There have been two significant judgments relating to Part 36 in recent weeks, Hochtief (UK) Construction Ltd and another v Atkins Ltd [2019] EWHC 3028 (TCC) and King v City of London Corporation [2019] EWCA Civ 2266.  

The starting point when making Part 36 offers is CPR 36.5, particularly sub-paragraphs (1) and (4):

(1) A Part 36 offer must—

(a) be in writing;

(b) make clear that it is made pursuant to Part 36;

(c) specify a period of not less than 21 days within which the defendant will be liable for the claimant’s costs in accordance with rule 36.13 or 36.20 if the offer is accepted;

(d) state whether it relates to the whole of the claim or to part of it or to an issue that arises in it and if so to which part or issue; and

(e) state whether it takes into account any counterclaim.

(4) A Part 36 offer which offers to pay or offers to accept a sum of money will be treated as inclusive of all interest until—

(a) the date on which the period specified under rule 36.5(1)(c) expires; or

(b) if rule 36.5(2) applies, a date 21 days after the date the offer was made.

So how does this apply to our real life situations?

The two cases mentioned above related to two quite different aspects of Part 36 but, when it boiled down to it, the parties slipped up in the same way: they mistakenly thought that they did not have to strictly adhere to the Part 36 regime.

In Hochtief the claimant narrowly beat its own Part 36 offer of £875,000 (by just under £5,000).  The defendant argued that, as the Part 36 offer had only been beaten by a very small margin, and given the claimant had actually failed on one of the two aspects of its claim, the most appropriate way in which to deal with costs would be to make an issues-based or proportional costs award.

This argument was rejected.  The Court concluded that the claimant had beaten its Part 36 offer and was entitled to rely on the Part 36 regime, regardless of the small margins involved.

In King v City of London Corporation, the Court of Appeal held that a Part 36 offer that excludes interest is not a valid Part 36 offer.  It rejected the claimant's submission that an offer of "£x exclusive of interest" could be treated as a Part 36 offer for part of a claim.

The Court referred to the wording of CPR 36.5(4), which states that Part 36 offers to pay or accept monetary sums will be treated as inclusive of interest, and found that it is mandatory.  This extends to every type of interest, whether statutory or contractual.  Further, CPR 36.5(4) cannot turn an offer stated to be exclusive of interest into one inclusive of interest.  It is not intended to turn a non-compliant offer into a compliant one, but to lay down the requirements for a compliant offer.

What is the key takeaway for lawyers?

These judgments are extremely clear and any previous confusion has undoubtedly been resolved.  The key for lawyers is to make sure that you adhere to the strict terms of the Part 36 regime in every way and carefully pitch any offer (bearing in mind that it is inclusive of interest), otherwise the offer will not be valid and you will lose any benefits.