A Part 36 offer must never be rejected lightly. Subsequent failure to better a Part 36 may result in you paying the other party significant enhanced reliefs.

 

CPR 36.17(4) lists potential forms of enhanced relief should a Part 36 be beaten as follows:-

 

  1. Interest on the whole or any part of any sum of money awarded (excluding interest) at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the Part 36 relevant period expired CPR 36.17(4)(a);
  2. Costs (including any recoverable pre-action costs) on the indemnity basis from the date on which the relevant period expired CPR 36.17 (4)(b);
  3. Interest on those costs at a rate not exceeding 10% above base rate CPR 36.17 (4)(c); and
  4. An additional (punitive) amount, which shall not exceed £75,000 (as calculated by reference to CPR 36.17 (4)(d))

 

In the instance where a paying party rejects a receiving party’s properly made Part 36 offer, the paying party will likely have to pay the above amounts in addition to the judgment amount. This is the probable consequence of not accepting a receiving party’s Part 36 offer which would have disposed of the claim earlier on and therefore been on more advantageous terms for the paying party.

 

In considering whether it would be unjust to make the awards, the Court must take into account all of the circumstances of the case as outlined at CPR 36.17(5):

 

  1. the terms of any Part 36 offer;
  2. the stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made;
  3. the information available to the parties at the time when the Part 36 offer was made;
  4. 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; and
  5. whether the offer was a genuine attempt to settle the proceedings.

 

If the Court decides that it would be unjust to make the usual order under Part 36, it has wide-ranging powers when exercising its discretion as to costs under CPR 44.2.

 

These aspects of enhanced reliefs were considered in a recent Court of Appeal case; Telefonica UK Ltd v The Office of Communications [2020] EWCA Civ 1374.

 

At trial, the Claimant obtained judgment for £54,379,489.05 together with interest of £2,995,007.55, a more advantageous judgment was therefore obtained than the two previous Part 36 offers made by the Claimant early on in the litigation; thereby satisfying CPR 36.17(b). The trial Judge awarded two out of the four specified forms of enhanced reliefs; ordering the Defendant to pay £75,000.00; being the capped punitive amount pursuant to CPR 36.17(4)(d) and in addition, costs on the indemnity basis (CPR 36.17(4)(b). However, the trial Judge refused to award additional interest on either the judgment sum or costs (CPR 36.17(4)(a) & (b).

 

In determining that it would be unjust to make such awards, the trial Judge considered the circumstances of the case pursuant to CPR 36.17(5) including (i) the binary nature of the dispute (ii) the conduct of the proceedings and (iii) the very high numbers that an award of enhanced interest would produce. Notwithstanding a finding that the Claimant’s Part 36 offers were genuine offers to settle, (even though they only represented a small reduction from the total alleged claim value), the trial Judge considered that enhanced awards of interest would be unjust. The concluding basis upon which the additional enhancement for interest was rejected was on the basis of the amount being disproportionate ‘and accordingly unjust, to impose this further sanction on Ofcom…’ (para 30) with reference to the other two smaller sums also having been awarded.

 

With regard to interest on costs; the decision was made on the basis of the parties conduct;

 

“I do not consider that it was conducted in any unreasonable way. I do not consider the costs that were incurred were necessarily enlarged because of the way in which the case was conducted. In those circumstances, given, as I said, the further factors which I have already referred to, I do think that it would be unjust to award an additional uplift of interest on those costs.” (para 31)

 

The Claimant appealed this decision citing CPR 36.17(5) and disputing that any of the considered factors when failing to award the additional enhancements rendered the potential awards as ‘unjust’. The main challenge to the judgment however was on the trial Judge’s failure to apply discretion as permitted on the level of interest to be awarded which would have enabled the Judge to award a more proportionate amount of interest.

 

The Court of Appeal overturned the original decision not to award additional interest on damages and costs in a case where a claimant had beaten its Part 36 offer. It was Lord Justice Phillips who found that the trial Judge had erred in not awarding enhanced interest on costs and interest:

 

“I see no justification for the Judge’s approach of treating the award of the additional amount of £75,000 and of indemnity costs as factors rendering it unjust also to award enhanced interest on the principal sum, whether as a matter of “proportionality” or otherwise. The rule provides for the successful claimant (in the terms of CPR 36.17(1(b)) to receive each of the four enhancements and there is no suggestion that the award of one in any way undermines or lessens entitlement to the others. In this case the Judge regarded the award of the two more trivial enhancements as a reason why it was unjust to award the major enhancement. I consider he was not entitled to do so.” (para 46)

 

“I would allow the appeal and award the claimant enhanced interest on both the principal sum awarded and its costs. Exercising the discretion in that regard afresh and taking into account all relevant circumstances (including those identified by the Judge in refusing to make any award of enhanced interest) I would award an additional 1.5% per annum (equating, as I understand it, to about £900,000), making the total interest payable 3.5% above base rate, on both principal and costs, from the relevant date.”

 

This judgment makes clear that in circumstances where the Claimant has beaten its own Part 36 offer and the Claimant’s offer to settle was a genuine offer, and if it would not otherwise be unjust to do so, the Claimant will be entitled to the full range of enhanced reliefs under CPR 36.17(4).

 

This case makes very clear the impact of enhanced reliefs. They were very significant in this case and the failure to accept the Claimant’s offer(s) therefore cost the Defendant an eye watering sum in addition to damages.

 

This case mirrored Hochtief (UK) Construction Limited, Volkerfitzpatrick Limited v Atkins Limited [2019] EWHC 3028 (TCC) in terms of the enhanced reliefs. The Claimant made a Part 36 offer to settle of £875,000 early on in the dispute. Two years later, the matter proceeded to trial and the Claimant obtained judgment in the sum of £879,848, beating their Part 36 offer by just £4,848.

 

In this case, Mrs Justice O’Farrell ruled:

 

“… it would not be unjust to apply the provisions of CPR 36.17 in this case. The terms of the offer were clear. The part 36 offer was made at a very early stage in the proceedings, after the letter of claim but before the issue of the formal claim. By that time, extensive investigations and remedial works had been concluded. The parties had sufficient information to make an informed judgment as to the merits of the case. The offer was at a level that indicated it was a genuine attempt to settle the dispute.”

 

Once again, we see that the consequence to the Defendant of not accepting the Claimant’s Part 36 offer is substantial.

 

Clearly, Part 36 offers can be used tactically to apply pressure towards settlement. However, it must be remembered that Part 36 offers must be reasonable. This should be a stark warning that Part 36 offers should always be seriously considered. Failure to beat a Part 36 can leave the paying party liable to substantial additional sums, with the courts willing to apply the reliefs for which a receiving party is entitled when efforts are made to conclude a case early on. As these two cases clearly show, Part 36 offers are very effective and powerful and must never be underestimated.

 

You need to give your opponent a difficult decision to make.

 

If we can assist you with any queries regarding Part 36 offers, formulation of the same or recovery of the additional sums, please don’t hesitate to get in touch with one of the team for a further discussion   

Return to Knowledge Base