Has The Claimant Beaten Its Part 36 Offer? Perhaps Not As Simple As It Looks.

 By Colin Richmond

Purrunsing v A’Court & Co (A Firm) [2016] EWHC 1528 (Ch)

HHJ Pelling QC considered whether, when considering if a claimant had beaten its Part 36 offer, the court should simply compare the amount of the judgment with the offer the claimant had made or if account should be taken of the interest that had accrued in the period leading up to the trial.

Facts

The claimant, having been successful at trial, was awarded the sum of £470,000 plus interest of £48,983.01, a total award of £518,983.01. Judgment was handed down on 14^th April 2016.

The claimant had made an offer to settle on 20^th May 2015 in the sum of £516,000, inclusive of interest.

The court held a separate costs hearing, to include determining whether or not the claimant had beaten its Part 36 offer.

The Point of Interest – Had The Claimant Beaten Its Offer?

11. Mr Flenley submits that in deciding whether this should be the outcome it is necessary to deduct the interest that has been awarded between the date 21 days after the Part 36 offer was made and the date of judgment and determine whether the offer has been bettered by the claimant by reference to the resulting figure. It is submitted that if this exercise is carried out correctly then it becomes apparent that the claimant has recovered less than his effective Part 36 offer and the enhanced costs provisions are of no application. Mr Hale adopts this submission so far as HOC is concerned. Mr Marshall on behalf of the claimant submits that this is an impermissible approach and that all that is required is to compare the sum offered on 20 May 2015 with the sum inclusive of interest that the claimant was left with at the date when judgment was given and if the latter figure is higher than the former then the claimant is entitled to an enhanced costs order.

The Decision – Interest Must Be Taken Into Account

14. The factual basis of Mr Flenley’s submission is relatively straight forward. He says that in this case the last date for acceptance of the operative Part 36 offer was 10 June 2015, being the date identified by CPR r.36.5(1)(c). This is common ground and is correct given the terms of the offer letter. Judgment was handed down on 14 April 2016. This too is not in dispute. There were thus 309 days between the two relevant dates and Mr Flenley submits that it is necessary to deduct 309 days interest from the judgment sum (inclusive of interest) in order to test whether the claimant has done better than the offer. Mr Flenley submits that the interest inclusive judgment sum is £518,983.01. This again is common ground. Mr Flenley submits that the correct rate to adopt for the exercise he submits must be carried out is 3% being the interest rate that I directed should apply. I do not understand Mr Marshall to disagree with this point. In any event in my judgment it is correct for reasons that are obvious and results in a figure of £11,936.71. If this sum is deducted from the interest inclusive judgment sum then the resulting figure is £507,046.30. That being so, it is submitted that the offer sum was greater than the properly adjusted judgment sum and thus the claimant is not entitled to recover enhanced costs. I do not understand Mr Marshall to disagree with any of this if otherwise the approach is a correct one. As I have said already, his submission is that this approach is wrong in principle and that the only proper approach is to compare what was offered with what has been awarded and if what has been awarded is greater than what had been offered then that triggers the entitlement to an enhanced costs order.

15. In my judgment Mr Marshall’s submission is mistaken and must be rejected. My reasons for reaching that conclusion are as follows. As is apparent from the extract from the Rules set out above, by CPR r.36.5(4) a Part 36 offer to pay money is deemed to include all interest down to the date when the relevant period for acceptance of the offer expires. In order to work out whether a judgment is more advantageous than such an offer it is necessary to ensure that the offer or the judgment sum is adjusted by eliminating from the comparison the effect of interest that accrues after the date when the relevant offer could have been accepted. In my judgment this is the effect of the words “… better in money terms …” in CPR r. 36.17(2). If that is not done then comparing the offer with the judgment is not comparing like with like and thus it is not possible to assess whether the judgment is “… more advantageous …” in money terms than the offer. Interest compensates for the loss of use of money over a given period. In theory at least interest that accrues due for the period between the last date when the offer could have been accepted and the date of judgment is neutral and so immaterial in deciding the question whether a subsequent judgment is “… more advantageous …” than a previous offer. The only interest that is material is that included or deemed included within the offer.

16. If it was otherwise then whether an offer from a claiming party should be accepted by a defending party would depend not on an analysis of liability in respect of the claim but what in many cases will be entirely unpredictable namely the date when a trial takes place and what is perhaps even more unpredictable, when judgment will be handed down. An enhanced costs order is draconian in effect. Particularly draconian is CPR r.36.17(4)(d), which provides for the payment of an additional amount not exceeding £75,000 which is arrived at by applying a percentage to the sum (including interest) that has been awarded by the Court. It is in the highest degree unlikely that it was intended that the applicability of the enhanced costs regime would depend on an entirely random event such as when judgment would be given following a trial.

17. Although Mr Flenley’s methodology is one way of arriving at the point at which advantageousness can be assessed, another way of arriving at the same point would involve taking the principal adjudged due (in this case £470,000) and adding to that interest at the rate adjudged applicable following the trial (here 3%) for the period down to the date by which the offer had to be accepted (here 10 June 2015). If this methodology was adopted in this case then the outcome would be the same for the reasons identified by Mr Hale in paragraph 14.7 of his written submissions.

18. In those circumstances, I conclude that the claimant is not entitled to recover enhanced costs by reference to CPR r.36.17 as against ACC. The relevant Part 36 offer was sent to both defendants at the same time. Although an additional sum of £3,787.84 was recovered by the claimant as against HOC it is not suggested that made any practical difference once it is accepted that the assessment requires adjustment as described above. In those circumstances the discretionary issues that would otherwise have arisen had the enhanced costs regime applied do not arise.

The judge commented felt that the enhanced costs envisaged by Part 36 should not depend on an entirely random event such as the date when judgment would be handed down after trial. A further dose of pain was added for the claimant when the judge, unimpressed by the claimant having caused significant additional work in relation to the costs hearing to consider the indemnity costs point, ordered them to pay a percentage of the defendant’s costs in relation to that hearing.

The full judgment can be found here:

http://www.bailii.org/cgi-bin/format.cgi?doc=/ew/cases/EWHC/Ch/2016/1528.html&query=(purrunsing)