04 February, 2020
The Court of Appeal ruled last month that it was not possible to make a Part 36 offer of settlement without including interest and that to do so would not be compliant with the Civil Procedure Rules.
Mr King had agreed to settle his claim against the City of London Corporation, with his legal costs to be subject to detailed assessment by the court if they could not be agreed. The costs were not agreed and during the detailed assessment proceedings, Mr King's solicitors sent a letter to the legal representatives of the City of London Corporation containing a Part 36 offer.
The Part 36 offer proposed to accept £50,000 in full and final settlement of the costs. The offer explicitly excluded interest. The offer was not accepted and so the matter proceeded to a detailed assessment hearing.
The court assessed Mr King's bill for legal costs at £52,470 excluding interest. As this exceeded the purported Part 36 offer, Mr King's legal representative maintained that the costs consequences from rule 36.17(4) of the CPR applied and therefore he was entitled to costs on an indemnity basis from the date that the offer expired.
The court decided that the offer was not a valid Part 36 offer and therefore it was the same as any other offer made in the course of detailed assessment proceedings. As such, rule 36.17 did not apply and he was not entitled to increased costs on an indemnity.
Mr King appealed this decision on the grounds that rule 36.5(4) states that all Part 36 offers will be treated as being inclusive of interest, regardless of the fact that the letter excluded interest.
The case went to the Court of Appeal who ultimately dismissed Mr King's appeal. The judges held that a valid Part 36 offer could not exclude interest. This applied both to ordinary Part 36 offers and to those made in the context of detailed assessment proceedings.
The court went on to say that it was "inconceivable that rule 36.5(4) was meant to turn an offer specifically stated to be exclusive of interest into one including interest". If the City of London Corporation had instead accepted the offer, Mr King would have found himself unable to claim interest as it had been explicitly excluded from the offer.
Therefore, the court dismissed Mr King's appeal.
This case provided clarity over recent conflicting judgments in the High Court which concerned the same issue. Lawyers and costs draftsmen will have to exercise caution when drafting Part 36 offers and ensure that they deal with interest clearly in any Part 36 offers.
The safest approach when making a Part 36 offer would be to use court Form 242A. This will avoid any ambiguity over whether or not interest is included within the Part 36 offer.
For more information contact Stephen McArdle in our Business Dispute Resolution department via email or phone on 0333 207 1142. Alternatively send any question through to Forbes Solicitors via our online Contact Form.
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