CA: Judge was wrong not to order all of part 36 enhanced awards

Telefonica: Successful claim

Making one of the four enhanced awards of beating a part 36 offer does not “in any way” undermine or lessen entitlement to the others, the Court of Appeal has ruled.

It overturned the decision of a deputy High Court judge not to award enhanced interest on both the principal and indemnity costs, saying he taken into account “irrelevant considerations”.

In Telefónica UK Ltd v The Office of Communications [2020] EWCA Civ 1374, the claimant, which owns O2, succeeded earlier this year in its £54m claim over mobile network licence fees paid to Ofcom, plus £3m of simple interest, having made part 36 offers of around £1.5m less, first with interest and then without.

Under CPR 36.17(4), it was awarded indemnity costs from 21 days after the first offer and an ‘additional amount’ of £75,000, but Adrian Beltrami QC refused to award an enhanced rate of interest on either the principal sum or the indemnity costs, holding that it would be unjust to do so.

The factors the judge considered relevant were that the question at issue in the proceedings was “a binary one”, making settlement unlikely; Ofcom acted reasonably in going to trial; and the part 36 offer represented only a small discount from the amount claimed – although he found it was a genuine attempt to settle.

Mr Beltrami said the additional interest on the principal sum produced “a very large number” (£3.2m) and “given the circumstances of this case and in particular the very high nature of the offers… and given the other benefits which I have already referred to, it does appear to me that it would be disproportionate, and accordingly unjust, to impose this further sanction on Ofcom”.

Ofcom’s reasonable conduct of the proceedings meant it would also be unjust to award the additional uplift of interest on the costs, he went on.

Giving the unanimous ruling of the Court of Appeal, Lord Justice Phillips said the judge’s reasoning on interest on the principal sum “does not bear scrutiny”.

It was, he said, “difficult to see the relevance of the level of the offers given that the key factor is that the defendant could have avoided the need for the proceedings (or most of the proceedings) by accepting one of the offers, and been in as good a position as it was after the trial”.

Once the judge had found it was a genuine attempt to settle, “the level of the offers could not, in itself, form the basis of an assessment of the ‘proportionality’ of enhanced interest, let alone a finding that any enhanced interest would be unjust”.

In doing so, Phillips LJ, the judge “reintroduced” the overturned approach in the 2009 case of Carver, “effectively and improperly declining to implement part 36 because of the small margins involved”.

Given the court’s wide discretion as to the rate of enhanced interest, any disproportionality should be addressed that way rather than not awarding interest at all.

The judge was also not justified to treat the award of the additional amount and of indemnity costs as factors rendering it unjust also to award enhanced interest on the principal sum, whether as a matter of proportionality or otherwise.

“The rule provides for the successful claimant (in the terms of CPR 36.17(1(b)) to receive each of the four enhancements and there is no suggestion that the award of one in any way undermines or lessens entitlement to the others.

“In this case, the judge regarded the award of the two more trivial enhancements as a reason why it was unjust to award the major enhancement. I consider he was not entitled to do so.”

On the enhanced interest on costs, Phillips LJ said the issue was not the reasonableness of Ofcom’s conduct but that it could have accepted the claimant’s offers, deciding instead to fight the case but failing to do better than the offers.

“That is the basis of the claimant’s entitlement to enhanced interest on costs and is not displaced in the present case.”

Again, conduct should be addressed through the rate of interest, not by refusing to make an award at all.

Phillips LJ concluded: “Although the decision involved a value judgment and an exercise of discretion, the judge took into account irrelevant considerations, contrary to clear statements of principle in the authorities, and failed to take into account his discretion as to the rate of interest.”

He allowed the appeal and awarded an additional 1.5% – equating to about £900,000 – making the total interest payable 3.5% above base rate, on both principal and costs, from the relevant date.

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