Interest to be adjusted when considering the implications of a part 36 offer

The High Court has provided welcome clarification of the way in which interest is calculated when considering the implications of part 36 offers. Louise Hanson-Gardner takes a look at the decision in Purrunsing -v- A’Court & Co (a firm) and another [2016] EWHC 1528 (Ch) (1 July 2016) where it was held that, when considering whether the claimant had matched or beaten their part 36 offer, the court should notionally calculate interest on the judgment award up to the expiry of the relevant period. Not to do so would result in the illogical notion that the time between the offer and the trial date should determine whether an offer was matched or beaten. 

The claimant made a part 36 offer on 20 May 2015 in the sum of £516,000.00 inclusive of interest. At trial on 14 April 2016 the claimant was awarded £470,000.00 together with interest at 2.5% above base rate (calculated at £48,983.01). The total sum awarded was £518,983.01. The claimant submitted that he had beaten his own previous offer and was therefore entitled to indemnity costs from the expiry of the offer on 10 June 2015.

The defendant argued that it was necessary to notionally deduct the interest awarded from the date of expiry of the relevant period from the judgment award. This would mean that the substantive damages and interest up to 10 June 2016 would total £507,046.30, which was far less than the claimant’s offer. Consequently, the claimant would have failed to match or beat their part 36 offer and would not be entitled to indemnity costs and the other various uplifts afforded to them.

The court agreed with the defendant and relied upon CPR 36.5(4) which states that:

‘(4)    A part 36 offer which offers to pay or offers to accept a sum of money will be treated as inclusive of all interest until—
the date on which the period specified under rule 36.5(1)(c) expires; or if rule 36.5(2) applies, a date 21 days after the date the offer was made.’

Thus the court held that ‘In order to work out whether a judgment is more advantageous than such an offer it is necessary to ensure that the offer or the judgment sum is adjusted by eliminating from the comparison the effect of interest that accrues after the date when the relevant offer could have been accepted…The only interest that is material is that included or deemed included within the offer.’

Interest calculation

This will therefore lead to a separate interest calculation in relation to part 36 offers and costs consequences, where the judgment sum on the face of it would seem to beat a previous part 36 offer. It will be necessary to notionally deduct all interest that accrued from the date of the expiry of the relevant period for that part 36 offer. After this deduction the notional settlement figure will be used to compare the amount offered in the part 36 offer.   

Although the additional interest will still be recoverable by the claimant, it will not be taken into account when assessing whether an offer has been beaten or not. This case verifies that the trial/judgment date will not be allowed to affect the nature of part 36 offers and decisions in relation to settlement. This is welcome guidance; otherwise those making part 36 offers could find their proposals worthless due to potential court delays.