A PART 36 OFFER WHICH EXCLUDES INTEREST MAY BE VALID

A Part 36 offer in detailed assessment proceedings may be valid where it excludes interest under the Judgments Act 1838.

In Horne -v- Prescot (No.1) Ltd [2019] EWHC 1322 (QB) the Court held that a Part 36 offer on costs which excludes interest is a valid Part 36 offer, contrary to Ngassa -v- The Home Office [2018] EWHC B21.

CPR 36.5(4) states that a “part 36 offer… [for] a sum of money will be treated as inclusive of all interest…” In Ngassa it was held that therefore an offer which purported to exclude interest was not a valid Part 36 offer and therefore would not attract the consequences of Part 36.

However, in Horne the judge found that in detailed assessment proceedings, interest accruing under section 17 of the Judgments Act 1838 does not form part of the claim for costs, as it is a statutory entitlement in respect of which the Court is not required to make any finding. Therefore, unlike interest which may form a part of substantive proceedings (for example interest under the Late Payment of Commercial Debts (Interest) Act 1988) which forms part of the claim and must be Ordered by the Court, Judgments Act interest does not form a part of the “claim” for costs, and is not required to be ordered by the Court (though it may be disallowed).

Whilst the judgment in Horne is both legally sound and eminently sensible, as CPR 36 was not drafted with detailed assessment proceedings in mind (indeed until 2013 it was not possible to make a Part 36 offer in costs proceedings and is only now applicable due to a modification to Part 47 specifically applying Part 36 to detailed assessment) practitioners should bear in mind that Horne is a first instance decision and a different court on a different day may find differently. It may be prudent for practitioners to continue to include interest in Part 36 offers on costs until further authority clarifies the position. It is however a useful judgment to deploy where there is any dispute as to the validity of an offer.

Matthew Rose is an Associate in the Costs and Litigation Funding Department at Clarion Solicitors. You can contact him at matthew.rose@clarionsolicitors.com and 0113 222 3248. You can contact the Clarion Costs Team on 0113 246 0622.

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Interest on Costs

The case of MacInnes v Hans Thomas Gross [2017] is a very useful case to read as it covers a number of topics including indemnity basis costs awards, interest, proportionality, costs budgeting and payments on account. The focus of this article is the useful contents from the Judgment in relation to interest on legal costs. Pages 3, 4 and 5 are the relevant aspects of the Judgment to consider in this regard and I set out below the key points:

  • The court awarded pre-judgment interest at a rate of 4% above base rate and relied heavily on the Judgments in McPhilemy v Times Newspapers Limited [2002] and KR v Bryn Alyn Community (Holdings) Limited [2003] EWCA Civ 383 when making its decision.
  • In relation to post-judgment interest the court ruled that it should not start to accrue until 27 April 2017 (which was 3 months after the date of the Judgment). The reason for this was because the court awarded a very substantial payment on account and followed the logic of Leggatt J in the case of Involnert Management Inc v Aprilgrange Limited and Others [2015] which provided some very useful guidance in relation to post-judgement interest. The logic behind the deferral of 3 months was the fact that by that time Detailed Assessment Proceedings should have been commenced, and therefore the paying party would have had sight of the bill and could start to make a realistic assessment of the amount of their liability. Without sight of the Bill of Costs, it could not do that.
  • It is important to note that in relation to the post-judgement interest point, the deferral of interest for 3 months was primarily due to the fact that a Costs Management Order was in place and the court made an order for a substantial payment on account. If a Costs Management Order was in place, but a substantial payment on account was not made then one would expect the court not to make such an Order in relation to post-judgment interest i.e. interest would run in the traditional way (8% from the date of Judgment).
  • The position in relation to pre-judgment interest should be considered by any law firm acting for a client on a private fee paying retainer. When it comes to the issue of interest on costs, the court has a wide discretion as to when interest starts to run under CPR 44.2 (6) (g).

Therefore, where appropriate, law firms should be seeking interest from before the date of Judgment as it will be beneficial to the client given that the rate is likely to be 4% above base rate from when the law firm’s invoices were paid (invoices could date back a number of years).

This blog was prepared by Andrew McAulay who is a Partner at Clarion and the Head of the Costs and Litigation Funding team. Andrew can be contacted on 0113 336 3334 or at andrew.mcaulay@clarionsolicitors.com.

The date from which interest on costs runs

The judgment in Involnert Management Inc v Aprilgrange Limited & Others[i] means that the date from which interest shall be calculated is 3 months after the date of the order for costs.

The Statutory Background

Section 17 of the Judgments Act 1838 provides that interest shall run on judgment debts from the date of judgment, to the date of satisfaction.

CPR 40.8(1) provides that Where interest is payable on a judgment pursuant… the interest shall begin to run from the date that judgment is given’, but gives the court the discretion to order otherwise.

Development of the law

Over the years since the introduction of the Judgments Act, there has been some debate over the correct date from which interest shall run. The two rules proposed have been the incipitur rule, which is that interest on costs runs from the date on which the order for costs was given, and the allocatur rule, that interest runs from the date on which the costs are quantified.

There are clearly good arguments for both positions, however in general the courts have adopted the incipitur principle, culminating in in Simcoe v Jacuzzi[ii] where it was held that interest on costs runs from the date of the order for costs, notwithstanding that those costs have not yet been quantified.

The case of Involnert

In judgment, Leggatt J held that, on the authorities, it is clear that… the date when an order for costs is made is the date judgment is given… even though the amount of costs payable has still to be assessed’[iii], however he confirmed that the court is not restricted in the date on which it can order costs to run and, importantly, found that it is not necessary to show any ‘exceptional’ circumstances in order to do so[iv]. In effect it was held that the date from which interest shall run is at the sole discretion of the court.

Importantly the judge held that it was, in his view, not just that interest on costs should begin to run until the paying party ‘… has been provided with a detailed statement of the costs claimed so that it can take an informed view of the amount its liability’[v] and therefore interest on costs at the rate prescribed by the Judgments Act until ‘a date three months after the orders for costs were made[vi].

Analysis

The effect of this judgment is that the court has held that interest on costs should not run until 3 months after the order for costs. The date of 3 months was arrived at because CPR 47.7 states that detailed assessment must be commenced (and a bill of costs served) no less than 3 months after the date of the judgment or order.

It should be noted that the court did award interest from the date of judgment, but only at the Bank of England Base Rate (at the time of writing, 0.5%) plus 2%.

Also worthy of note that the court allowed interest from the date mandated as the last date for commencement under CPR 47.7, however this would appear to contradict the ratio of the judgment that interest should not run until a ‘detailed statement of costs’ has been provided. It is quite possible that a bill of costs could be served before the expiry of the 3 months, and it is therefore logical to assume that the date from which interest shall run at the Judgments Act rate is the date on which Notice of Commencement (and the bill of costs) is served.

A further question which may in future arise is whether an earlier date could be prescribed in the event that the receiving party serves a statement or other detailed breakdown, not in the form of a bill of costs or by way of formal commencement, in advance of this date. It would be quite possible to argue that an estimate (so long as it is sufficiently detailed) provided prior to the expiry of the 3 month period or, indeed, prior to the final order itself, is sufficient to satisfy the requirements of paragraph 27 of the judgment, and thus trigger the payment of interest at the Judgments Act rate from the date of that statement or from the date of the order itself.

A further issue which does not appear to have been considered is the effect of a costs management order or Precedent H costs budget in the case. It would certainly be possible to argue that where a costs management order has been made or a budget filed, the court should allow interest on costs in respect of the costs allowed from the date of the order, and interest on costs (if such costs are allowed) above this amount would be allowed for a different period or at a different rate.

Summary

It remains possible to argue that interest at the Judgments Act rate (8%) runs from the date of the order for costs, as the court has discretion to make such award as it considers just on the facts of each case. However in order to support a claim for interest earlier than the date on which notice of commencement is served, or 3 months from the date of the order, parties should seriously consider whether to provide a detailed breakdown of their costs in order to assist in negotiations.

A final word of caution: a party which chooses to serve a breakdown of costs before serving a bill must ensure that it is accurate. It is unlikely that a court will consider that a breakdown which bears no resemblance to the bill ultimately filed is sufficient to trigger the payment of interest, and furthermore may in fact draw an adverse inference. Accordingly receiving parties should ensure, so far as possible, that estimates or breakdowns are drafted properly and not simply ‘plucked from the air’, in order to achieve the best results.

Matthew Rose is a Solicitor in the Costs and Litigation Funding department at Clarion Solicitors. You can contact him at matthew.rose@clarionsolicitors.com, or the Clarion Costs Team on 0113 2460622.

 

[i] [2015] EWHC 2834 (Comm)

[ii] [2012] EWCA Civ 137

[iii] Para 19, Involnert

[iv] Para 20 ibid

[v] Para 27 ibid

[vi] Para 28 ibid