Part 36 Offers: Include interest, avoid invalidity

Making a Part 36 offer is an important strategic step parties often take in legal proceedings and can often be a driving force to the parties reaching agreement.

However, there are many rules which must be followed in order for a Part 36 offer to be valid which are set out in Part 36 of the Civil Procedure Rules. If these rules are not followed, the Part 36 will be void which means that it will not have the cost consequences or other impact on the claim.

The court has recently clarified the position on claiming interest when it comes to making a Part 36 offer. The Court of Appeal in the case of King v City of London Corporation [2019] EWCA Civ 2266 held that a Part 36 offer that excludes interest is not a valid Part 36 offer. This is because interest was held to be ancillary to a claim, rather than a severable part which can be separated off from the principal sum. The court confirmed that this rule extended to both statutory and contractual interest.

Following this decision, to ensure the Part 36 offer is valid, it is important for solicitors to calculate the interest and add it to the principal sum so that interest is included as part of the total sum being claimed when making a Part 36 offer. Failure to include interest and using wording such as “excluding interest” in the Part 36 offer, whether made in substantive proceedings or in costs proceedings, will invalidate the offer.

Additionally, when receiving a Part 36 offer, the recipient must also be careful to ensure that they fully understand what the settlement sum comprises of. For instance, if the Part 36 offer is silent as regards to interest, the recipient will need to ensure that the principal sum is broken down so that any interest element is calculated and there is an accurate understanding of the offer amount being accepted to avoid the risk of accepting an offer which is too low.