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29 December 2020
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The benefits of Part 36: all or nothing or some?

As a Costs Lawyer one of the topics I like to bore my solicitor clients with is Part 36 and its wider implications. Used correctly a well thought through approach to Part 36 offers can see early resolution of disputes and considerable costs savings, and in the absence of a resolution a well-pitched Part 36 offer can provide for a range of enhancements for a claimant at trial.

Should a claimant beat its own Part 36 offer at trial CPR r36.17(4) stipulates that a court must, unless it considers it unjust to do so, order that the claimant is entitled to:

  1. Interest on the whole of any part of the sum awarded, at a rate not exceeding 10% above the base rate;
  2. Costs on the indemnity basis;
  3. Interest on those costs at a rate not exceeding 10% above the base rate; and
  4. An additional amount, which shall not exceed £75,000.00.

The benefits of making a well-judged Part 36 offer early are thus potentially substantial.  However, the pesky caveat of ‘unless it considers it unjust to do so’ does allow some muddying of the waters. 

In Telefonica UK Ltd -v- The Office of Communications [2020] EWCA Civ 1374 the Court of Appeal provided clarification as to what enhancements are to be awarded to a successful claimant who has beaten its own Part 36 offer following judgment and how the ‘unjust to do so’ caveat should be applied.

In this high value action concerning the restitution of annual licence fees paid to the defendant, the claimant submitted an early Part 36 offer at the same time as their letter of claim. A further revised Part 36 offer was submitted to the defendant following the Supreme Court decision in Prudential Assurance Co Ltd-v- Revenue and Customer Commissioners [2018] UKSC 39 which was net of any interest on the offer’s amount. Neither Part 36 offer was accepted by the defendant.

At the subsequent trial, the claimant obtained judgment for the full amount of its claim of approximately £54,380,000, plus simple interest of approximately £3,000,000. To quote the relevant rule in CPR 36.17(4), the claimant had obtained a judgment at least as advantageous to them as the proposals contained in their Part 36 offer.

It thus followed that the trial judge must, unless he considered it unjust to do so, order that the claimant was entitled to the benefits set out in CPR r.36.14(4).  In determining whether it would be ‘unjust’ to make such awards the trial judge was directed by CPR 36.17(5) to take into account all the circumstances of the case; with particular emphasis on the stage in the proceedings at which the Part 36 offer was made, the conduct of the parties in respect of information provision regarding the offer and whether the offer was a genuine attempt to settle the proceedings.

Awards were duly made for an additional amount of £75,000 plus costs on the indemnity basis.  However, awards of indemnity interest on judgment and costs were not made.  In not making such awards the trial judge highlighted the lack of unreasonable conduct by the defendant, the very small discount from the full sum claimed the Part 36 offers represented and the ‘all or nothing’ nature of the litigation. To award enhanced interest would ‘be disproportionate, and accordingly unjust’ given the sanctions already imposed on the defendant.

This reasoning was comprehensively rejected by the Court of Appeal. It was determined that the trial judge had taken into account irrelevant considerations, such as the issue of disproportionality in deciding not to make awards under CPR 36.17(4) and the high value of the Part 36 offers made relative to the claim value. The latter has rather helpfully been addressed by the introduction of CPR 36.17(5)(c) in April 2015 – which established that a Part 36 offer only needed to be a ‘genuine offer to settle’ for the benefits of beating it to come into play. The trial judge had already conceded that the Part 36 offers were genuine attempts to settle the action.

Fundamentally the Court of Appeal ruled that there is ‘no suggestion that the award of one [enhancement] in any way undermines or lessens entitlement to the others’. 

It was thus wrong that as a result of the first instance decision, the claimant had been left no better off in respect of interest awarded, than had it not made their Part 36 offers at all. This was rectified by the Court of Appeal which awarded the claimant an additional 1.5% interest on the judgment sum and costs.

Interestingly, it was determined that there had been a misapplication of judicial discretion.  The trial judge had wrongfully determined that he had discretion over what would be ‘unjust’ outside the scope of CPR r36.17(5), concluding that he could choose not to award any enhanced interest, and failed to apply his discretion over the rate of enhanced interest. Whilst CPR r36.17(4) allows for interest up to 10% above the base rate, it was well within the trial judge’s discretion to award a low or even nominal enhanced rate of interest. Thus whilst the courts may have their discretion as to whether to make an award under CPR r36.14(4) curtailed, the level of the award through the rate of interest is subject to their discretion.

The case provides welcome clarification in respect of the relationship between CPR r36.17(4) and (5), assisting all practitioners in assessing likely benefits coming their clients’ way should a well judged Part 36 offer be beaten at trial.  However, the conclusion we can all draw from it is (as always with Part 36) if you can, make sensible and early Part 36 offers and your clients will reap the benefits.  My advice to my own clients, that time spent determining an appropriate Part 36 strategy is rarely wasted, will certainly not be changing!

This article appeared in Practical Law Dispute Resolution Blog on 22 December 2020 and was written by Adam Grant, Council member of the Association of Costs Lawyers

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