IT WAS NOT “UNJUST” FOR THE NORMAL PART 36 CONSEQUENCES TO APPLY: THE EXISTENCE OF A MAIN CLAIM (WHICH DID NOT SUCCEED) COULD NOT ASSIST THE DEFENDANT
In South Bank Hotel Management Company Ltd v Galliard Hotels Ltd & Ors [2024] EWHC 3544 (Ch) Mr Justice Richards considered the arguments as whether it was “unjust” for the normal provisions of a Part 36 offer to apply. He held that the existence of a counterclaim and the desire to maintain a “main claim” did not prevent the normal consequences applying.
“I am prepared to accept that the Part 36 offer presented something of a dilemma for SBHMC. However, the problem with SBHMC’s analysis is that the Main Claim was not going to succeed, as we now know, so relying on a wish to preserve the Main Claim as an indicator of unjustness is difficult to sustain.”
THE CASE
South Bank Hotel Management had earlier brought a claim for a declaration that a lease and underlease were void or voidable. There was a separate but related claim by one of the defendants (“Lodgeshine”) for unpaid rent. The claimant’s claim failed and the claim for unpaid rent succeeded.
THE PART 36 OFFER IN RELATION TO THE UNPAID RENT
Lodgeshine’s Part 36 offer was not beaten at trial. This was a claimant’s offer and the judge had to determine whether the normal Part 36 consequences should apply.
THE JUDGMENT ON THE PART 36 OFFER
Part 36 consequences after expiry of the “relevant period”
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- It is common ground that Lodgeshine made a compliant Part 36 offer in the Rent Claim and beat that offer. The “relevant period” for acceptance of that offer expired on 13 June 2024. The offer was made after all disclosure but did not include the counterclaim. The question is whether it is unjust for the consequences in CPR 36.17(4) to apply and in determining that, I apply the following approach:
i) I will consider all the circumstances of the case and, in particular, the specific matters raised in CPR 36.17(5).
ii) I am being invited to make an order that departs from the norm set out in CPR 36.17(4). I should not make an exception simply because I consider the CPR 36.17(4) regime harsh or unjust. Rather, there must be something about the particular case which takes it outside the norm and makes the usual Part 36 consequences unjust (see Downing v Peterborough & Stamford Hospitals NHS Foundation Trust [2014] EWHC 4216 (QB)).
iii) Since I am not exercising an unfettered discretion in relation to costs, when I consider departing from CPR 36.17(4) consequences, the question is not whether SBHMC had reasonable grounds for declining to accept the Part 36 offer, but whether the usual order following beating the Part 36 would be unjust (Matthews v Metal Improvements [2007] EWCA Civ 215).
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- SBHMC’s argument in support of the proposition that it would be “unjust” for Part 36 consequences to apply is principally an argument that the offer made no sense. SBHMC submits that the Part 36 offer dealt with the Rent Claim only and ignored SBHMC’s counterclaim. SBHMC invite me to consider what would have happened if it had accepted the offer and paid £1.2 million, submitting that the proceedings would still have been necessary to deal with its counterclaim for rectification and the Main Claim as well.
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- I do not accept that the Part 36 consequences would be unjust. I am prepared to accept that the Part 36 offer presented something of a dilemma for SBHMC. However, the problem with SBHMC’s analysis is that the Main Claim was not going to succeed, as we now know, so relying on a wish to preserve the Main Claim as an indicator of unjustness is difficult to sustain. Conceptually, accepting the Part 36 offer could have narrowed issues. At the very least it would have resulted in a determination of what rent was due and obviated the need for the debates we had yesterday about interest and VAT, for example. More generally, it might have been an opportunity for SBHMC to reflect on the strength of the Main Claim.
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- However, ultimately I accept Mr Trompeter KC’s submission that the counterclaim has made no significant difference. The Part 36 offer was made shortly before trial. Once the relevant period expired, trial was near and the counterclaim absorbed little, if any, time in submissions and little, if any, time at trial. Witness statements were already prepared, so I agree with Mr Trompeter KC that the fact that the counterclaim was unresolved by the Part 36 offer is not an indicator that the usual consequences of Part 36 are “unjust”.
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- The next question that arises is the interest rate for the purposes of CPR 36.17(4)(a). That provision admits of the possibility that the interest rate applied after the end of the relevant period can be more than compensatory where it applies. However, Mr Trompeter KC explained that Galliard does not seek anything more than a compensatory rate of interest.
THE RATE OF INTEREST
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- SBHMC suggests the compensatory rate of interest would be base plus 1%. Galliard suggests the compensatory rate of interest would be base plus 4%. The point is to approximate the borrowing costs of someone in the general position of Galliard. Galliard is certainly a significant business but it is not a large listed company and is not the absolute highest credit. An interest rate of base rate plus 1% is appropriate for truly large companies who can be presumed to borrow very cheaply. However, I think base plus 2% for Galliard is more appropriate.