Validity of Part 36 offers

Monday 06 January 2020

Following a ruling of three Court of Appeal judges last month, there is finally certainty on the validity of Part 36 offers after previously being met by differing interpretations from the High Court.

A successful claimant, Francis King (King v City of London Corporation) had served a bill of costs for assessment, with a Part 36 offer in full and final settlement of the costs detailed within the bill only.  The letter stated that the offer related to the whole claim for costs ‘but excludes interest’. 

This created a dispute, followed by further confusion after the deputy master, upheld by the High Court, ruled that an offer exclusive of interest could not be a valid Part 36 offer.  Conversely, Mr Justice Nicol (in Horne v Prescot (No 1) Ltd) held that, in the context of detailed assessment proceedings, an offer excluding interest could be valid.

Differing opinions had also been expressed by other costs judges, which was not helped by an apparent conflict between Part 36 rules and the wording of practice direction 47, which makes provision for an offer to deal with interest. 

Lord Justice Newey stated that the rules remain clear that a Part 36 offer cannot generally exclude interest, stating “Part 36 proceeds on the basis that interest is ancillary to a claim, not a severable part of it.  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 at the same time could be said about costs”.  He added that the true position on King’s offer was not that it was to be treated as inclusive of interest, but that it was in fact a non-compliant offer.

In agreeing to dismiss King’s appeal, Lord Justice Coulson noted that the rules requiring compliant Part 36 offers to be inclusive of all interest were ‘unqualified’.  Lord Justice Arnold ‘reluctantly’ agreed but noted that the issue merits further consideration by the rules committee and said that there remain arguments in favour of permitting Part 36 offers to be exclusive of interest, should the committee amend the rules to say so.

Vanessa Andrews
January 2020