-exclusive Part 36 offers in detailed assessment proceedings (Horne v Prescot)

In Horne (as executrix of the estate of Edward Horne, deceased) v Prescot (No.1) Ltd [2019] EWHC 1322 (QB),  Nicol J provided guidance on the vexed issue of whether Part 36 offers in detailed assessment proceedings may exclude interest.

The answer is that they may.  However, questions and uncertainties still remain and Dr Mark Friston, barrister at Hailsham Chambers and general editor of ‘Friston on Costs' considers the judgment and its practical implications.

What are the practical implications of this case?

Nicol J has explained that it is permissible for Part 36 offers in detailed assessment proceedings to be made exclusive of interest. Thus, parties are able to make Part 36 offers that do not mean that time-consuming interest calculations need to be carried out solely for the purpose of determining whether the offer in question has been ‘beaten.’ This pragmatic and sensible approach is likely to be welcomed by many.

Practitioners ought to be aware, however, that Nicol J’s analysis may not be the last word on the point. In particular, in November 2019 the Court of Appeal is due to hear a similar issue in a different case (namely, King v City of London Corporation). As such, the law is far from being set in stone.

While no more than the author’s own views, parties who wish to make Part 36 offers in detailed assessment proceedings may—for the time being, at least—want to hedge their bets by making not just one offer, but two: one being exclusive of interest and the other being inclusive. Obviously, if this is done, the two offers ought to be stated to be in the alternative.

What was the background?

There have been conflicting decisions in recent years about whether an offer made in detailed assessment proceedings that excludes interest is capable of being a Part 36 offer. In Ngassa v The Home Office [2018] Lexis Citation 138, Master Rowley concluded that an interest-exclusive offer was not compliant with the requirements of Part 36. Robert Owen QC came to much the same conclusion in Potter v Montague, CC (Nottingham), 7 October 2016 (not reported by LexisNexis®). The appeal before Nicol J was from a decision by Master Nagalingam, who had come to the opposite conclusion.

The facts of the detailed assessment before Master Nagalingam do not need to be known in any detail—it is sufficient to say that the claimant (the receiving party) had achieved a result that was at least as advantageous as that which she had proposed in a Part 36 offer. That offer had been made on 5 March 2018, so the present iteration of Part 36 applied. There was no dispute about interest (so the amount of interest payable to the claimant would have been a matter of mere calculation). Notwithstanding this, the defendant argued that because the offer excluded interest, it was not a true Part 36 offer.

The Master rejected the defendant’s submissions. Martin Spencer J granted permission to appeal, largely because there had been conflicting authorities on the point (see above). The appeal was heard by Nicol J.

The defendant relied on the fact that CPR 36.5(4) reads as follows: ‘A Part 36 offer which offers to pay or offers to accept a sum of money will be treated as inclusive of all interest…’ In essence, the defendant said that this imposed a mandatory requirement that a Part 36 offer must include interest. While an oversimplification, the defendant said that interest was part of the claim being made in detailed assessment proceedings, and that as such, it should be included within any Part 36 offer in just the same way as it would in a claim for damages. The defendant argued that it was not permissible to treat interest as being something separate from the claim. Moreover, the defendant said that CPR 36.6(1) imposed an obligation on a defendant (or paying party) to express a Part 36 offer as a single sum, so there is no good reason why a claimant (or receiving party) should not be similarly constrained.

In response, the claimant sought to uphold the Master’s decision, this essentially being on the basis that CPR 36.5(4) does not preclude an offer that is exclusive of interest.

What did the court decide?

Nicol J began by acknowledging the context in which the issue had arisen, namely, detailed assessment proceedings. He went on to say that the part that interest plays in such proceedings is qualitatively different to that which it plays in substantive litigation (this being because interest is generally payable to the receiving party as of right). He noted that Bill of Costs do not include claims for interest, that costs judges lack the power to vary the rate of interest, and that (in general) costs judges may disallow interest only where the receiving party has been guilty of delay.

Having made these points, Nicol J went on to refer to a well-known textbook on the law of costs in which it was opined that it is generally more convenient if offers in detailed assessment proceedings are made exclusive of interest. He noted that prior to Part 36 offers being routinely made in detailed assessment proceedings, interest-exclusive offers were the norm.

Nicol J then went on to consider whether interest is part of the claim that is made in detailed assessment proceedings. In this regard, he said Bills of Costs and Points of Dispute are comparable to pleadings, and that it would be sensible and efficient to take them into account in deciding what comprises the claim. In essence, Nicol J found that interest was not part of the claim made by the claimant. This meant that the claimant’s offer was capable of being a Part 36 offer as it had taken in the whole of the claim. Nicol J then turned his mind to the question of what the words ‘excluding interest’ meant—he found that they were ‘pure surplusage’ and that their inclusion did not prevent the offer from being a Part 36 offer.

So, Nicol J’s primary analysis was that the claimant’s claim for interest was not part of her claim and that, as such, an offer that was exclusive of interest took in the whole of that claim. He went on to say, however, that if he was wrong on this point (ie if interest was part of the claim), then there is nothing objectionable about a Part 36 offer relating to only the ‘principal sum’ (ie, the costs, exclusive of interest). Nicol J gave a number of reasons for this, one of which was that the language of CPR 36.5(4) was not couched in mandatory terms and did not impose a requirement that Part 36 offers must include interest, and another being that CPR 36.5(1)(d) permits offers to be made in respect of only parts of the claim. As to the requirement in CPR 36.6(1) that a paying party’s offer must be to pay a single sum of money, Nicol J found that an interest-exclusive offer would have met that requirement.

It is possible to read Nicol J’s primary analysis (that interest was not part of the claim) as relating to detailed assessments in general rather than to just the facts of the case in hand. Such a reading would be problematic because there will be assessments in which interest is very much in dispute. If Nicol J’s primary analysis were to apply to those assessments, then this may make it difficult for parties to make Part 36 offers that are inclusive of interest. For what it is worth, the author does not read Nicol J’s primary analysis in that way. This is because he went on to say that he recognised that flexibility must be allowed for anticipated issues, and that ‘a paying party who did expect to [dispute interest] could conceivably wish to make an offer that did (or did not) take account of the adjustment on interest.’ As such, it would seem that Part 36 offers may include or exclude interest.

Case details

Court: Queen's Bench Division

Judge: Nicol J

Date of judgment: 24/05/2019

Dr Mark Friston is a barrister at Hailsham Chambers and general editor of ‘Friston on Costs.’

This analysis was first published on Lexis®PSL Dispute Resolution on 31 May 2019. For a free trial, click here.

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