Kerry Underwood

PART 36 AND INTEREST

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I deal with this in my Personal Injury Reforms Course which can be booked here.

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In OMV Petrom SA v Glencore International AG [2017] EWCA Civ 195

the Court of Appeal considered what it described as “a straightforward but important point concerning the interest that the court may award when a claimant’s CPR Part 36 offer is rejected, but the claimant achieves a greater award at trial.”

Here the claimant made a Part 36 offer on 9 April 2014 offering to settle the litigation for US $35 million but the defendant did not respond to that offer and nor did it make any counteroffer but rather defended the claim “uphill and down dale” and the court awarded over US $40 million meaning that the claimant had beaten its Part 36 offer.

The claimant appealed against the rate of interest on damages and indemnity costs awarded to it, under CPR 36.14(3)(a) and (c) respectively, contending that the judge had been wrong to proceed on the basis that he could not penalise the defendant for its unreasonable conduct by awarding more than a compensatory level of interest.

The Court of Appeal unanimously allowed the appeal, holding that the enhanced interest rates under these provisions can include a non-compensatory element to encourage the parties to engage in reasonable settlement negotiations.

The court replaced the rate of interest on both

(a) the award of damages for the period from the expiry of the claimant’s Part 36 offer until judgment and

(b) costs, with a rate of 10 percent above base, being the maximum uplift available under CPR 36.14(3).

The court said that it did not regard the specified rate of 10% as a starting point as the words of the rule provided for enhanced interest to be awarded “at a rate not exceeding 10% above base rate”.

“That does not make the figure of 10% a starting point. It makes it the maximum possible enhancement.” (Paragraph 31 of the judgment).

The court emphasised that the provisions in CPR 36.14(3) are aimed at encouraging good practice.

In some cases, a proportionate rate would have to be greater than purely compensatory, in order to provide the appropriate incentive to defendants to engage in reasonable settlement discussions and mediation, and to mark the court’s disapproval of any unreasonable or improper conduct.

“36. If it were right to say that the provision for additional interest were entirely compensatory, the 10% cap would only rarely be engaged (as the judge’s order demonstrates), and then probably only in unusual cases where, for example, the period of the enhanced interest award was very short. First instance courts would be required to engage in a complex and unnecessary exercise aimed at identifying what the prolongation of the litigation has cost the successful party in terms of wasted management time and other on-costs. This would be the kind of undesirable satellite litigation, perhaps involving detailed evidence, of which the court spoke in Denton supra. Moreover, the range of possible additional costs that might be caused by the litigation would be boundless. It would all depend on the particular type of litigation and the particular situation of the claimant concerned. Such additional costs might include the loss of profitable commercial contracts, additional loan costs and many other types of damage.

37. Moreover, the argument that the Jackson reforms demonstrate that the existing provision was not intended to be penal, in my judgment, proves too much. The Jackson reforms undoubtedly introduced a penal award of up to £75,000 as an additional sum calculated on the basis of the amount of the court’s award or, in the absence of such an award, the amount of the claimant’s costs. But whatever the consultation papers show as to what consultees thought about the nature of the existing provisions, Jackson LJ’s final report had said expressly at paragraph 1.1 of Chapter 41 that the existing Part 36 was “backed up by a scheme of penalties and rewards in order to encourage the making of reasonable settlement offers and the acceptance of such offers”.

38. In my judgment, the use of the word ‘penal’ to describe the award of enhanced interest under CPR Part 36.14(3)(a) is probably unhelpful. The court undoubtedly has a discretion to include a non-compensatory element to the award as I have already explained, but the level of interest awarded must be proportionate to the circumstances of the case. I accept that those circumstances may include, for example, (a) the length of time that elapsed between the deadline for accepting the offer and judgment, (b) whether the defendant took entirely bad points or whether it had behaved reasonably in continuing the litigation, despite the offer, to pursue its defence, and (c) what general level of disruption can be seen, without a detailed inquiry, to have been caused to the claimant as a result of the refusal to negotiate or to accept the Part 36 offer. But there will be many factors that may be relevant. All cases will be different. Just as the court is required to have regard to “all the circumstances of the case” in deciding whether it would be unjust to make all or any of the four possible orders in the first place, it must have regard to all the circumstances of the case in deciding what rate of interest to award under Part 36.14(3)(a). As Lord Woolf said in the Petrotrade case, and Chadwick LJ repeated in the McPhilemy case, this power is one intended to achieve a fairer result for the claimant. That does not, however, imply that the rate of interest can only be compensatory. In some cases, a proportionate rate will have to be greater than purely compensatory to provide the appropriate incentive to defendants to engage in reasonable settlement discussions and mediation aimed at achieving a compromise, to settle litigation at a reasonable level and at a reasonable time, and to mark the court’s disapproval of any unreasonable or improper conduct, as Briggs LJ put the matter, pour encourager les autres.

39.The culture of litigation has changed even since the Woolf reforms. Parties are no longer entitled to litigate forever simply because they can afford to do so. The rights of other court users must be taken into account. The parties are obliged to make reasonable efforts to settle, and to respond properly to Part 36 offers made by the other side. The regime of sanctions and rewards has been introduced to incentivise parties to behave reasonably, and if they do not, the court’s powers can be expected to be used to their disadvantage. The parties are obliged to conduct litigation collaboratively and to engage constructively in a settlement process.”

While the court was prepared to exercise the discretion afresh and order the maximum possible uplift in view of the defendant’s “deplorable” conduct of the litigation, it emphasised that appeals on issues of the kind should be rare, noting that the court has a wide discretion as to the appropriate rate of enhancement under Part 36.14(3), and the Court of Appeal will not often to be persuaded to interfere with it.

CPR 36.17 (in force from 6 April 2015) is in materially the same terms and therefore this decision is likely to be relevant when considering the award of interest under CPR 36.17.

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Written by kerryunderwood

April 25, 2017 at 8:01 am

Posted in Uncategorized

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