A recent decision in the Court of Appeal confirmed the benefits of using Part 36 at an early stage in litigation matters should the matter be eventually concluded at Trial.

In the Judgment of Telefonica UK Ltd v The Office of Communications [2020] EWCA Civ 1374 the Court of Appeal held that the Claimant was entitled to the enhanced interest under CPR 36.17 as the Claimant had beaten its Part 36 offer when Judgment was obtained.

CPR 36.17(4) provides that, where a Claimant has obtained a Judgment higher than the Part 36 offer made, the Court must (unless it considers it unjust to do so) order that the Claimant is entitled to: enhanced interest on both damages and costs at up to 10% above base rate; an award of indemnity costs; and an additional amounts of up to £75,000 calculated as a percentage of the Judgment sum.  The Court must take into account all of the circumstance of the case when considering whether it would be unjust to make such an order including whether the offer was “a genuine attempt to settle the proceedings”.

In this case, the Claimant, Telefonica UK Ltd, issued a claim against the Defendant, Ofcom for restitution of annual licence fees paid to Ofcom between 2015 and 2017 pursuant to a regulation that had been quashed in judicial review proceedings.

Telefonica, made an early Part 36 offer for Ofcom to pay Telefonica £52.82 million together with compound interest for the relevant period at an annual rate of 0.56%.  The offer was not accepted and Telefonica issued proceedings.

Following a Supreme Court decision (Prudential Assurance Co Ltd v Revenue and Customer Commissioners [2018] UKSC 39) regarding compound interest, Telefonica made a second Part 36 offer for Ofcom to pay £52.82 million without any interest.  This offer was not accepted by Ofcom.

At Trial, the High Court awarded Judgment in favour of Telefonica for the full amount of its claim of approximately £54.38 million plus simple interest at 2% above base rate of just under £3Million.  Telefonica had therefore obtained a Judgment that was more advantageous than its Part 36 offers.  The High Court Judge accepted that the Part 36 offers were effective. 

The Judge ordered Ofcom to pay costs on an indemnity basis and an additional amount of £75,000.  However, the Judge refused to award an enhanced rate of interest on either the Judgment sum or the costs.

Telefonica appealed the Judge's decision not to award enhanced interest and the Court of Appeal made a different decision, awarding Telefonica additional interest on both Judgment and costs at 1.5% per annum, providing a total of 3.5% above base rate. The key issue here was that Ofcom could have avoided Trial by accepting the Part 36 offer made at an early stage.

This case clarifies the party's entitlement to enhanced interest on damages and costs if the Claimant beats its Part 36 offer at Trial and therefore making an early Part 36 offer is well worth considering.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.