The Court of Appeal has confirmed that an offer which is made exclusive of interest cannot be a valid Part 36 offer: King v City of London Corporation  EWCA Civ 2266. There have been a number of first instance conflicting decisions and this judgement provides welcome clarification.
The substantive dispute was concluded by way of consent order. It provided for the Defendant to pay the Claimant £250,000 plus costs "to be assessed on the standard basis".
The claimant served his bill of costs and detailed assessment proceedings were commenced. The claimant's costs draftsman made what was purported to be a part 36 offer and stated that they would accept £50,000 in full and final settlement of the claimant's claim for costs. The letter stated that the offer related to the whole of the claim for costs but specifically excluded interest.
The matter proceeded to a detailed assessment hearing where the claimant's bill was assessed at £52,470. The claimant sought to argue that they had beaten their part 36 offer and to rely on CPR 36.17 in order to seek the appropriate costs consequences (uplift, enhanced interest etc…). The deputy master, however, found that the offer was not a valid part 36 offer because the term as to interest was inconsistent with the provisions set out therein. The claimant's first appeal was dismissed and accordingly the claimant brought a further appeal to the Court of Appeal.
The Court of Appeal dismissed the appeal made by the claimant.
It was agreed between the parties that an offer which fails to comply with the stringent requirements of part 36 will render the offer as invalid for the purposes of the additional costs consequences.
The Court of Appeal determined that it was mandatory for a Part 36 offer to state the provisions of CPR 36.5(4) namely that the part 36 offer, must state that it "will be treated as inclusive of all interest" until the expiry of the relevant offer period.
It was argued by the defendant that a party was entitled to make an offer excluding interest because Part 36 allows an offer to be limited to "part" of the claim and thus interest could be separated. This was rejected with the Court stating that interest is not a severable part of the claim.
The Court also rejected the claimant’s argument that the offer could be treated as inclusive of interest as a result of CPR 36.5(4), even though it stated expressly that it “excludes interest”. The court said it was “inconceivable that CPR 36.5(4) was meant to turn an offer specifically stated to be exclusive of interest into one including interest” as that would grossly distort the offeror’s intentions.
The Court of Appeal held it was not possible to make a valid Part 36 offer exclusive of interest either generally or in the context of detailed assessment proceedings.
Accordingly, any offers in detailed assessment proceedings should be clearly marked that they are inclusive of interest. Parties should ensure they are taking into account the appropriate level of interest to the end of the relevant period to ensure the correct recovery and/or costs protection is made.
Although it is not addressed in the judgement, it would appear that it is permissible to exclude interest after the expiry of the relevant period, as CPR 36.5(4) refers only to the offer being inclusive of interest up until that date. In Calonne Construction Ltd v Dawnus Southern Ltd  EWCA Civ 754 the Court of Appeal held that including a term as to interest after the end of the relevant period did not affect the validity of a Part 36 offer.
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