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Part 36 – Enhanced relief or no enhanced relief?

December 2020
Stephen Reilly

In Telefónica UK Ltd v The Office of Communications [2020] EWCA Civ 1374, the Court of Appeal allowed the Claimant’s appeal against an order that awarded it only two of the four specified forms of enhanced relief available under CPR 36.17(4) notwithstanding that it had beaten its own Part 36 offer at trial.

Background to the appeal

Telefónica (a mobile network operator), claimed for restitution of annual licence fees paid to the defendant, Ofcom, pursuant to a fee-setting regulation that had been quashed in judicial review proceedings.

Prior to commencement of proceedings, Telefonica made a Part 36 offer to accept £52.82m together with compound interest of 0.56% for the relevant period to settle the claim. The offer was, in effect, the same principal sum claimed in Telefonica’s Letter of Claim of the same date. The offer was not accepted and proceedings were issued.

Not long after proceedings had been issued, the Supreme Court judgment in Prudential Assurance Co Ltd v Revenue and Customer Commissioners [2018] UKSC 39, determined that compound interest was not available in unjust enrichment claims for restitution of money payments. As a result, Telefonica made a further Part 36 Offer to accept £52.82m without any interest. This offer was also not accepted.

About 6 months after Telefonica’s second Part 36 offer was made, it notified Ofcom that it had, in fact, under calculated its claim. The claim was £54.38m and not £52.82m. Despite the increased claim value, Telefonica’s Part 36 offers were not withdrawn. Ofcom did not dispute that Telefonica had paid £54.38m under the invalid Regulations.

The High Court decision

Telefonica was ultimately successful in its claim and was awarded the full amount of its revised claim of £54.38m, plus simple interest of 2% above base rate. Telefonica had beaten its own Part 36 Offer and so was entitled to enhanced relief under CPR 35.17 (4) unless it was unjust to make such award.

The potential enhanced reliefs under CPR 36.17(4) are as follows: –

  1. Interest on the whole or any part of any sum of money awarded (excluding interest) at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the Part 36 relevant period expired – CPR 36.17(4)(a);
  2. Costs (including any recoverable pre-action costs) on the indemnity basis from the date on which the relevant period expired – CPR 36.17 (4)(b);
  3. Interest on those costs at a rate not exceeding 10% above base rate – CPR 36.17 (4)(c); and
  4. An additional (punitive) amount, which shall not exceed £75,000 (as calculated by reference to CPR 36.17 (4)(d))

Telefonica was awarded enhanced relief under 2. and 4. above. The Court declined to award enhanced relief under 1. and 3. above.

In determining that it would be unjust to make such awards, the trial Judge considered the circumstances of the case pursuant to CPR 36.17(5) including (i) the binary nature of the dispute (ii) the conduct of the proceedings and (iii) the very high numbers that an award of enhanced interest would produce. Notwithstanding a finding that the Claimant’s Part 36 offers were genuine offers to settle (even though they only represented a small reduction from the total alleged claim value), the Judge considered that enhanced awards of interest would be unjust.

The Appeal

Telefonica’s appeal was, in essence, that:-

  1. none of the Judge’s reasons (for declining enhanced interest relief) justified a finding that such an award would be unjust; and
  2. the Judge had erred in his assessment of the impact of an enhanced interest award in that he had incorrectly assessed that an enhanced interest award would lead to an additional payment of £3.2m.

In addition, Telefonica submitted that something had gone obviously wrong with the Judge’s decision – it could not be correct that Telefonica had beaten both of its Part 36 Offers but had been awarded no more interest than they would have been awarded if they had made no offers at all.

Ofcom argued that the Judge’s decision was a value judgment and one that was reached considering all of the relevant circumstances and without erring in principle.

The Court of Appeal’s judgment

The Court of Appeal disagreed with the trial Judge’s conclusions that it was unjust to award enhanced relief under CPR 36.17(4) (a) and CPR 36.17(4) (c).

Interest on the principal sum (CPR 36.17(4) (a)

The key themes of the Court of Appeal’s judgment were that:

  1. Once the Judge had accepted that the Part 36 Offers were genuine offers to settle, the level of the offers could not, in themselves, form the basis of an assessment of the “proportionality” of awarding enhanced interest, let alone a finding that any enhanced interest would be unjust;
  2. Whilst the Court must ensure that an award of interest is not unjust on the grounds of disproportionality, it is not entitled to refuse to make any order at all for enhanced interest on this ground. The Judge has a wide discretion regarding the rate of enhanced interest to award and so, where there are concerns that any significant element of enhanced interest would be disproportionate, the Court can award a low or nominal enhanced rate; and
  3. The Judge was not entitled to regard the award of other enhancements under the two other grounds of CPR 36.17(4) as factors rendering it unjust to award enhanced interest on the principal sum. Telefonica were entitled to awards under all enhancements.

Interest on costs (CPR 36.17(4) (c)

The trial Judge considered it unjust to award interest on Telefonica’s costs because he found that Ofcom did not conduct the defence unreasonably.

The Court of Appeal determined that whether or not the defence was conducted reasonably was not the key question for consideration. The key question for consideration was which party was responsible for legal costs being incurred when they should not have been? The answer was Ofcom, because they should have accepted Telefonica’s Part 36 offers but did not.

Conclusion

This judgment is a helpful reminder that in circumstances where (i) the Claimant has beaten its own Part 36 offer at trial, (ii) the Claimant’s offer to settle was a genuine offer to settle, and (iii) it would not otherwise be unjust to do so, the Claimant will be entitled to the full range of enhanced relief under CPR 36.17(4).

As in this case, the impact of enhanced reliefs can be very significant and defendants would be well advised to think twice before rejecting a Claimant’s reasonable Part 36 offer.

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