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Part 36 offers in Part 47 assessments: all clear now or still confused?

A party who wins with costs is in a strong position when it comes to provisional or detailed assessment under CPR 47.14-15. First, the costs of the assessment are theirs as of right without having to do anything: see CPR 47.20(1). Second, such a party can profit from the benefits available under CPR 36.17(4). Make your opponent an offer under Part 36 to settle the costs of the action which is refused, if the learned costs judge allows more at detailed assessment, the receiving party will benefit by an additional amount of 10% of the assessed costs (up to £75,000 without interest). Not only that, enhanced interest is payable at up to 10% over base rate both on the assessed costs and on the costs of assessment, with the latter being payable on the indemnity basis.

Take this example. The receiving party offers to accept £501,000 in settlement of the claim for costs in the bill “exclusive of interest”. The court assesses the costs at £500,000. If the interest is disregarded, the paying party has “won” to the extent that CPR 36.17(4) is not engaged. But that is to ignore the interest which is payable on the costs under section 17 of the Judgments Act 1838 at 8 percent from the date of judgment. When that is calculated, any figure above £1,000 when added to the assessed costs will mean that the receiving party has “won”, so the paying party will be required to stump up another £50,000 under the rule.

Game, set and match to the receiving party under CPR 36.17(4). If you think that, think again. The additional amount and the other benefits are only payable if the offer under Part 36 is just that, a valid offer under the rule. An offer which fails to comply with the formalities of Part 36 will not be an effective offer, even if expressed to be made under the rule. In that eventuality, it will not confer the benefits which otherwise would be payable under CPR 36.17(4). It follows that if the wording of the offer is wrong, disaster will befall the offeror since a non-compliant offer will deprive the receiving party of the prize which otherwise would have been there for the taking, in the example, no less than £50,000.

In order to make a valid Part 36 offer, the formalities are to be found in CPR 36.5:

“(1) a Part 36 offer must-

(a) be in writing;
(b) make clear that it is made pursuant to Part 36;
(c) specify a period of not less than 21 days within which the defendant will be liable for the claimant’s costs in accordance with rule 36.13 or 36.20 if the offer is accepted;
(d) 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; and
(e) state whether it takes into account any counterclaim

(4) A Part 36 offer, which offers to pay or offers to accept a sum of money will be treated as inclusive of all interest [emphasis added] until –
(a) the date on which the period specified under rule 36.5(1)(c) expires; or
(b) if rule 36.5(2) applies, a date 21 days after the date the offer was made.”

Practice Direction 47 continues at paragraph 19:

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

That begs the question: is an offer expressed to be “exclusive of all interest” nonetheless a valid offer under Part 36? After all, the PD appears to suggest that the offer should state whether or not interest is included, or does the seemingly innocuous trespass outside the strict wording of CPR 36.5(1) mean that it is not, and that, accordingly, the CPR 36.17(4) swag is forfeit?

Decisions have gone both ways and here the author must declare an interest, because he has done just that, decided the point one way and then the other.

First was Potter v Sally Montague Hair and SPA. The offer was expressed thus:

“Part 36 offer. Our clients would be prepared to accept £10,000 exclusive of interest.” (Emphasis added.)

Effective offer under Part 36? Yes, said DJ Douce. No, said HHJ Owen QC on 7 October 2016 on appeal:

“It was open to the Rule Committee to add to or extend such express modifications, for example, to modify, for the purpose of detailed assessment proceedings, rule 36.5(4), and permit a Part 36 offer to be treated as exclusive of all interest paid. No such additional modification has been made.”

Next Maclean v South East Coast Ambulance Service NHS Foundation Trust. The offer was expressed thus:

“We are instructed to offer the sum of £48,000.00 for the Claimant’s bill of costs including VAT and disbursements. This offer is exclusive of interest [emphasis added] and does not take into account any counterclaim. This offer is intended to have the consequences of Section 1 of Part 36 CPR.”

Effective offer under Part 36? Yes, said the author on 11 October 2016. No, said HHJ Dight on appeal:

“The court will treat an offer as including interest on the principal sum and the parties are to operate in the light of that construction.”

Next James v James. The offer was expressed thus:

“We are therefore authorised to make your client the following offer to settle under Part 36… Your client is to be liable to pay our clients cost of the claim and counterclaim on the standard basis, to be assessed if not agreed, up to the end of the relevant period, or, if later, the date of service of notice of acceptance of this offer.” (Emphasis added.)

Effective offer under Part 36? No, said HHJ Matthews on 13 February 2018:

“The problem is that the writer is putting forward terms on which costs are to be paid which are inconsistent with the rule. In the circumstances, I hold that this is not an offer within Part 36 of the CPR.”

Next, Ngassa v Home Office. The offer was expressed thus:

“The defendants pay £45,000 exclusive of VAT and interest.”

Effective offer under Part 36? No, said Master Rowley on 30 November 2018.

Next, King v City of London Corporation. The offer was expressed thus:

“… £50,000 in full and final settlement of the costs claimed within the bill of costs excluding interest”.

Effective offer under Part 36 offer? No, said the author (following the High Court decision in James). No, said HHJ Dight on appeal on 14 December 2018.

Finally, Horne (as executrix of the estate of Edward Horne deceased) v Prescot (No 1) Ltd. The offer was expressed thus:

“Without prejudice offer save as to costs – Part 36 offer. The offer is that the claimant shall accept the sum of £82,000 in full and final settlement of her claim for costs exclusive of interest and exclusive of the costs of assessment.” (Emphasis added.)

Effective Part 36 offer? Yes, said Master Nagalingham on 9 July 2018, but the defendants did not agree and appealed, with the appeal this time importantly lying to a High Court judge.

In Horne, the master had assessed the costs at £91,807. That meant that the claimant was out in the clear so far as CPR 36.17(4) was concerned and had argued for, and had been allowed, the extra 10%, namely £9,107. On appeal, the issue was whether that had been right given that the words emphasised above had “gone off script” from the strict wording of CPR 36.5(1).

The appeal was heard on 7 May 2019 with judgment being given by Nicol J on 24 May 2019. He found that the part that interest plays in detailed assessment proceedings is “qualitatively different from the part that interest plays in the substantive litigation”. That is because “the claim” is to the costs claimed in the bill and interest plays no part in what the costs judge is required to decide because it is an entitlement conferred by the Judgments Act. The rate of interest is prescribed under section 17 and the date from which it is to run. The only jurisdiction reposing in the costs judge concerning interest is under CPR 47.8(3) and CPR 47.14(3), which permits the court to curtail the period for which interest can be charged on the costs, but only where the receiving party has failed to commence detailed assessment proceedings within the time limit set out in the rules (not the case in Horne).

That situation should be contrasted with interest on damages which will pleaded as an integral part of the claim and is within the discretion of the court to award. In detailed assessment proceedings, interest is added automatically by virtue of the Judgments Act. It does not need to be claimed, but because of PD 47.19 it is prudent for solicitors to specify whether or not the offer excludes interest, otherwise it will be treated as being inclusive.

The other qualification in Horne, that the offer also excluded the costs of detailed assessment, was “pure surplusage”. It did not affect the validity of the offer as a Part 36 offer. On acceptance, those costs would be payable by the virtue of CPR 36.13 (3). It followed that the effectiveness of the offer as a Part 36 offer was not invalidated by the inclusion of words “exclusive of interest and exclusive of the costs of assessment”. Appeal dismissed.

Based upon Nicol J’s reasoning, as before, an offer which does not mention interest will be taken as meaning that interest is included. However, if it is expressed to exclude interest, that does not matter. It will still be effective under Part 36. Indeed, given PD 47.19, it is prudent for the solicitors to specify that fact.

Since Horne is a High Court decision binding on the courts below, it might be thought that it will be the last word on Part 36 offers, at least in detailed assessment proceedings, so that an offer expressed to be inclusive or exclusive of interest will carry with it an absolute entitlement to the CPR 36.17(4) treasure chest.

Not necessarily! Those parties resting confidently on offers expressed to be “exclusive of interest”, who may be sleeping more easily at night in the expectation that wording which has not faithfully followed the rule no longer has any hazards in store, should think again. Permission to appeal to the Court of Appeal has been given in King, with the appeal to be heard in mid-November. Horne could go back the other way!

That all said, there is no need for receiving parties to put themselves through the Part 36 hoops in this way. All that needs to be done when making an offer is to do what it says on the tin: tot up the interest, add it to the principal sum and not mention it at all in the offer, in which case it will be included within the settlement figure. Going outside the box can do nothing but cause trouble, as illustrated by Horne, which required a 69 paragraph judgment, delivered by a judge as clever as Nicol J, to extricate the claimant from the tangle that the words “exclusive of interest” had got her into. Keep on the straight and narrow (in Part 36-speak meaning “don’t mention the interest”) and none of these problems will arise.

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