Interesting Changes to Part 36 - Defendants beware!

Rule changes to Part 36 offers mean that defendants need to be even more wary than before of the terms of Part 36 offers made by claimants.

The Civil Procedure (Amendment) Rules 2021 which come into effect from the 6 April 2021 amend Part 36 with a new rule 36.5 (5) which says that Part 36 offers can include provision for interest to accrue after the expiry of the relevant period for acceptance (usually 21 days). Silence as to interest means it will be treated as inclusive of interest up to the date of acceptance if later accepted.

" Rule 36.5

(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 explanatory notes that go with the Amendment specify that this rule change has been brought about as a result of the case of King v City of London [2019] EWCA Civ 2266. This was a case that clarified that a Part 36 offer that excluded interest could not be a valid Part 36 offer. Before the Court of Appeal decided this case there had been conflicting lower court decisions as to whether a valid Part 36 offer could exclude interest.

The Court of Appeal in the earlier case of Calonne Construction Ltd v Dawnus Southern Ltd [2019] EWCA Civ 75 had considered the question as to whether the inclusion of a term that interest would accrue at 8% after the period to accept the offer had expired rendered such an offer an invalid Part 36 offer and decided that it did not. This rule change therefore brings the rules into line with that case.

Practical effect

Claimants are likely now to add wording to Part 36 offers to include provision for interest to accrue after the period for acceptance has expired. So if a Part 36 offer in such terms is accepted there will be an increase on the basic sum of the accrued interest until the acceptance date, which could be substantial. One way to counter this, as the Court of Appeal pointed out in the judgment in Calonne Construction, is that it is always open to a defendant to make a counter offer in the same terms but without the provision as to interest.