The Court of Appeal (Lord Newey, Lord Coulson and Lord Arnold sitting) have handed down the much anticipated judgement in King v City of London Corporation [2019] EWCA Civ 2266 where they found that any Part 36 that excludes interest is not valid.
The predominant question raised by this appeal was whether a Part 36 offer exclusive of interest could be valid generally or at least in the context for detailed assessment proceedings under CPR Part 47.
Background to the claim
Francis King settled a claim against the City of London Corporation for £250,000 plus costs “to be assessed if not agreed on a standard basis” in February 2017. As to the costs in the matter, Mr King served his bill of costs and detailed assessment proceedings ensued. On 12 December 2017 Mr King made a Part 36 offer to settle the proceedings for £50,000 excluding interest, which was rejected by the City of London Corporation.
Mr King’s bill was assessed at £52,470 in June 2018, exclusive of interest, beating his previous Part 36 offer of £50,000. Mr King’s solicitors therefore believed that he was entitled to rely on CPR 36.17 which provides favourable costs consequences to the claimant where the judgment against the defendant is at least as advantageous as the Part 36 offer. However, the Deputy Master found that the offer was not valid because the term as to interest was inconsistent with Part 36. The Costs Judge dismissed King’s appeal so he appealed to the Court of Appeal where similarly it was dismissed.
What was in dispute?
There were three predominant issues which the Court of Appeal were to determine:
- Can a Part 36 offer generally exclude interest?
- If not, can a Part 36 offer nevertheless exclude interest in the context of detailed assessment proceedings?
- As per CPR 36.5(4) should Mr King’s offer be treated as inclusive of interest?
Issue 1: Can a Part 36 offer generally exclude interest?
Delivering the leading judgment in this case, Newey LJ made it abundantly clear that in order for a Part 36 offer to be valid it must comply with the requirements of CPR Part 36 in an essential respect and any which fail to do so will not take effect as a Part 36 offer even if it is expressed to be one.
Simply, in this instance, the Part 36 offer was not made in accordance with rule 36.5 which states that a ‘Part 36 offer which offers to pay or offers to accept a sum of money will be treated as inclusive of all interest’. Read in the alternative this could indicate that an offer which was not to include interest could not be a valid Part 36 offer.
It was the view of Newey LJ that:
“an offer of “£x exclusive of interest” would not have been one relating to “part” of a claim under the original version of CPR Part 36 and is no more to be seen as one in respect of “part” of a claim for the purposes of the present-day Part 36. Part 36 proceeds on the basis that interest is ancillary to a claim, not a severable part of it.”
Therefore, as to the first issue it was determined that a Part 36 offer cannot generally exclude interest.
Issue 2: Can a Part 36 offer exclude interest in the context of detailed assessment proceedings?
Newey LJ held that a Part 36 offer made excluding interest in detailed assessment proceedings could not be a valid offer. It was determined that an application of the straightforward principle that the same words in the same part of the CPR cannot and should not have two opposite meanings dependent upon the stage of litigation.
Issue three: the offer
The judges determined whether or not Mr King’s offer of 12 December 2017 should be taken to have been inclusive of interest, briefly. Newey LJ believed that it was inconceivable that CPR 36.5(4) was intended to turn a Part 36 offer, which specifically stated that is was to exclude interest, into one including interest, stating that it would grossly distort the offeror’s intentions.
Therefore, Mr King’s offer was not treated as inclusive of interest but that it did not comply with CPR 36.5(4) and the appeal was dismissed.
CPR Committee
It may not be the end of this matter as Lord Justice Arnold was troubled by the decision of Newey LJ and only reluctantly agreed that the appeal should be dismissed. He believed that the issue merits consideration by the Civil Procedure Rules Committee as there were arguments in favour of permitting Part 36 offers to be made which are exclusive of interest.
Consequences for legal representatives?
This judgment clearly demonstrated how tight the wording of CPR Part 36 is and the dangers of failing to adhere to them. Therefore, following this decision, to ensure that a Part 36 offer is valid, solicitors must calculate interest and add it to the principal sum so that it is included in the offer amount. If a solicitor fails to do this, or uses wording such as ‘excluding interest’ then they risk invalidating the offer.
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