The judgment of HH Judge Pelling QC in Purrunsing -v- A’Court & Co (a firm)  EWHC 1582 (Ch) considers the impact of interest on a claimant’s Part 36 offer. Should the court simply compare the offer with the sum awarded at trial or should it take into account the interest that has accrued in the supervening period?
“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.”
- In considering whether a claimant had “beaten” its own Part 36 offer the Court ignored the interest that had accrued since the date of the offer.
- So when the offer was £516,000 and the award at trial £518,983.01 the claimant had not “beaten” the offer because the only reason the award was higher was the accrued interest.
- The claimant’s arguments seeking indemnity costs had led to unnecessary expense and the claimant was ordered to pay a percentage of the defendants’ costs of the hearing.
- The claimant had succeeded at trial and recovered £470,000 plus interest of £48,983.01. Totalling £518,983.01.
- On the 20th May 2015 he had made an offer to settle in the sum of £516.,000 inclusive of interest.
- The court held a separate hearing to deal with the issue of costs, including the question of whether the claimant had beaten its own Part 36 offer.
THE ISSUE IN RELATION TO PART 36
The issue was whether the court should find that the claimant had done “better” than the Part 36 offer.
“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 IS TAKEN INTO ACCOUNT
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.
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.
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.
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.
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.
A STING IN THE TAIL: THE COSTS OF THE HEARING TO ARGUE COSTS
The issue of costs was considered at a separate hearing. The judge ordered the claimant to pay a percentage of the costs of that hearing. Much of time spent at the hearing involved the claimant’s (unsuccessful) application for indemnity costs. The claimant had made an application for indemnity costs independent of the argument in relation to Part 36.
Following the delivery of this judgment in draft to the parties, Mr. Hale applied for an order that the costs of and occasioned by the hearing on 27 May 2016 should be paid as to 50% by ACC and 50% by the claimant on the basis that HOC had succeeded in resisting the claim for costs to be assessed on the indemnity basis made by the claimant and against ACC in relation to the costs of the contribution proceedings. This stimulated both the claimant and ACC to submit that there should be no separate order in respect of the costs of the argument on 27 May, and ACC to submit in the alternative that the costs should be disposed of by an order requiring the claimant to pay 80% of the defendants’ costs and ACC 20% of HOC’s costs of the argument on 27 May.
In my judgment the hearing on 27 May was unnecessary and in consequence generated unnecessary and avoidable cost. The issues that arose could have been dealt with in a fraction of the time and at a fraction of the cost if they had been determined orally at the hand down of the judgment, as they should have been. If that was not possible because of the non-availability of Mr. Flenley, then the issues that arose could have been disposed of more quickly and at significantly less cost on the basis of written submissions, and in any event the hearing was needlessly over elaborate. It generated a lever arch file of authorities, comprehensive written submissions and lengthy oral submissions that lasted 5 1/2 hours. In reality, if the issues had to be determined at an oral hearing at all, the arguments that arose should have been dealt with in half that time.
Mr Marshall informs me that he suggested to the defendants that the remaining issues were ones that could be addressed on paper but that the defendants rejected this proposal. The defendants have not disputed this. That said, the points made by Mr. Marshall would have had more force had most of the hearing not been taken up with a problematic application for the claimant’s costs to be assessed on the indemnity basis that failed. It had been open to the claimant to avoid the costs of the 27 May hearing by not making that application.
In those circumstances, I consider that all parties are responsible for the 27 May hearing taking place. In those circumstances, I am satisfied that a costs order ought to be made in respect of that hearing and, in the circumstances, I am satisfied that in principle, issue based provision ought to be made for the costs of the 27 May hearing.
In my judgment as between the claimant and HOC, the claimant ought to meet 50% of HOC’s costs of and occasioned by the 27 May hearing. As best I can judge it that portion of HOC’s costs of the 27 May hearing is properly attributable to the indemnity costs issue. Whilst in the end both defendants made essentially the same point that does not mean that HOC should not recover its costs of resisting the application made by the claimant against it since assessment on the indemnity basis was sought against by the claimant against HOC and HOC was put to the trouble of resisting that application and did so using a different method to that advocated by ACC.
As between ACC and the claimant, in my judgment ACC ought to recover 40% of its costs of the 27 May from the claimant. I reach that conclusion because I consider that the claimant is entitled to recover his costs of successfully resisting ACC’s application that the claimant should be deprived of some of its costs because he had pleaded an issue that was subsequently abandoned. The costs relevant to that issue were limited however, which is why I have dealt with it in that way.
HOC ask me to assess its costs of the 27 May hearing and I do so in the sum identified by HOC in its revised costs schedule for the 27 May hearing. I arrive at the conclusion that the sum claimed is both reasonable and proportionate and is the correct sum claimed because I accept the submissions made by Mr. Hale in support of that contention. However, I direct that no sum shall be recoverable by HOC from the claimant until after agreement or completion of the detailed assessment of the claimant’s costs and that the sum due from the claimant to HOC shall be set off against the sums due to the claimant by way of costs from HOC. The sum due to HOC from ACC shall be paid within 14 days of the date of the final order in these proceedings. The costs that ACC is entitled to recover from the claimant will be the subject of detailed assessment. Again there will be a direction that the sum found recoverable by ACC will be set off against the sums due to the claimant from ACC. However, there is a difficulty about this identified by Mr Marshall. ACC is indemnified only in respect of 90% of the sums found due from them to the claimant. Clearly if there are sums due to the claimant from ACC that have not been paid or which ACC says it will not or cannot pay at the date when the set off is applied then to apply the set off without taking account of what is due but unpaid or cannot or won’t be paid would unfairly penalise the claimant. In those circumstances, the best course is that any sum due from the claimant to ACC should be calculated net of any sum due from but unpaid or which won’t or cannot be paid by ACC at the date of the calculation. “
RELATED POSTS: PART 36
- Part 36: additional amounts and interest.
- Indemnity costs on appeal after Part 36 offer.
- Costs should not normally be reduced when a claimant beats their own Part 36 offer: Court of Appeal decision.
- Part 36: the costs consequences of late acceptance
- Part 36 offer did not encompass payment on account
- Fixed costs and Part 36: the judgment in the Court of Appeal.
- Lord Chancellor gets a bonus: the powerful results of a claimant’s Part 36 offer.
- Not a racing certainty: but indemnity costs follow claimant’s Part 36 offer.
- Part 36: when the normal costs penalties may not apply
- Is this a claimant’s or defendant’s offer? Another important decision on Part 36
- Clarification of a Part 36 offer has a major effect on costs.
- Costs where a claimant accepts a Part 36 offer late: two cases where the claimant came to grief
- Another case where there was an invalid Part 36 offer
- Is this a Part 36 offer I see before me? That’s an important question
- How relevant are Part 36 offers to issue based orders?
- Knowing the risks and advantages for the claimant in the new Part 36.
- The costs consequences of Part 36 offers: do they always apply? The cases in detail.
- Costs consequences of Part 36 offers: some interesting examples
- Costs, conduct, Part 36 and the “Winning Party”.
- Interest and costs when a claimant beats their own Part 36 offer.
- Costs of £7 million: Part 36 bites hard on claimants who cleared a first hurdle but fell at the second.
- Claimant beats own Part 36 offer and receives an additional £75,000 in damages.
- The dangers of a Part 36 offer: Claimant pays three times more in costs than he receives in damages.
- Another example of a successful defendant not recovering all of its costs (and of the advantages of a Part 36 offer).
- Percentage costs orders after a claimant beats their own Part 36 offer: a High Court decision.
- Very important decision on Part 36 offers, assessment of costs and additional amounts when offers not beaten.
- Increased interest and costs after claimant beats its own Part 36 offer.
- Part 36 offer does not override the need to serve the claim form.
- Part 36: Indemnity costs when a defendant accepts out of time.