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.