Those who are regular recipients of our Legal Updates will recall that the making of settlement offers, in particular Part 36 offers to settle, are often something that should be considered when conducting litigation on many sorts of disputes. A Part 36 offer is a tactical form of offer to settle which can influence whether a dispute continues or not due to the potential imposition of significant penalties upon a defendant party where the claimant party receives an outcome equal to or better than their own Part 36 offer made to try and settle the claim.

Following on from our recent Legal Update on the various forms of settlement offers (see here), the Court of Appeal in the case of Telefónica UK Ltd v Office of Communications [2020] EWCA Civ 1374 has given further guidance for a Court when applying its discretion under CPR 36.17(4), and a further warning of the costs and interest consequences of failing to beat a claimant's Part 36 offer at a final hearing.

CPR 36.17(4)

Part 36.17(4) of the Civil Procedure Rules (the rules governing conduct of parties within the Court) (“CPR”) provides that where a claimant has obtained judgment against a defendant which is at least as advantageous as the proposals contained in a Part 36 offer made by the claimant, the court must, unless it considers it is unjust to do so, order that the claimant is entitled to four points of enhanced relief:-

(a) Interest on the whole or part of any sum of money (excluding interest) awarded, at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired;

(b) Costs (including any recoverable pre-action costs) on the indemnity basis from the date on which the relevant period expired;

(c) Further Interest on those costs at a rate not exceeding 10% above base rate;

(d) Provided that the case has been decided and there has not been a previous order under this sub-paragraph, an additional amount, which shall not exceed £75,000.

The case itself

The case is not strictly a property case but remains relevant to all types of claim where a Part 36 Offer is made or should be considered.

Telefónica’s claim was for restitution of annual licence fees paid to Ofcom between 2015 and 2017. Telefónica was awarded the full amount of its principal claim, plus simple interest at 2% above base rate. As the outcome of the claim had resulted in a judgment in excess of Part 36 Offers Telefonica had made to Ofcom earlier within the proceedings the Judge then heard argument on what additional relief should be awarded to Telefónica under CPR 36.17(4)

The original Judgement - applying CPR 36.17(4)

Two Part 36 offers were made by Telefónica during the case, both of which were exceeded by the eventual Judgment. The Court ordered some relief (indemnity costs and £75000 - (b) and (d) above), but not all four of those available under CPR 36.17(4) (it did not award enhanced interest on the principal sum awarded / legal costs - (a) and (c) above).

The Judge declined to award enhanced interest on the principal sum / legal costs, because, in the Judge’s view, to impose that further and sizable sanction on Ofcom would be disproportionate, and accordingly unjust in circumstances in which the Judge did not regard Ofcom’s conduct as unreasonable, albeit misguided in running the litigation. Further, the Judge considered that as the Part 36 offers were only a modest discount from the full sum claimed, the award of both indemnity costs and the £75,000 penalty was proportionate.

That decision to exclude enhanced interest on the principal sum awarded and on the legal costs ((a) and (c) above) was what was appealed by Telefónica.

The Court of Appeal decision

It was noted that the original Judge did not consider that the factors he identified rendered it unjust to award Telefónica both indemnity costs and the maximum additional sum. Indeed, in relation to indemnity costs, the original Judge considered that the “normal Part 36 approach” ought to be engaged, and that the “standard consequence” was an indemnity costs order. In that context, the question arose as to why the position was any different in relation to the award of the other standard consequences, namely the award of additional interest on the principal judgment and on the costs.

The Court of Appeal disagreed with the original Judge’s refusal to exercise his discretion to award enhanced interest on the principal sum awarded / legal costs. Whilst it had a discretion in the percentage amount of interest it could award, once the Court had found that the Part 36 offers were genuine attempts to settle, as here, there was no justification for not awarding interest in principle, given the outcome of the case and the two Part 36 offers made which beat the Judgment awarded. Further, the Court could not say that it would decline to order other elements of CPR 36.17(4) on the basis that some elements had been ordered.

In respect of enhanced interest on costs, the Court of Appeal found that the original Judge’s finding, that reasonable conduct on the part of the defendant was sufficient, in itself, to render it unjust to make an award at all, was wrong.

In summary, although the original Judgment accepted that the claimant was entitled to enhanced relief under CPR 36.17(4), the effect of that Judge’s decision was to deprive Telefónica of any significant enhancement under that rule, doing so on the basis of a combination of factors which did not give rise to injustice as contemplated by the Part 36 rules and so did not justify that exclusion. Although the decision involved a high value judgment and an exercise of discretion, the Court of Appeal found that the earlier Judgment took into account irrelevant considerations, contrary to clear statements of principle in the authorities, and failed to take into account its discretion as to the rate of interest.

Conclusion

The Telefónica case confirms that if a claimant’s Part 36 offer is at least as advantageous as a Judgment at trial and where the Court finds that the party making the offer has made a genuine attempt to settle the case, they will be entitled to the full range of enhanced reliefs under CPR 36.17(4).

Our ongoing advice to our clients remains that, where it is appropriate to make a settlement offer under the rules, a well thought out Part 36 offer to settle should be made as early as it can be in any litigation, to provide as much protection on costs in a case as possible.

For further information please do contact us as we are happy to advise.

Disclaimer

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