Lawyers have finally been handed certainty on the validity of Part 36 offers after being met with differing interpretations from the High Court.
Three Court of Appeal judges ruled last month in King v City of London Corporation that it was not possible to make a valid Part 36 settlement offer exclusive of interest. To do so, they agreed, would result in the offer not being compliant with Civil Procedure Rules.
The dispute arose after the lawyers for the successful claimant Francis King had served a bill of costs for detailed assessment, with a Part 36 offer to accept £50,000 in full and final settlement of the costs detailed within the bill only. Crucially, the letter stated that the offer related to the whole claim for costs ‘but excludes interest’.
Confusion ensued when the deputy master, upheld by the High Court, ruled that an offer exclusive of interest could not be a valid Part 36 offer. But in contrast, in Horne v Prescot (No 1) Ltd, Mr Justice Nicol held that, at least in the context of detailed assessment proceedings, an offer excluding interest could be valid.
Lord Justice Newey, giving the lead judgment in King, said differing opinions had also been expressed by other costs judges, not helped by an apparent conflict on the issue between Part 36 rules and the wording of practice direction 47, which makes provision for an offer to deal with interest.
The judge stated that the rules as they stand remain clear: a Part 36 offer cannot generally exclude interest.
‘Part 36 proceeds on the basis that interest is ancillary to a claim, not a severable part of it,’ he said. ‘Interest cannot be hived off. True it is that, on occasion, there may be room for substantial dispute as regards interest and that the amount at stake could be large, but the same could be said about costs.’
He added the true position was not that King’s offer was to be treated as inclusive of interest, but that it was a non-compliant offer.
Lord Justice Coulson, agreeing to dismiss King’s appeal, noted that the rules requiring compliant Part 36 offers to be inclusive of all interest were ‘unqualified’.
Lord Justice Arnold ‘reluctantly’ came to the same conclusion on the basis of the rules as they stand, but he noted that the issue merits further consideration by the rules committee. He said there remain arguments in favour of permitting Part 36 offers to be made exclusive of interest, and the committee could amend the rules to say so.