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Offer that excludes interest does not comply with part 36
A purported part 36 offer that excluded interest did not comply with the requirements of the rule, the Court of Appeal ruled this week.
The offer was made in the context of detailed assessment proceedings but that did not change the situation, said Lord Justice Newey.
Rule 36.45(4) states 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.
In King v City of London Corporation  EWCA Civ 2266, the court upheld the ruling of His Honour Judge Dight, who in turn upheld Deputy Master Campbell, in concluding that an offer exclusive of interest cannot be a valid part 36 offer. By doing so, it overturned Mr Justice Nicol’s ruling in Horne v Prescot (No 1) Ltd  EWHC 1322 (QB), dismissing an appeal from Master Nagalingam, that at least in the context of detailed assessment proceedings, an offer excluding interest can be an effective part 36 offer.
Lord Justice Newey said there have been several conflicting rulings on the issue at costs judge level too, but the “relatively inflexible” nature of the rule meant that the offer needed to include interest.
Unusually, the other two judges gave concurring rulings. Lord Justice Coulson, the deputy head of civil justice and lead judge in the court on costs issues, emphasised the importance of complying with part 36 in every respect to obtain the benefits of beating an offer.
On whether it was somehow different for offers made within detailed assessments, he accepted that, in most costs assessments, there would not be a dispute about interest.
“But it is not uncommon for the parties to argue about the period for which interest can apply, with the paying party taking a point about the delay on the part of the receiving party in producing its bill, and arguing that, in consequence, the claim for interest on those costs should be disallowed in whole or in part.
“I accept that it is important that part 36 continues to operate in a way that promotes settlements and provides proper protection for a party taking a realistic view of its position at the outset. But in costs assessment proceedings, that can easily be achieved by an offer letter that, in addition to the offer for costs, expressly addresses the interest on those costs, and (for example) identifies the period for which such interest is offered.”
Lord Justice Arnold said he had not found the issues easy to decide but “reluctantly” agreed with his colleagues.
He added: “It seems to me, however, that the issue merits consideration by the Civil Procedure Rules 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.”
George McDonald (instructed by Pattinson & Brewer) for the appellant and Jamie Carpenter (instructed by BLM) for the respondent.
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