RULE CHANGES COMING INTO FORCE IN APRIL 2021 (2): PART 36 OFFERS AND THE ACCRUAL OF INTEREST AFTER THE RELEVANT DATE FOR ACCEPTANCE

The Civil Procedure (Amendment) Rules 2021 introduce a new CPR 36.5 (5)introduce a new rule as to offers and interest after the expiry of an offer. It enables the party making the offer to include provision for interest to accrue after the expiry of the relevant period.  This could have a profound practical effect. A party receiving such an offer cannot assume it can be accepted, without consequences, at a later date.  Further interest may have accrued (at a fairly high rate) and the inclusion of the interest clause in the offer does not make it an ineffective Part 36 offer.

THE NEW PROVISIONS

 In rule 36.5, after paragraph (4) insert—

“(5) A Part 36 offer to accept a sum of money may make provision for accrual of interest on such sum after the date specified in paragraph (4). If such an offer does not make any such provision, it shall be treated as inclusive of all interest up to the date of acceptance if it is later accepted.”.

The point here is that if the offer is silent on the question of interest it is deemed to include interest up to the date it is eventually accepted.

THE PRACTICAL CONSEQUENCES OF THIS

This means that those making Part 36 offers to accept a certain sum should, probably as a matter of course, include provisions for interest to accrue if the offer is accepted late.

• The offer is deemed to include interest up to the 21 days it can be accepted.
• Thereafter, unless there is a specific provision in the offer, it is deemed to include interest up to the date it is “later accepted”.

THE JUDGMENT IN CALONNE

In Calonne Construction Ltd v Dawnus Southern Ltd [2019] EWCA Civ 75 the Court of Appeal considered the position where a offer included a provision to accept a certain sum and  a provision that

“The Settlement Sum is inclusive of interest until the relevant period has expired. Thereafter, interest at a rate of 8% per annum will be added.”

THE JUDGMENT ON INTEREST

The court held that the provision of this term in relation to interest after late acceptance did not render the offer invalid.  However it was important that the interest imposed was realistic.  The new rule has, in fact, codified this decision.  (There were contradictory decisions on this point, some cases finding that any attempt to add to the interest provisions rendered the offer invalid as a Part 36 offer).

1. Did the inclusion of a term as to interest after the end of the Relevant Period render the Offer invalid for the purposes of CPR r 36? In my judgment, it did not. First, there is nothing in Part 36 and in CPR 36.5 in particular, which precludes the inclusion of terms as to interest in a Part 36 offer which are intended to apply after the Relevant Period has expired. The only express provision in relation to interest is CPR Rule 36.5(4) which provides that offers to pay or accept a sum of money will be treated as inclusive of interest essentially until the Relevant Period expires. It seems to me that that takes the matter no further.

2. Secondly, there is nothing which expressly precludes the inclusion of terms in addition to the requirements in CPR 36.5(2) and CPR 36.2(2) expressly preserves the ability to make an offer to settle in whatever way the party chooses, albeit that it provides that if r 36.5 is not complied with the offer will not have the costs consequences set out in that section.

3. Thirdly, as Mr Stokell points out, if a party could not provide for interest to run after the end of the Relevant Period, it would not be compensated with interest for any delay between the end of that period and a subsequent acceptance of the offer.

4. Fourthly, it seems to me that there is nothing in Mr Cook’s submission that if this is correct, an offeror could state, for example, that the settlement sum was subject to 25% or even 200% interest after the expiry of the Relevant Period, something which he says would inhibit settlement and be contrary to the policy of CPR Part 36. Mr Stokell suggests in his skeleton argument that there are two alternative answers to this. First, the assessment of whether an offeror has obtained a judgment, at least as advantageous as the proposal in its offer is made at the date of the judgment. An offeror who had provided for the application of such interest rates after the expiry of the Relevant Period might find that the judgment was not more advantageous than the offer and accordingly, the costs consequences of Part 36 would not apply. Secondly, and in the alternative, as interest after the end of the Relevant Period is ignored for the purposes of the CPR 36.17 assessment (see Purrunsing v A’Court [2016] EWHC 1528 (Ch), [2016] CILL 2861 (ChD) per HHJ Pelling QC at [15] – [16]), it should also be ignored for the purposes of determining whether the Part 36 offer is valid. Although Mr Cook’s objection is undermined in either case, it seems to me that the latter reflects the correct approach.

5. Fifthly, if the offeree found the particular clause unpalatable, it would be possible for it to make its own Part 36 offer in the same terms but without the offending provision. It seems to me therefore, that there is no reason whether of policy or otherwise which renders an offer invalid for the purposes of Part 36 if it includes provisions as to interest after the expiration of the Relevant Period. After all, as Flaux LJ pointed out in the course of argument, there is nothing wrong with a party making a Part 36 offer expressed as a specified sum which includes interest during the Relevant Period calculated on the basis of a particularly high rate. He just has to take the consequences when it comes to be determined whether the offer has been “beaten”.

6. For all the reasons set out above, I would dismiss the appeal. Accordingly, it is unnecessary to decide the points which arise on the Respondent’s Notice or to determine whether this court should exercise the discretion under CPR part 44 in relation to Calonne’s costs below or decide to remit the matter to the Judge for reconsideration.”