Costs News

19 December 2019
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Courts give little ground in challenges to maximum interest awards for beating part 36 offers

Efforts to challenge the maximum 10% above base interest on costs awarded to parties who beat their part 36 offers have gained little traction in two recent cases.

In one, the judge made it clear that such appeals should not usually be brought.

In Essex County Council & Ors v Davies & Ors [2019] EWHC 3443 (QB), the nine claimants/respondents were each awarded damages of between £7,000 and £15,000 for injuries arising out of carbon monoxide poisoning; six of them beat their part 36 offers and were awarded the CPR 36.17(4) consequences. As part of their appeal, the defendants/appellants argued that the award of interest on costs at 10% above base was penal and unreasonably high.

Mr Justice Saini rejected four grounds of appeal, including the argument that it produced a windfall to some of the respondents or their solicitors. “There is always a risk that the costs orders which follow under CPR 36.17 will provide an enrichment beyond actual loss. Indeed, the paradigm is the 10% additional sum under CPR 36.17(4)(d)(i) (as was awarded, without appeal, in this case).

“It is the deterrent effect (not just financial recompense) which motivates a court in making these orders. The judge was entitled to make the award which was ultimately based on fairness to the respondents who were faced (as will appear below) with appellants who adopted what he considered was an aggressive scorched-earth approach to this litigation.”

The appellants also said it was unjust to order interest on legal costs before judgment when the respondents, having engaged their lawyers on a conditional fee basis, were not obliged to pay the fees until after judgment.

Saini J said: “I reject that argument. First, there is nothing disapplying the rule in such cases (and indeed even those who are publicly funded may benefit from the rule: KR v Bryn Alyn Community (Holdings) Limited [2003] EWCA Civ 383). Further, the respondents did in fact incur substantial expenses by way of disbursements.”

He added that the judge was well within his discretion to order the maximum 10% over base: “His view of the poor conduct of the appellants amply justified his orders as a proportionate response.”

Saini J concluded by emphasising the observation of the Chancellor of the High Court, Sir Geoffrey Vos, in OMV Petrom SA v Glencore International AG [2017] EWCA Civ 195. In that case, the Court of Appeal held that the power to award interest on costs (and the enhancement of the rate) was not to be exercised on a purely compensatory basis and a court was to be guided by the aim of achieving a fair result for the claimant.

Sir Geoffrey said: “I should not leave the case without saying that, in my judgment, appeals on issues of the kind raised in this case should in future be rare. The judge’s discretion as to the appropriate rate of enhancement under part 36.14(3) is a wide one as I have explained and I would not expect the Court of Appeal often to be persuaded to interfere with it.”

Saini J said: “Those comments apply with substantial force to this costs appeal.”

Meanwhile, in Kivells Ltd v Torridge District Council [2019] EWHC 3210 (TCC), the claimant easily beat his part 36 offer of £250,000 and His Honour Judge Russen QC – sitting as a deputy High Court judge – was not persuaded to disapply the CPR 36.17(4) consequences.

That left him to decide the rate of interest to be applied both on the judgment sum and the indemnity costs element for the period after the offer expired.

The claimant argued for the full 10% – saying the council should have accepted the offer, which was nearly half of what was awarded – while the defendant said it should be no more than 6%. The defendant said the notes in the White Book contained reference to only one decision where the 10% was awarded, and that was in a case where the paying party had not only not accepted the part 36 offer but had also failed to do so in the context of advancing a dishonest and unreasonable case.

HHJ Russen said this did not mean that 10% could not be awarded where those factors were absent but he was persuaded that it was not a maximum 10% case – or one for just 6%.

He said: “In my judgment the appropriate rate of interest [is] 8% which matches the judgment rate of interest. To the extent one can apply analysis and logic to a discretionary figure, I am influenced in coming to this conclusion by the thought that the claimant should be entitled to be treated as if it had been in the position of a judgment creditor now that it has more than vindicated itself by the recovery under my judgment when compared to what was advantageously offered to the defendant by the part 36 offer.

“The essential thrust of CPR 36.17(4), in such circumstances and assuming normality prevails, is to put the rejected offeror into a different, superior class of judgment creditor in relation to the period beginning with the expiry of his offer. And the essential basis for that can be said to be the reflection, in hindsight, that the litigation should by then have been concluded with recognition of his entitlement.”

HHJ Russen said it was clear that the claimant could be awarded interest at a rate which proved to be more than compensatory. “In modern times it might be said that judgment rate of 8% produces, at least in some cases, an element of over-compensation. Whether or not that is so, I have concluded in this case that it is right to award that rate to the claimant for the period of its superior entitlement as if it was then entitled under a judgment rather than simply looking to the court’s discretion for the recovery of a less generous commercial or compensatory rate over the pre-judgment period.”

In Essex, Craig Carr (instructed by Essex Legal Services) for Essex County Council and The Governing Body of Sawyers Hall College, Adam Chambers (instructed by Weightmans) for Havering College of Further and Higher Education, and Catherine Foster (instructed by Slater & Gordon) for the respondents.

In Kivells, John De Waal QC appeared for the applicant and Raj Sahonte for the respondent.


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