CLAIMANT’S PART 36 OFFER WHICH INVOLVED A 1.15% DISCOUNT WAS A GENUINE ONE:EVEN A NARROW MARGIN MEANS DEFENDANTS FACE NORMAL PART 36 CONSEQUENCES

July 19, 2022 · by · in Applications, Part 36

In Omya UK Ltd v Andrews Excavations Ltd & Anor [2022] EWHC 1882 (TCC) Mr Roger Ter Haar QC, sitting as a Deputy High Court Judge, found that a claimant’s offer that was some 1.15% less than the sum awarded was a “genuine attempt to settle”. The defendants faced the normal Part 36 consequences, including additional damages, indemnity costs and  additional interest – assessed at 5% over base.

” the Defendants have failed to establish that the offer made was not a genuine attempt to settle: on the contrary, on the information available to me I conclude that it was indeed a genuine attempt to settle – an entirely sensible course for a commercial enterprise such as the Claimant which had no interest in the proceedings being dragged out and faced risks that important witnesses might not appear at trial. These matters indicate to me that the Claimant had every incentive to try to achieve a settlement and that this was not, as in some cases posited in the authorities, a cynical attempt to manipulate a scheme designed to encourage settlement.”

THE CASE

The judge was considering whether the defendants should face the normal consequences of a Part 36 offer.   The judge had awarded £765,094.40 in damages (the full amount claimed by the claimant). The claimant had made a Part 36 offer  of £756,287.05.   The defendants argued that they should not face the normal consequences of failing to beat a Part 36 offer because the minor concession involved did not amount to a “genuine attempt to settle” the action.

THE JUDGMENT ON PART 36

The judge did not accept the Defendants’ contentions.

The Claimant’s Part 36 offer and its consequences
    1. CPR 36.17 (1) (b) applies where a claimant obtains a judgment against the defendant that is at least as advantageous as the proposals contained in a claimant’s part 36 offer.
    1. The Defendants accept that my judgment awarding £765,094.40 to the Claimant exceeds an offer made by the Claimant on 12 June 2020 in the sum of £756,287.05. The Defendants say that the judgment exceeded the Claimant’s offer “albeit by a very small margin”.
    1. By CPR 36.17 (4) in these circumstances the Court, must, unless it considers it unjust to do so, order that the Claimant is entitled to interest at an enhanced rate (not exceeding 10% above base rate), costs on the indemnity basis, interest on those costs at an enhanced rate and an additional amount calculated as a specified percentage of the sum awarded in damages.
    1. CPR r 36.17 sets out five factors the Court must take into account whether it would be unjust to make the normal order, namely:
(a) the terms of any Part 36 offer;
(b) the stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made;
(c) the information available to the parties at the time when the Part 36 offer was made;
(d) the conduct of the parties with regard to the giving of or refusal to give information for the purposes of enabling the offer to be made or evaluated; and
(e) whether the offer was a genuine attempt to settle the proceedings.
    1. The principal point taken by the Defendants is the contention that the offer relied upon the Claimant was not a genuine attempt to settle the proceedings.
    1. In paragraphs 8 to 12 of his skeleton argument, Mr. Sissons, for the Defendants, argues as follows:
8. In assessing whether an offer was a genuine attempt to settle, it is not appropriate for the judge to embark on a mini-trial to try and assess how the parties might have assessed the risks at the time the offer was made. However, the purpose of the rule is to avoid the potential abuse involved in a claimant making a very high offer in a binary case, simply with the aiming of securing the additional benefits of CPR 36.17 (4) in the event of victory. As Jonathan Parker L.J. explained in Huck v Robson [2003] 1 WLR 13 at [63]:

“a claimant’s Part 36 offer must represent at the very least a genuine and realistic attempt by the claimant to resolve the dispute by agreement. Such an offer is to be contrasted with one which creates no real opportunity for settlement but is merely a tactical step designed to secure the benefit of the incentives….”

9. In the same case, Schiemann LJ said (at [81]):

“I do not consider that Part 36 was intended to produce a situation in which a claimant was automatically entitled to costs on the indemnity basis provided only that he made an offer pursuant to rule 36.10 in an amount marginally less than the claim.”

10. An offer is only to be regarded as a genuine attempt to settle, if it involves “some genuine element of concession on the part of the claimant, to which a significant value can be attached in the context of the litigation” (AB v CD [2011] EWHC 602, per Henderson J at [22] (Emphasis added)).
11. In the circumstances of this case, C’s offer ought not to be regarded as a genuine attempt at settlement because:

(a) The offer was to accept a discount of just £8,806.95 (1.15%) against the amount claimed

(b) Even if interest is taken into account the offer was still derisory. At the date offer was made the accrued interest assuming a (generous) commercial rate of 2.5% was £33,957.23. On this basis the offer was to accept 95% of the total amount claimed inclusive of interest.

(c) Accordingly, in the context of the total value of the claim, the concession offered cannot realistically be regarded as having any significant value.

(d) There was no explanation as to how the offer was calculated. It did not involve any assessment of litigation risk but merely discounted a very small and apparently arbitrary amount from the total claim. This suggests a tactical attempt to catch Ds on the hook of Part 36 rather than a genuine effort at settlement.

(e) This case was always a binary one; C would either recover the whole of the sum claimed or nothing at all. The offer did not reflect a possible outcome of the litigation. Accordingly, the amount offered created no real inducement or incentive for acceptance.

12. Furthermore, the other factors referred to in CPR 36.17 (5) are either irrelevant to the facts of this case or also suggest it would be unjust to impose the full force of the additional sums/penalty interest. Thus, the offer required almost total capitulation and was made shortly after Ds had filed their Defence and, accordingly, long before there had been disclosure or the exchange of witness statements. This case turned on the facts rather than legal principle. At the date the offer was made, Ds did not know the quality or extent of the witness evidence which C would produce.
    1. For the Claimant, Mr. Bridge and Mr. Porte for the Claimant argues as follows in paragraphs 14 to 17 of their skeleton argument:
14 Correspondence suggests [11/A193-A194, 11/A202-203 that Ds say the normal order should not be made as the offer was not a genuine attempt to settle the proceedings as it amounted to a very high percentage of the total sum claimed.
15 The court should avoid applying a strict mathematical approach to this issue as Ds appear to demand. Rather than devoting too much attention to the precise percentage concession, the court should take a broad-brush view informed by its own assessment of the strength of the case as to whether, in all the circumstances, the offer was in fact a genuine one to settle the claim.
16 The following extracts from the White Book at 36.17.6 give a flavour of the factors the courts have taken into account:

‘In AB v CD [2011] EWHC 602 (Ch)… [the claimant made an] offer seeking 100% recovery…Henderson J refused to order Part 36 consequences, observing that the concept of settlement involved “an element of give and take” and that a settlement offer must involve some genuine element of concession. He castigated the “offer” in that case as a demand for “total capitulation”.

‘While 100% offers do not work, in Huck v Robson [2002] EWCA Civ 398; the majority of the Court of Appeal allowed the claimant’s appeal and made orders under what is now r.36.17(4) in a personal injury claim where the claimant had made a 95% offer… The focus of the additional enquiry is as to whether the offer was a genuine offer to settle, and not on whether it was or was not “tactical”.’

‘In Jockey Club Racecourse Ltd v Willmott Dixon Construction Ltd [2016] EWHC 167 (TCC) a 95% was effective in an open-and-shut case. In JMX v Norfolk & Norwich Hospitals NHS Foundation Trust [2018] EWHC 185 (QB) Foskett J accepted that a 90% offer was effective, holding that 10% was not “a token discount” in a clinical negligence case likely to be worth several million pounds.’

‘In Rawbank SA v Travelex Banknotes Ltd [2020] EWHC 1619 (Ch) J accepted that a 99.7% offer was a genuine attempt to settle a very strong case where there was “clearly no defence” and success was a “near-certainty”.’

17 As set out in the 4th witness statement of Paul Hackney [13/A26-29], the offer included some give and take and offered a significant discount to Ds. Ds should have taken the offer particularly in circumstances where the Reply was filed and served on 6th July 2020. The Defendants do not appear to have addressed the detailed replies to the Defence set out in the Reply until trial.
    1. There is some authority to assist me. By way of general approach to CPR r. 36.17, Briggs J. in Smith v Trafford Housing Trust [2012] EWHC 3320 (Ch) said:
“The burden on a claimant who has failed to beat the defendant’s Part 36 offer to show injustice is a formidable obstacle to the obtaining of a different costs order. If that were not so, then the salutary purpose of Part 36, in promoting compromise and the avoidance of unnecessary expenditure of costs and court time, would be undermined.”
    1. As to the identified criterion of whether the offer was a general attempt to settle the proceedings, Tuckey LJ said in Huck v Robson [2002] EWCA Civ 398; [2002] 1 WLR 1340 at [71]:
“I would however add that if it was self-evident that the offer made was merely a tactical step designed to secure the benefit of the incentives provided by the rule (e.g. an offer to settle for 99.9% of the full value of the claim) I would agree with Jonathan Parker LJ that the judge would have a discretion to refuse indemnity costs. But that cannot be said of the offer made in this case, which I think did provide the defendant with a real opportunity for settlement even though it did not represent any possible apportionment of liability.”
In the same case in the first, but dissenting, judgment, Jonathan Parker L.J. said at [63]:
“a claimant’s Part 36 offer must represent at the very least a genuine and realistic attempt by the claimant to resolve the dispute by agreement. Such an offer is to be contrasted with one which creates no real opportunity for settlement but is merely a tactical step designed to secure the benefit of the incentives …”
    1. In AB v CD [2011] EWHC 602 (Ch), Henderson LJ said at [81] that an offer is only to be regarded as a genuine attempt to settle if it involves:
“…some genuine element of concession on the part of the claimant, to which a significant value can be attached in the context of the litigation.”
    1. In Rawbank SA v Travelex Banknotes Ltd [2020] EWHC 1619 (Ch), Zacaroli J. said at [28] and [29]:
28. As I have noted, the Part 36 in this case was that TBL pay £48,290,000 (inclusive of interest to 25 May 2020). The principal amount of the claim is $60,072,000. On the first page of the Claim Form the sterling equivalent of the amount claimed was stated to be £48,311,860. I was told that on the basis that interest is payable at 2% above Barclays Bank’s base rate, then, together with interest to 25 May 2020, the sterling equivalent of the amount claimed in the proceedings is £48,448,059. The discount being offered (assuming exchange rates remained constant thereafter) was therefore only £158,059, or 0.3% of the total amount claimed.
29. In those circumstances, Mr Smith submitted that this was clearly not a genuine offer to settle, but was a tactical move, designed solely to engage the enhanced payments set out in Rule 36.17(4). While I see the force of that submission, I do not accept it. The critical question is not a mathematical one – the proportion of the discount – but whether it is possible to infer from the size of the discount that there is no genuine attempt to settle the proceedings.”
    1. As commented there, whilst the mathematical proportion of the offer to the amount claimed is a potentially relevant factor, it is not in itself determinative of whether an offer is a genuine attempt to settle the proceedings. In this case the discount was £8,806.95 (1.15%).
    1. That is an admittedly small discount, but this, like the Rawbank case, was a case in which there was never likely to be (and in the end there was not) any significant debate as to quantum.
    1. It is also relevant that if interest accrued is taken into account the discount rises to 5% (see paragraph 11(b) of Mr. Sissons’s skeleton argument).
    1. Further, as in Rawbank, it is relevant that the defence put forward lacked credibility: the Defendants’ best hope was that some or all of the witnesses would not give evidence whether out of disinclination, anxiety or ill-health.
    1. In my judgment the Defendants have failed to establish that the offer made was not a genuine attempt to settle: on the contrary, on the information available to me I conclude that it was indeed a genuine attempt to settle – an entirely sensible course for a commercial enterprise such as the Claimant which had no interest in the proceedings being dragged out and faced risks that important witnesses might not appear at trial. These matters indicate to me that the Claimant had every incentive to try to achieve a settlement and that this was not, as in some cases posited in the authorities, a cynical attempt to manipulate a scheme designed to encourage settlement.
    1. This is one, but only one, of the factors which I must consider in deciding whether it would be unjust to apply the normal consequences of a refusal to accept a Part 36 offer.
    1. The first factor set out in the CPR, the terms of any Part 36 offer, does not appear to me to have any relevance in assisting the Defendants: the Claimant’s offer was a straightforward offer capable of acceptance.
    1. The second and third factors overlap: there can, of course, be cases where a Part 36 offer is made at such an early stage that the Defendant cannot sensibly assess the merits of the case. In my judgment, this offer was made at a relatively early stage, which is consistent with a genuine attempt to settle.
    1. It follows from my conclusions in my principal judgment that the Second Defendant, and therefore the First Defendant, was well aware that the operations giving rise to these proceedings were ongoing at the time that they took place. The Defendants might have wanted to know if they could avoid liability, but they knew full well that they were liable.
    1. Accordingly there is nothing in the second or third factors which assists the Defendants.
    1. The fourth factor, the conduct of the parties, strongly militates in favour of the application of the normal consequences: as set out above, in the face of a genuine attempt to settle, the Defendants persisted in defence of a claim which they well knew was a good claim.
    1. For the above reasons I hold that the normal consequences of the failure to accept a valid offer must follow.
    1. One consequence (agreed in the event I decide as I have done) is that £63,254.72 is payable by the Defendants pursuant to CPR 36.17(4)(d)(i), being (i) 10% of £500,000 and (ii) 5% of £265,094.40.
    1. A second consequence is that the Claimant’s costs will be paid by the Defendants from the date of expiry of the offer on the indemnity basis.
  1. The third and final consequence is that I must consider what order I should make as to interest.

THE RATE OF INTEREST

The judge went on to consider the appropriate rate of interest.

Rate of interest under Part 36
    1. The Claimant seeks interest at a rate of 10% over base. The Defendants contend that I should either award interest at a commercial rate, or at most at a rate of 4% over base.
    1. The Defendants point out that from 2018 interest rates were at .75% over base dropping to 0.1% in March 2020.
    1. The Claimant referred me to the following passage at paragraph 36.17.4.1 of the White Book:
“In OMV Petrom SA v Glencore International AG [2017] EWCA Civ 195 the Court of Appeal clarified, however, that the court undoubtedly has a discretion to include a non-compensatory element in its award under r.36.17(4)(a), but that the level of interest awarded must be proportionate to, among other factors: (a) the length of time that had elapsed between the offer and judgment; (b) whether the defendant took entirely bad points or whether it behaved reasonably, despite the offer, in pursuing its defence; and (c) the general level of disruption caused to the claimant by a refusal to negotiate or to accept the Part 36 offer. OMV was a high value fraud case in which the defence had been founded on lies. The Court of Appeal ordered interest at the full 10% over base. There is, however, no default rule in favour of interest at 10% over base…”
    1. The Defendants referred to BXB v Watch Tower [2020] EWHC 656 (Admin) in which Chamberlain J. awarded enhanced interest at the rate of 4% above base rate, and Assetco Plc v Grant Thornton UK LLP [2019] EWHC 592 in which 5% above LIBOR was awarded as enhanced interest.
    1. In my judgment I am required to have regard to the factors identified in the OMV decision cited in the passage from the White Book above.
    1. Applying those factors, I note that there was a significant period between the date of the offer (June 2020) and the date of judgment (December 2021); that the defence pursued was wholly implausible and that it was unreasonable to pursue that defence.
    1. It is also relevant in this case that what was done by the Defendants was clearly done with a view to very substantial reward.
    1. On the other hand, proportionality requires me to have regard to the maximum rate of enhanced interest permitted under Part 36 and prevailing commercial rates.
  1. It was submitted to me, and I accept, that an appropriate range is between 4 and 8% above base. In my judgment a figure towards the bottom end of that range, i.e. 5%, is appropriate.
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