Part 36 in Practise
Christopher McClure discusses four cases which deal separately with issues surrounding interest, clarification and additional benefits.
A glut of cases addressing the operation of Part 36 has recently emerged. In this article we deal with four such cases. Respectively, they concern the power of the court to award interest on any additional amount granted; whether a Part 36 offer can be made exclusive of interest and remain a valid offer for the purposes of Part 36; some important obiter commentary on the oft-overlooked r. 36.8, viz. a request for clarification; and whether the r. 36.17(4) benefits may be awarded separately subject to the test of unjustness.
FZO v Adams & Anor  EWHC 1286 (QB)
The question of whether interest is payable on the ‘additional amount’ granted under CPR r. 36.17(4)(d) was but one of a multitude of issues to be determined by the Court.
In this case there was no disagreement between the parties that £75,000, being the maximum amount the Court could award, was payable to the claimant. It was averred on behalf of the claimant that CPR r. 36.17(4)(a) is widely drawn and encompasses not only the basic judgment sum but also any additional amount payable. The provision reads –
(4) Subject to paragraph (7), where paragraph (1)(b) applies, the court must, unless it considers it unjust to do so, order that the claimant is entitled to—
(a) interest on the whole or part of any sum of money (excluding interest) awarded, at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired
It was contended on behalf of the defendants that the ‘additional amount’ under CPR r. 36.17(4)(d) was not a ‘sum awarded’ for the purposes of r. 36.17(4)(a). The Court preferred the submissions of the defendant on the basis that –
- The ‘additional amount’ is not a sum ‘awarded’ as is does not feature in the judgment of the Court;
- The words ‘additional’ and ‘amount’ convey that this is in addition to the sum awarded and interest set out at CPR r. 36.17(4)(a); and
- On the premise that interest on the sum awarded (i.e. judgment sum) is a sanction, then to apply interest on the additional amount (which is itself a sanction) would be to impose a sanction upon a sanction; if that was correct then the rule would have made the position clear
Horne v Prescot (No. 1) Ltd  EWHC 1322 (QB)
This was an appeal by the defendant – the paying party – against the decision of Master Nagalingam who found that a Part 36 Offer, made by the paying party in terms which excluded interest from the sum offered, was a valid offer for the purposes of Part 36. Given that the claimant had beaten said Offer on assessment she stood to make a significant gain in accordance with the benefits provided to a receiving party who equals or betters their own Part 36 offer on assessment pursuant to CPR r. 36.17(4).
To undermine the validly of the Part 36 Offer would lead to a disapplication of the benefits prescribed by CPR r. 36 and the defendant sought to achieve this aim by asserting that an offer made exclusive of interest was not an offer within Part 36.
At the heart of the defendant’s argument lay the assertion that a claim for costs could include interest on those costs notwithstanding the fact that there was no need to plead any such claim within the assessment proceedings (the same being automatically provided for by virtue of the Judgments Act 1838). To that end, any such term purporting to exclude interest was incompatible with the fundamental term that the Offer was made in relation to ‘the whole of the claim’ thus rendering invalid the Part 36 Offer.
It was further submitted that if, for the purposes of assessment proceedings, interest does not form part of that claim, then a Part 36 Offer in relation to those proceedings could not be inclusive of interest. This was incompatible with CPR r. 47 PD 19, which states that ‘where an offer to settle is made, whether under Part 36 or otherwise, it should specify whether or not it is intended to be inclusive of the cost of preparation of the bill, interest and VAT. Unless the offer states otherwise it will be treated as being inclusive of these’.
In dismissing the appeal, Nicol J made a clear demarcation between interest on costs and interest on damages. In so doing, he held that whilst interest on costs accrues from the date of judgment, it is neither claimed nor pleaded – nor indeed need it be – within the claim for costs itself (i.e. the bill of costs) but rather ‘will follow once the assessment has been completed.’ Consequently the offer was properly stated to be for the whole of the claim for costs in the assessment proceedings and was, in fact, perfectly compatible with what was being claimed in those proceedings, i.e. costs net of interest.
In relation to the purpose served by the words ‘excluding interest’, the Court referred to the fact that, unless stated otherwise, an offer would be inclusive of interest. In this case, as there were no issues regarding interest in the actual claim for costs in the assessment proceedings, this reference to excluding interest (within a Part 36 Offer made in assessment proceedings) could only mean Judgment Act interest.
It is noteworthy that Master Rowley in Ngassa v The home office & Anor  EWHC B21 reached the opposite conclusion. The Court of Appeal will hear King v City of London Corporation on this particular point in November this year.
Calonne Construction Ltd v Dawnus Southern Ltd  EWCA Civ 75
Where there is uncertainty regarding the terms of a Part 36 Offer the offeree may seek clarification of the same by reference to CPR r. 36.8, which reads –
(1) The offeree may, within 7 days of a Part 36 offer being made, request the offeror to clarify the offer.
(2) If the offeror does not give the clarification requested under paragraph (1) within 7 days of receiving the request, the offeree may, unless the trial has started, apply for an order that the offeror do so.
(Part 23 contains provisions about making an application to the court.)
(3) If the court makes an order under paragraph (2), it must specify the date when the Part 36 offer is to be treated as having been made.
The rule is eminently straightforward: within seven days of being served with a Part 36 Offer the offeree may request that the offeror clarify any aspect of the offer and a failure to do so within seven days of receiving the request may be met with an application for an order requiring the clarification sought.
In Calonne the offeree sought to undermine the validity of a Part 36 offer on the basis of alleged uncertainty about the nature and extent of a counterclaim which had yet to be pleaded. Whilst the Court of Appeal disagreed with the offeree on the issue of uncertainty, it did pass interesting comment on the position facing the parties had the counterclaim been ambiguous thus making it difficult (or impossible) to properly consider the offer:
‘[A]ny uncertainty about the nature of a proposed counterclaim could be addressed by a request for clarification pursuant to CPR r. 36.8 and ultimately, if necessary, could be addressed under the "unless unjust to do so" provision in CPR r. 36.17(4).’
Thus the offer would have been valid notwithstanding any uncertainty surrounding the basis upon which the offer sum had been calculated. From this we may deduce that an offeree’s remedy against an uncertain Part 36 offer is not found in contesting the validity of that offer but rather in CPR r. 36.8 and, where appropriate, r. 36.17(4).
Whether it would be unjust to apply the benefits provided under CPR r. 36.17(4) requires the Court to consider the factors delineated under r. 3617(5); r. 36.17(5)(d) is particular relevant and requires the Court to examine:
(d) the conduct of the parties with regard to the giving of or refusal to give information for the purposes of enabling the offer to be made or evaluated'
The High Court in AB v CD & Ors  EWHC 602 (Ch) summarised the position in this way:
'There would be no need for the clarification provisions in rule 36.8 if the result of a failure to provide enough information were automatically to disqualify the offer from being a Part 36 offer at all; and the provisions of rule 36.14(4)(d) [current CPR r. 36.17(5)(d)] show that a refusal to give information for the purposes of enabling the offer to be evaluated comes into play at the later stage of deciding whether or not it would be unjust to grant the successful party the favourable consequential orders which normally follow from equalling or beating the offer (as the case may be).’
JLE v Warrington and Halton Hospitals NHS Foundation Trust  EWHC 1582 (QB)
Readers will recall from edition III of COSTS our article entitled ‘Part 36 in Piecemeal’ in which we considered the somewhat unusual decision of Master McCloud not to grant the claimant/receiving party the 10% uplift on costs by reason of the fact that they had only marginally beaten their Part 36 on assessment.
That particular aspect of the assessment was appealed by the claimant and has now been overturned by Mr Justice Stewart.
In reaching her decision Master McCloud determined that the benefits prescribed by CPR r. 36.17(4) were severable and that, by reference to the narrow margin by which the claimant had beaten their own offer, it would be unjust to award an additional amount under r. 36.17(4)(d).
The appeal was made on two grounds, namely:
that the Master was incorrect to conclude that the test of unjustness could be applied separately in the context of CPR r. 36.17(4); there is a single test of injustice so that all or none of the consequences apply; or
in the alternative even if the test of unjustness can be disjunctively applied the Master was wrong to conclude that it was unjust to award the additional amount in this case
On the first ground of appeal, and in the absence of any authority on this point, Stewart J essentially held that ‘unless a rule, on its true construction, makes it clear that the exception of injustice is to be applied in every case across the board, then the Court does have jurisdiction to consider it unjust to award some, but not necessarily all the orders in sub-paragraph (4).'
It would thus appear that the test of unjustness applies individually to the incentives delineated at CPR r. 36.17(a) to (d) and which may, therefore, be granted individually or collectively by the Court by reference to those factors found at r. 36.17(5).
In relation to the second ground, Stewart found that the Master had erred in principle by holding that the ‘significant’ reduction to the receiving party’s bill of costs (by 30%) rendered unjust the granting of the additional sum.
Further, it was said that the Master erred by treating the 10% as a “bonus”. It was reiterated by Master Stewart that the 10% uplift is not compensatory but rather penal in nature. Ultimately, Stewart J expressed concern that the logic behind the Master decision ‘would be a green light to similar arguments in many, many other detailed assessment [and] a serious disincentive to encouraging good practice and incentivising parties to make and accept appropriate offers.’
In conclusion, whilst the benefits under CPR r. 36.17(4) are severable the test of unjustness poses a ‘high threshold’ for paying parties to overcome in order to show why a receiving party who equals or betters their own Part 36 offer should not be entitled to the full range of benefits prescribed by that rule.
LLB (Hons), PG Dip (BVC)
Wednesday 26th June 2019