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Interest and Part 36 offers: is Potter right?

CPR 36.2(3) provides that a Part 36 offer may be made in respect of the whole, or part of, or any issue that arises in, a claim. This is reflected in CPR 36.5(1)(d) which, in relation to the form and content of a Part 36 offer, requires the offeror to state whether it relates to the whole of the claim or to part of it, or to an issue that arises in it and, if so, to which part or issue.

On the face of it, that means that an offeror can make an offer in relation to, say, the capital element of the claim, but leave the question of interest for a further decision. That would apply whether interest is claimed pursuant to a contract, statute or the court’s equitable jurisdiction.

HHJ Robert Owen QC at the County Court at Nottingham in Potter v Sally Montague Hair & Spa held otherwise. He held that if you do not include interest in your Part 36 offer, then it is not a valid Part 36 offer and, therefore, you are not entitled to the additional amount or penalty interest (although the offer could be taken into account under CPR 44 in deciding the basis of the assessment of costs). He did so in allowing an appeal from the decision of the district judge to the opposite effect.

The issue arose in the context of a detailed assessment of costs, but it is clear from the judgment that it would apply to any case where there is a claim for interest as well as capital. What was the basis for this ruling which, at first sight, goes against the plain words of CPR 36.2(3) (which specifically allows a Part 36 offer to be made in respect of part of a claim)? Part of a claim would include simply capital and not interest.

The answer is that he was persuaded that the provisions of CPR 36.5(4) compelled him to rule that interest had to be included in a Part 36 offer to make it valid. That provides:

“A Part 36 offer which offers to pay or offers to accept a sum of money will be treated as inclusive of all interest until –

the date on which the period specified under Rule 36.5(1)(c) expires; or

if Rule 36.5(2) applies, the date 21 days after the date the offer was made.”

The judge held that an offeror could not state that his offer was exclusive of interest and comply with that rule so that if he did so, his offer was not a valid Part 36 offer. His reasoning is seen principally at paragraph 24 of his judgment, where he said that the contrary argument would:

“… offend and undermine the function or purpose of a valid Part 36 offer. It would introduce uncertainty and prevent finality in an area of litigation where certainty, so far as is possible, is required and is maintained by ensuring compliance with a straightforward, self-contained code, contained in clear terms with express qualifying criteria and, for Part 47 proceedings, clear and express modifications”.

The judge did not explain why he felt that an offer that was stated to be exclusive of interest would introduce any element of uncertainty into the Part 36 procedure. Plainly, it would introduce an element of lack of finality because it would leave open the issue of the quantification of interest. That, however, ignores the fact that CPR 36.2(3) expressly allows offers for part only of a claim so expressly contemplates the very lack of finality that the judge felt should be avoided, seemingly at all costs.

Of relevance only in relation to costs proceedings, the claimant offeror had relied on the Costs Practice Direction (PD) at PD 47.19, which states:

“Where an offer to settle is made, whether under Part 36 or otherwise, it should specify whether or not it is intended to be inclusive of the cost of preparation of the bill, interest and VAT. Unless the offer states otherwise, it will be treated as being inclusive of these.”

Plainly, a practice direction cannot “trump” a rule but, at the very least, it must give some indication as to its proper interpretation. At paragraph 25 of this judgment, the judge held that the practice direction was ambiguous, so that the direction that an offer should specify whether it included interest or not only applied to offers made otherwise than under Part 36. With respect to the judge, the words of the practice direction are plain and not ambiguous, and clearly are intended to apply to all offers to settle, whether made under Part 36 or not.

Especially in relation to costs, there are very good reasons why Potter should not be followed. In costs proceedings, it is far more likely that an offeror (the receiving party) will want to make Part 36 offers in relation to separate parts of the bill. A very good example of this is an after the event (ATE) insurance premium. If substantial interim payments have been made, it might very well be difficult to make any sensible calculation as to what judgment debt interest might be due in relation to the premium when the offer is made.

To take a simple example, if there is a premium of, say, £400,000 in a bill worth £1 million, and interim payments totalling £800,000 had been made, then if the bill were assessed at £800,000 with the ATE premium as claimed, there would, from the date of the interim payments, be no interest to pay. However, if the bill were assessed at £900,000, there would be some interest to pay. It would be impossible to calculate the appropriate amount of interest on the ATE premium until the bill had been finally assessed. Thus, contrary to the judge’s view, requiring interest to be included where an offer is made in relation to part only of the capital of a claim leads to uncertainty and not certainty.

Potter was followed by DJ Besford in the County Court at Kingston upon Hull in Simpson v Hull & East Yorkshire Hospitals NHS Trust on 13 July 2017. The issue was to come before Master Whalan in the Senior Courts Costs Office (SCCO) recently but, immediately before the hearing, the parties compromised.

It is difficult to see why parties should be prevented from making offers exclusive of interest. Many have been made, particularly in costs proceedings, especially relying on the words of the practice direction. At some point, the amount involved will perhaps make it worthwhile taking this matter further.

39 Essex Chambers Simon Edwards

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