PART 36 OFFER ON COSTS THAT STATES IT IS “EXCLUSIVE OF INTEREST” IS STILL A VALID OFFER: HIGH COURT DECISION CONSIDERED
I am grateful to barrister Jamie Carpenter for sending me a copy of the decision of Mr Justice Nicol in Horne -v- Prescot (No 1) Ltd 2019 1322 (QB). The case relates to whether a Part 36 offer on costs, which specifically excluded interest, remained a valid Part 36 offer. A copy of the judgment is available here Horne v Prescot appeal judgment. It is also available on Bailli here. Jamie points out that this will not be the end of this argument. The Court of Appeal are considering the same issue in King -v- Corporation of London in November.
The claimant received £91,807.96 following an assessment of costs. The claimant had early made an offer to accept £82,000. However that offer was said to be “exclusive of interest”. It also stated that the offer did not include the costs of assessment. The offer was said to be made under Part 36. The claimant had beaten its own offer, however the defendant argued that an offer stated to be “exclusive of interest” could not be a valid Part 36 offer.
THE MASTER’S DECISION
The Master decided that the offer made was a valid Part 36 offer.
THE DEFENDANT’S APPEAL
The judge rejected the defendant’s appeal and found that this was a valid Part 36 offer.
- There are dangers in going “off script” when making an offer which the offeror wants to be a Part 36 offer.
- There was no cause which suggested that the inclusion of additional words which did not conflict with the mandatory requirements of Part 36 would mean that this was not a valid offer.
THE CORRECT ANALYSIS
The judge held that the correct analysis was.
- The bill of costs would not have included interest. “Interest was simply no part of what the Master would have to decide. Interest did not feature in the claim which was the detailed assessment proceedings.”
- The offer made was rightly described as relating to the “whole of the claim in the detailed assessment proceedings”. There was no severable part of that claim which concerned interest.
- Because of 47PD.19 it was prudent for the solicitors to specify that the offer was exclusive of interest, otherwise the effect of the Practice Direction would be that the offer would be treated as being inclusive of interest (at least until the conclusion of the relevant period).
- But this qualification did not alter the fact that interest was no part of the claim and so the offer to settle was of the whole of the “claim”.
- The qualification of the offer that the it also excluded the costs of the detailed assessment proceedings was “pure surplusage”. It did not affect the validity of the offer. If the offer was accepted, those costs would be payable by the Defendant by virtue of r.36.13(3).
THE JUDGMENT ON THIS ISSUE
i) The bill of costs would not have included interest. The bill of costs and the notice to commence the Detailed Assessment proceedings had been served well within time. No application had been, or could reasonably have been, made under r.47.8 to disallow part of the period on which Judgment Act interest would run. Interest was simply no part of what the Master would have to decide. Interest did not feature in the claim which was the detailed assessment proceedings.
ii) Accordingly, the offer of 5th March 2018 was rightly described as relating to the ‘whole of the claim’, that is the whole of the claim in the detailed assessment proceedings. There was no severable part of that claim which concerned interest.
iii) Interest would be payable on the costs and the costs of the detailed assessment proceedings, but that would be added automatically by virtue of the Judgments Act: it did not need to be claimed.
iv) Because of 47PD.19 it was prudent for the solicitors to specify that the offer was exclusive of interest, otherwise the effect of the Practice Direction would be that the offer would be treated as being inclusive of interest (at least until the conclusion of the relevant period).
v) But this qualification did not alter the fact that interest was no part of the claim and so the offer to settle was of the whole of the ‘claim’.
vi) The qualification that the offer also excluded the costs of the detailed assessment was pure surplusage. It did not affect the validity of the offer as a Part 36 offer. If the offer was accepted, those costs would be payable by the Defendant by virtue of r.36.13(3).
vii) I note that the Practice Direction also says that (unless the contrary is indicated) the offer will be taken to include the cost of preparing the bill. That may strike those unfamiliar with the minutiae of detailed assessment proceedings as curious: it may rather be thought that the cost of preparing the bill was but one aspect of the costs of the detailed assessment proceedings themselves. However, it seems that the bill will also include the costs of preparing (and checking) the bill itself – see 47PD paragraph 5.19 which says,
‘the bill of costs must not contain any claims in respect of costs or court fees which relate solely the detailed assessment proceedings other than costs claimed for preparing and checking the bill’ [my emphasis]
viii) The Appellant does not suggest that the offer otherwise failed to satisfy the requirements of Part 36.
ix) The validity of the offer as a Part 36 offer was not affected by the inclusion of the words ‘exclusive of interest’.
However, if I am wrong about this and interest ought to be regarded as a part of the claim, or an issue in the claim my conclusion would still be that the Master was still right to regard Fieldfisher’s offer as a valid Part 36 offer since it was, on this assumption an offer to settle part of the claim, namely the principal sum in the detailed assessment proceedings, but not interest. None of Mr Carpenter’s arguments persuaded me to the contrary.
i) The language of r.36.5(1) is in marked contrast to that of r.36.5(4). Rule 36.5(1) is mandatory: in order to be a Part 36 offer it ‘must‘ contain the four listed requirements. Rule 36.5(4) by contrast is framed as ‘A Part 36 offer which offers to pay or offers to accept a sum of money will be treated as inclusive of interest’
ii) That contrast is mirrored elsewhere in Part 36. Thus r.36.5(3) says,
‘In appropriate cases a Part 36 offer must contain such further information as is required by r.36.18 (personal injury claims for future pecuniary loss), rule 36.19 (offer to settle a claim for provisional damages) and rule 36.22 (deduction of benefits.’ [my emphasis]
Each of those rules makes clear which of their requirements are mandatory by also using the term ‘must’.
iii) I did not find persuasive Mr Carpenter’s argument that an offer which excluded interest could not be a valid Part 36 offer because it would not then be made ‘in accordance with rule 36.5’ as r.36.2(2) requires. I read that as simply a drafting device for cross-referring to rule 36.5. It leaves to rule 36.5 to determine which requirement is mandatory.
iv) I did not find the historical development of Part 36 to be particularly helpful in interpreting the current version. There clearly have been some very significant changes, but their substantial nature only serves to emphasise the importance of focussing on their present form. I, of course, recognise that there has not, since 2007, been a dispensing power to treat a non-compatible offer as a Part 36 offer. The requirements are strict, but that proposition does not help much in deciding whether an offer may be made in relation to a principal sum (exclusive of interest).
v) A defendant’s Part 36 offer must be expressed as a single sum, but there are other differences in Part 36 between offers by defendants and offers by claimants. Besides, the offer by Fieldfisher was expressed as a single sum. If, as I am currently considering, that was a sum for only part of the claim, it did express what sum the claimant would accept for that part.
vi) I see nothing in the claimant’s offer which was incompatible with the scheme of Part 36, as had been the case with some of the authorities cited by Mr Carpenter.
vii) If this offer was to be treated as relating to part of the claim, I recognise that, on acceptance, the claimant would not have automatically been entitled to her costs, but would have to either obtain the defendant’s agreement to this or seek an order from the court. But that is sensible, if (as I am currently assuming) interest is a severable part of the claim.
viii) On this same assumption, I do not accept that the court would lack jurisdiction to determine interest. Where an offer in relation to part of the claim is accepted, the claim is stayed as to that part. The claim is not stayed as to the part of the claim to which the offer did not relate.
ix) Rule 36.5(1)(d) says that the offer must state whether it relates to the whole or to part of the claim. As I have explained, my view is that it did relate to the whole of the claim. Nonetheless, I am examining here the position if the true interpretation of the offer was that it did relate to only part of the claim. Ex hypothesi r.36.5(1)(d) is satisfied. Put another way, if it did not relate to the whole of the claim, that was only because it was qualified so as to exclude interest.
Given my conclusions, Mr Williams has no need to have recourse to his fall-back arguments. It is sufficient for me to say that, in regard to them, I see considerable force in Mr Carpenter’s responses. First, to treat the offer made by Fieldfisher as inclusive of interest would stand the process of contract interpretation on its head. That is simply not what the offer said, nor what its objective intention was. It also seems to me that the remarks of Davis LJ in F & C Alternative Investment are a formidable obstacle to the argument that I should exercise my general discretion as to costs so as to allow the Claimant indemnity costs and/or enhanced interest.