Horne v Prescot (No.1) Ltd (Rev 1)

This is an appeal from Master Nagalingam in the Senior Courts Costs Office. At a hearing on 9^th July 2018 the Master conducted a detailed assessment of the Claimant’s costs. The Claimant’s bill of costs had totalled £104,870.79. As reflected in the final costs certificate (sealed on 10^th September 2018) the total costs were assessed at £121,017.16 (including £20,018.39 as the costs of the detailed assessment itself. Thus, the costs of the action itself were assessed at £91,807.06 (Footnote: ¹)). By a letter of 5^th March 2018, Fieldfisher, the Claimant’s solicitors, had offered to accept £82,000, exclusive of the costs of the assessment and, critically for the purposes of this appeal, ‘exclusive of interest’. The offer (which I set out in full below) was described as a ‘an offer to settle in accordance with CPR Part 36’. The Defendant, the paying party, asserted that an offer ‘exclusive of interest’ was not an offer within Part 36. As part of his decision on 9^th July 2018 the Master found that an offer in this form was capable of being, and in this case was indeed, a valid Part 36 offer. Since the costs assessed by the Master very substantially exceeded the Claimant’s offer, it followed that the Claimant was entitled to the benefits which flowed from achieving a judgment which beat her offer (see Rule 36.17).

On this appeal, Mr Carpenter on behalf of the Defendant argues that the Master was wrong. Mr Williams QC on behalf of the Claimant argues that he was correct, but in any event, by virtue of his Respondent’s Notice, he submits that the Master’s decision can properly be upheld on other grounds. Mr Williams had two further alternative arguments. First, he says that, if the rules did not permit a Part 36 offer to be exclusive of interest, the offer made by Fieldfisher should be treated as inclusive of interest, in which case the Claimant had still succeeded in obtaining a decision which beat her offer and the beneficial consequences for such an offer would still follow. His final alternative was to submit that, if the letter from Fieldfisher was not a Part 36 offer, the Court in its discretion should make a decision that has some (though he accepts, not all) of the same advantages for the Claimant.

Permission to appeal was granted by Martin Spencer J. on 18^th February 2019. He did so, not as an indication that he considered the appeal was meritorious, but because there had been conflicting decisions on this issue at the lower level and authority at the level of the High Court was desirable. In fact, one of those decisions was in a case called King v City of London Corporation (a decision of HHJ Dight at the Central London Civil Justice Centre on 14^th December 2018). I understand that the Court of Appeal has granted permission to appeal from his decision and the appeal is due to be heard in November 2019. Neither of the parties to the present appeal suggested that this hearing should be adjourned pending judgment in King.

At the hearing of the appeal, I had the benefit of the considerable assistance of Master Simon Brown who is both a Costs Judge and a Queen’s Bench Master. The decision on the appeal, however, is mine and so any errors in this judgment are my responsibility.

The Claimant’s husband contracted mesothelioma from which he later died. Her claim on behalf of her husband’s estate arose in consequence. The parties agreed a settlement figure of £180,000, but one of the beneficiaries was a protected party and, for the settlement to be effective, it therefore had to be approved by the court. In consequence Part 8 proceedings were issued and the terms were set out in a consent order dated 14^th December 2017, sealed on 29^th December 2017. One of the terms of the order was that the Claimant’s costs should be subject to detailed assessment if not agreed. Agreement was not reached and, as I have said, the detailed assessment was conducted by Master Nagalingam.

I remind myself that the issue in the present case arose in the context of a detailed assessment. Part 47 of the CPR deals with detailed assessment of costs and the costs of the detailed assessment proceedings is addressed by r.47.20. Rule 47.20(4) says:

Rule 47. 20 has been modified from time to time. Its present form dates from 1^st April 2013 and the commencement of the Civil Procedure (Amendment) Rules 2013 SI 2013 No. 262. The transitional provisions are immaterial because the detailed assessment proceedings in this case commenced after 1^st April 2013.

Part 36 has also gone through various changes. Mr Carpenter submits these are significant and I shall return to them, but it is convenient first to set out the material parts of the current rules following their re-enactment by the Civil Procedure (Amendment) Rules 2014 SI 2014 No.3299 with effect from 6^th April 2015.

There is a Practice Direction to Part 36, but nothing turns on this.

The Practice Direction to Part 47, however, is relied upon by Mr Williams. At

Fieldfisher’s letter of 5^th March 2018 said this,

The Master said this,

There does not appear to have been a formal order, as such, embodying the Master’s decision, or stating that, because this was a valid Part 36 offer and the Claimant had beaten it, the consequences in r.36.17(4) must follow. However, both parties treated these consequences as implicit in the Master’s decision.

If a claimant alleges that, in addition to the debt or damages or other sums which is claimed, interest is also due then CPR r.16.4 provides that the particulars of claim must state that is the case (r.16.4(1)(b)), and the basis on which interest is said to be due (r.16.4(2)(a)) and if the claim is for a specified sum of money, the rate of interest claimed, the date from which it is claimed, the date to which it is claimed (not later than the date of the claim form) and the daily rate thereafter (r.16.4(2)(b)).

Commonly interest is claimed in the High Court pursuant to Senior Courts Act 1981 s.35A, in the county court pursuant to County Courts Act 1984 s.69 or sometimes as a result of contractual terms.

The entitlement to interest on judgment debts has a different basis which, for High Court judgments, derives from Judgments Act 1838 s.17. With the modifications made by Judgment Debts (Rate of Interest) Order 1993 SI 1993 No. 564 article 2 and the Civil Procedure (Modification of Enactments) Order 1998 SI 1998 No 2940 article

A final costs certificate may be enforced as if it were a judgment for the payment of an amount of money – see 47PD 16.12.

CPR r.40.8 now provides,

There is specific provision for interest on the costs of detailed assessment proceedings. This is in CPR r.47.20(6) which says,

It may also be material to note that the rule regarding the Court’s discretion as to costs (CPR r.44.2) includes at 44.2(6) the following provision,

It will be seen that, while the court is given a discretion to alter the period over which Judgments Act interest will accumulate, it does not have a power to alter the rate of interest, a point on which the present parties were agreed, and which has the support of the editors of the 2019 edition of the White Book (see paragraph 44.2.29).

Detailed assessment proceedings are commenced by the receiving party serving a notice of commencement of proceedings and a copy of the bill of costs (CPR r.47.6). The time for commencing such proceedings is prescribed by r.47.7. If the receiving party delays, the paying party can apply for an order requiring the receiving party to start them within such time as the court directs - see r.47.8(1). Further, if the receiving party delays in starting detailed assessment proceedings,

The Practice Direction to Part 47 confirms that permission to commence detailed assessment proceedings is not required – see 47PD paragraph 6.2. However, a party who wishes to apply for an order under r.47.8(1) must issue an application in writing in the appropriate office and must serve the application not less than 7 days before the hearing of the application – see 47PD paragraph 7. In the present case detailed assessment proceedings began on 7^th February 2018. The parties have confirmed to me that no such application under r.47.8(1) was made in the present case. The Court can (and sometimes does) disallow interest under r.47.8(3) in the absence of an application under r.47.8(1), but no such issue arose in this case, nor, since the receiving party had started detailed assessment proceedings well within the time prescribed by r.47.7, could it have done.

If the paying party disputes any item in the receiving party’s bill of costs, it must serve points of dispute – see r.47.9. In this case points of dispute were served on 27^th February 2018. Where points of dispute are served, the receiving party must file a request for a detailed assessment hearing within 3 months of the expiry of the period for commencing detailed assessment proceedings – see r.47.14(1). If the receiving party fails to do so, the paying party may apply for an order that the receiving party do so within a specified time. Again, the Court is given power to disallow all or part of the period of interest in consequence of the receiving party’s delay in requesting a detailed assessment hearing – r.47.14(4). The Practice Direction to Part 47 provides that an application in the detailed assessment proceedings must comply with CPR Part 23 – see 47PD.13.7. In this case the Claimant, as the receiving party, requested a detailed assessment hearing on 19^th March 2018. No point was, or could have been, taken as to delay in taking this step. On the contrary, it was taken expeditiously. Again, an application for the disallowance of interest is not essential. An order could be made anyway, but again that is academic on the facts of the present case.

In the present case the final costs certificate is dated 5^th September 2018 (sealed on

As to the amount of the bill as assessed excluding the costs of assessment, the date of the order [i.e. the date of the order entitling the claimant to her costs which was the order sealed on 29^th December 2017]

And as to £20,018.39 being the costs of assessment, the date of this certificate.’

As to paragraph 1 of this part of the certificate, the Master was following the principle in Hunt v R.M. Douglas (Roofing) Ltd. [1990] 1 AC 398 that the entitlement to costs and interest on those costs under the Judgments Act 1838 ran from the date of the judgment awarding the party those costs (sometimes called ‘the incipitur date’) and not from the quantification of the costs by the assessment (sometimes called ‘the allocatur date’). As to paragraph 2 of this part of the certificate, the Master apparently saw no reason to depart from the presumptive position in r.47.20(6).

It is, perhaps, worth noting that the final costs certificate does not quantify the interest under either paragraph 1 or paragraph 2.

At 8% the Judgments Act rate of interest is very substantially higher than the commercial rate of interest (in 2015 described by Leggatt J. as 2% above the base rate of 0.5% - i.e. 2.5% - see Involnert Management Inc v Aprilgrange Ltd and others [2015] EWHC 2834 (Comm) at [9]). The problem is particularly acute in the case of costs which have yet to be subject to detailed assessment. In accordance with Hunt’s case, unless some other order is made, this very attractive rate of interest (from the point of view of the receiving party) will run from the date of judgment, even though at that stage, the paying party will not know how much is due. This has led some judges (including Leggatt J. in Involnert) to order that interest on costs at the Judgments Act rate will be postponed for a particular period and, instead, during that period interest will accrue at a rate nearer to the commercial rate.

In the present case, no such order was made. Accordingly, the default position in the Judgments Act itself governed the situation.

Mr Carpenter assembled his arguments under four headings:

Mr Carpenter stressed that Part 36 established a highly prescriptive regime and must be strictly complied with if a litigant wished to have the substantial benefits which could follow a successful Part 36 offer – see Gibbon v Manchester City Council [2010] EWCA Civ 726, [2010] 1 WLR 2081 CA at [4]. As Moore-Bick LJ there said, this approach was justified because a party who did not wish to be curtailed by the requirements of Part 36 was always free to make any other offer to settle the litigation. That is expressly acknowledged in r.36.2(2) and, by r.44.2(4)(c), when exercising any discretion as to costs the Court is required to take into account any admissible offer to settle which is not a Part 36 offer.

In addition, Mr Carpenter argued, to come within Part 36, the offer must not only conform to the formal requirements, but must also not conflict with the operation of the Part 36 regime. In support of this submission, he took me through the different versions of Part 36. They could be divided into three periods: (i) from 1999-2007; (ii) from 2007 – 2015; and (iii) from 2015 to the present.

Turning to the present version of the Rules, Mr Carpenter submitted:

Mr Carpenter argued that the offer was not a valid Part 36 offer to settle part of the claim (i.e. the principal sum exclusive of interest) for the following reasons:

The Master had relied on the Practice Direction to Part 47, but the Respondent accepted that a Practice Direction was only a weak aid to the interpretation of a Rule. It would be curious for a Practice Direction to a different part of the Rules to have a significant bearing on the meaning of Part 36.

Mr Carpenter accepted that the source of the power or duty to pay interest on the costs of a detailed assessment was the Judgments Act 1838, but, he submitted, that was immaterial. In substantive claims, interest could be claimed by a variety of means. There was nothing obviously particular or special about a claim to interest under the Judgments Act which merited distinctive treatment. It was the case that interest in a substantive claim had to be pleaded. Interest under the Judgments Act did not.

In his skeleton argument, Mr Williams had said, ‘It is now established that Part 36 offers may only relate to pleaded claims.’ He had relied on Hertel v Saunders [2018] EWCA Civ 1831, [2018] 1 WLR 5852 in which Coulson LJ had said,

Hertel was considered by the Court of Appeal in the recent judgment of Calonne Construction Ltd v Dawnus Southern Ltd. [2019] EWCA Civ 754 (a judgment given on 3^rd May 2019 only 4 days before the hearing of the present appeal). Asplin LJ succinctly summarised the issue in Calonne at [1] when she said,

It was in the context of the objection that the offer included reference to the unpleaded counterclaim that the appellant in Calonne relied on Hertel. As to this, Asplin LJ said at [41],

Asplin LJ also rejected the argument that the offer was invalid as a Part 36 offer because it included terms as to interest after the end of the relevant period – see [43][47].

Accordingly, Mr Carpenter submitted that the claim for interest could be ‘part of the claim’ even though it had not been pleaded as such in the detailed assessment proceedings.

He further submits that, if the Respondent is correct and interest is not part of a claim for the purposes of detailed assessment proceedings, a Part 36 offer in relation to such proceedings could not be inclusive of interest. Yet 47PD paragraph 19 on which the Respondent relies not only envisages that a Part 36 offer in relation to such proceedings may include interest, but that it will be assumed to do so unless the contrary is indicated.

In addition, he argues, if Judgments Act interest is not part of the claim, an offer such as the present one would be an offer in relation to the whole of the claim. The consequence of that would be that, if the offer was accepted, the whole of the proceedings would be stayed and the court would then have no power to deal with interest.

Mr Williams’ argument in this respect is simple. His primary contention is that r.36.5(4) does not preclude a Part 36 offer being made exclusive of interest. His first fall-back submission is to say if he is wrong about that, then he relies on the rule itself. On this hypothesis, Fieldfisher’s offer of 5^th March ‘is to be treated as inclusive of all interest’ and accordingly is valid.

Mr Carpenter submits that this argument should not succeed. Where there is genuine ambiguity in the offer then ordinary principles of construction will be adopted. These will include (so far as possible) interpreting the offer in accordance with the offeror’s intention, as objectively expressed (see for instance C v D [2011] EWCA Civ 646, [2012] 1 WLR 1962 CA). But what the Court cannot do is change the offer in a way that exceeds those ordinary principles of construction. Thus, for instance, C v D was distinguished in Shaw v Merthyr Tydfil County Borough [2014] EWCA Civ 1678 at [20]. Mr Carpenter argues that, if his interpretation of Part 36 is correct, the offer made in this case is simply not within Part 36 and r.36.5(4) cannot save it. In any case it would be unfair to the defendant to conclude that an offer which was ostensibly exclusive of interest should be interpreted as one inclusive of interest.

Mr Carpenter argues that it would not be a proper exercise of the court’s general discretion as to costs to award the Claimant either indemnity costs or enhanced interest. There is no principle that a court in exercising its general discretion can have regard to the fact that an offer to settle was made which was nearly, but not quite, a valid Part 36 offer. On the contrary, that would be a wrong approach.

Mr Carpenter refers me to F & C Alternative Investment (Holdings) Ltd v Barthelemy (No.3) [2012] EWCA Civ 843, [2013] 1 WLR 548. In that case there was multiple litigation between the parties which the defendants offered to settle. Since the structure of Part 36 was not directly applicable, the offer was expressly not a Part 36 offer. It was not accepted, but after the judge gave judgment in favour of the defendants, they argued (and the Judge accepted) that recourse could be had to part 36 by analogy when exercising the general discretion as to costs. Accordingly, the Judge ordered the claimant to pay costs of the defendants on an indemnity basis. The Court of Appeal reversed the Judge and the order for indemnity costs was set aside. At [56] Davis LJ said,

Davis LJ added at [63],

For essentially similar reasons, he also held that the judge’s award of a higher than usual rate of interest on the principal sum was likewise wrong in principle – see [80][88].

Mr Carpenter’s oral and written submissions were most impressive (as were those of Mr Williams). However, I have come to the clear conclusion that, at least in the context of detailed assessment proceedings, the Master came to the right conclusion.

I accept that this is an issue of the construction of the rules. Accordingly, the issue before me is not merely whether the Master was entitled to reach the conclusion he did, but whether he was correct.

Although both Mr Carpenter and Mr Williams began with the position in relation to litigation generally, it seems to me necessary and desirable to start with the context in which this particular offer was made, namely detailed assessment proceedings.

The part that interest plays in such proceedings is, in my view, qualitatively different from the part that interest plays in substantive litigation. As I have already observed, it is the original judgment which obliges the paying party to pay costs. Interest on those costs will ordinarily be payable from the date of that judgment until payment of those costs. In order to be entitled to such interest, the receiving party does not have to claim, plead or prove anything more in the detailed assessment proceedings. That is quite different from the entitlement to interest in substantive proceedings. Mr Carpenter is right that, in substantive proceedings, the source of the entitlement to interest can vary and sometimes the power to award interest derives from statute (such as Senior Courts Act 1981 s.35A), but these differences are significant and mean that it is not mere assertion on the part of Mr Williams that puts interest under the Judgments Act in a different category.

In detailed assessment proceedings what the Costs Judge has to determine is whether the receiving party has made good her entitlement to each of the items in her bill of costs, at least in so far as those items are challenged by the points of dispute. As I understand it, the bill of costs will not include interest: that is for the good reason that interest will follow once the assessment has been completed.

Again as I have shown, there is no power in the Costs Judge to alter the rate of interest payable under the Judgments Act, either on the assessed costs or on the costs of the detailed assessment itself.

Rule 47.8(3) and Rule 47.14(3) give the Costs Judge the power to curtail the period for which interest can be charged on the costs, but in each case that is only where the receiving party has been dilatory and the present case is not one where the claimant unduly delayed either in commencing the detailed assessment proceedings or in requesting a detailed assessment hearing.

So far as this case was concerned, there were no issues regarding interest which the Master had to decide. Rule 47.20 does not expressly adapt Part 36 to the nearest equivalents of pleadings in detailed assessment proceedings, but it is sensible to regard them as the bill of costs (the nearest equivalent to particulars of claim) on the one hand and the points of dispute (the nearest equivalent to a defence) on the other. As Coulson LJ said in Hertel it is sensible and efficient to look to the pleadings to identify the issues in the litigation. Calonne did not dissent from the proposition that this was a legitimate approach, once proceedings had begun.

Consequently, it seems to me that the offer which Fieldfisher made on 5^th March 2018 was indeed for the whole of the claim in the Detailed Assessment proceedings.

What purpose is then served by the words ‘excluding interest’ in the offer or are they in truth no more than mere surplusage? There is a purpose derived from 47PD.19. For convenience, I repeat its terms which are,

Thus, an offer (whether or not made pursuant to Part 36) which was silent as to interest would be taken to be inclusive of interest. ‘Interest’ in the context of these detailed assessment proceedings can only be a reference to Judgments Act interest. It is difficult to contemplate what other power in these proceedings to award interest could be relevant.

What was described to me as the leading textbook, Friston on Costs, says at paragraph 43.264,

Friston then sets out the possible alternative ways in which an offer to accept ‘£x exclusive of interest’ could be interpreted. He noted that Judge Robert Owen QC in Nottingham County Court in Potter v Sally Montague (7^th October 2016) concluded that such an offer was not a valid Part 36 offer. Friston adds at paragraph 43.267,

There are dangers in ‘going off script’ when making an offer which the offeror wants to attract the advantages of Part 36. Part 36 is prescriptive as Shaw v Merthyr Tydfil illustrated. But the problem in that case was with the solicitors’ use of an out-of-date precedent whereby the offer included terms which were inconsistent with the then current mandatory requirements and did not include the language which was required – see [16]-[17]. So, too, the offer in James v James [2018] EWHC 242 (Ch) included a term as to consequences of acceptance which differed ‘(albeit not by very much)’ from what the rules provided. Consequently, this, too, was not a valid Part 36 offer – see [12].

But while Part 36 is prescriptive, no case cited by Mr Carpenter suggested that the inclusion of additional words which did not conflict with the mandatory requirements or the operation of the scheme (to the extent that that is different) would mean that an offer was not a valid Part 36 offer.

I recognise that flexibility must be allowed for anticipated issues. Thus, a paying party who did expect to raise an issue about delay and to ask for an order under r.47.8 or 47.14 could conceivably wish to make an offer that did (or did not) take account of the adjustment on interest. Likewise, if an issue about interest was in contemplation, a receiving party may wish to make an offer which did (or did not) include interest. I stress that is not this case because interest simply was not going to feature in what the Master had to decide.

In my judgment, the right analysis is as follows:

However, if I am wrong about this and interest ought to be regarded as a part of the claim, or an issue in the claim my conclusion would still be that the Master was still right to regard Fieldfisher’s offer as a valid Part 36 offer since it was, on this assumption an offer to settle part of the claim, namely the principal sum in the detailed assessment proceedings, but not interest. None of Mr Carpenter’s arguments persuaded me to the contrary.

Given my conclusions, Mr Williams has no need to have recourse to his fall-back arguments. It is sufficient for me to say that, in regard to them, I see considerable force in Mr Carpenter’s responses. First, to treat the offer made by Fieldfisher as inclusive of interest would stand the process of contract interpretation on its head. That is simply not what the offer said, nor what its objective intention was. It also seems to me that the remarks of Davis LJ in F & C Alternative Investment are a formidable obstacle to the argument that I should exercise my general discretion as to costs so as to allow the Claimant indemnity costs and/or enhanced interest.

Nonetheless, for the reasons that I have given, this appeal is dismissed.