INTEREST AND COSTS WHEN A CLAIMANT BEATS THEIR OWN PART 36 OFFER: WATCHORN –v- JUPITER CONSIDERED
There have been relatively few cases dealing with the approach of the courts under the new Part 36 provisions when a claimant beats their own Part 36 offer at trial. The judgment of HH Judge Purle QC in Watchorn -v- Jupiter Industries Ltd  EWHC 3003 (Ch) shows how formidable the advantages can be for claimant who has made a realistic offer. The judgment also deals with the question of precisely how interest should be calculated.
The claimant was the liquidator of a company in liquidation. He sought relief in relation to assignments of trademarks. The judge gave judgment for £360,000 (exclusive of interest). The claimant had, in a pre-action letter, made a Part 36 offer to accept £325,000 inclusive of interest.
THE JUDGMENT ON COSTS
- I am going to order all of the costs of this application to be paid by Jupiter on the indemnity basis. I do so for this reason.
- Jupiter has clearly lost and, although the claim was initially put by the liquidator at a substantially higher figure than it eventually came home for, which involved Mr David in particular doing some work and some input from the expert, nonetheless the sort of work that was done was, in my judgment, work that would have been required anyway because, as Mr Dean reminded me, the various accounting and administrative exercises that were needed to produce what might have become a solvent company, were never undertaken. They were however assumed for the purposes of the further exercise determining £261,000 as the suggested starting point. Much of the work related to that further exercise, but, despite success on some points, Jupiter still did not persuade me of the solvency of Group at the material time.
- Moreover, the letter of 14 August 2012 is striking. It sets out the purpose of the transaction (though subsequently in the later without prejudice correspondence I have now seen, the point was taken, unconvincingly, that that was merely its effect and not its purpose). The purpose set out in that letter was the very purpose proscribed by section 423. It seems to me that this should have been recognised at the outset. That takes this case very much out of the norm and is a case which simply should not have been defended.
- Jupiter was warned by responsible solicitors at the time of the transaction that a nominal consideration raised corporate governance issues, but chose not to heed that advice. That also takes this case very much out of the norm, irrespective of the Part 36 offer.
- In addition, as from 9 January 2014, the 18 December 2013 Part 36 offer kicked in. By that offer the liquidator offered to accept £325,000 inclusive of interest. In my judgment, as the liquidator has clearly done better than that, the consequences set out in CPR 36.14(3) follow.
- The first question is: should there be interest on the whole or part of any sum of money awarded at a rate not exceeding 10% above base for some or all of the period, starting with the date on which the relevant period expired? There will, of course, be interest at 3% above base, as I have already ordered, down to 9 January 2014. In my judgment, it is appropriate to award an enhanced rate of interest in consequence of the Part 36 offer unless I am persuaded that it is, in the words of the rule, unjust to do so
- I have, in considering whether it would be unjust, had regard to all the matters set out in sub-rule (4) of this rule. The first is the terms of any Part 36 offer, which the liquidator beat. I am particularly impressed also by the fact that subsequently the liquidator offered to accept an even smaller sum, £110,000 on 19 March 2014. I have also noted the offers coming from Jupiter, none of which came anywhere close to satisfying the proper requirements of the liquidator, as the result has shown.
- The next matter is the stage in the proceedings when the Part 36 offer was made. This was well before trial and there was ample time to consider it. The information available at the time of the offer is also to be taken into account. The expert report came out at about the same time as the first offer, so everyone knew then what, on the only expert evidence that would be called at trial, the value of the trademarks was.
- Mr Eaton Turner complains that the claim was exaggerated. Nonetheless the liquidator has got home in an amount greater than the offer. Mr Eaton Turner’s complaint, in my judgment, takes nothing away from the Part 36 offer or from the liquidator’s costs entitlement. The claim was overstated initially. That did not remain the case.
- The conduct of the parties is referred to in (4)(d) in relation to giving or refusing to give information. Nothing turns upon that.
- Having considered those matters, I do not consider it unjust to award interest at an enhanced rate. The rules also refer to my taking into account “all the circumstances of the case”. Other circumstances are relied upon here. It is said by Mr Eaton Turner that I did not find dishonesty against any of the individuals within Jupiter, which I certainly did not, and I accepted that their hopes were genuine that they would manage to resolve the matter without an insolvency process. But I also found, and repeat, that they were aware of the risks of insolvency, and that was something which must have been evident to them in November 2008.
- It seems to me that none of those matters makes it unjust to order the consequences that follow. The whole purpose of these consequences is to encourage claimants to make and the defendants to receive and consider very carefully Part 36 offers so as to avoid some of the horrendous costs that are on display in this case. That encouragement, to be effective, needs to be underpinned by an effective sanction.
- 10% above base seems to me to be the appropriate rate because, as I take the view that this case should not have been defended, and as also the valuation was available for consideration at the time of the first Part 36 offer, the failure to accept the offer was inexcusable. The interest sanction should therefore be at the highest end of the scale. For the same reason, interest should run through to judgment today.
- Under CPR 36.14(3)(b), I am required to order indemnity costs from the date of expiry of the Part 36 offer unless I consider it unjust to do so. However, I have already ordered indemnity costs, so do not need to do so again. I shall however, as required under CPR 36.14(3)(c), order interest at the enhanced rate of 10% above base on the costs incurred since expiry of the offer down to judgment. For the same reasons as those mentioned in relation to interest on the £360,000 damages, I do not consider it unjust to do so.
- I now consider the additional amount referred to in CPR 36.14(3)(d), which is not to exceed £75,000. This is calculated by applying the prescribed percentage (which varies between 5% and 10%) to, where the claim is or includes a money claim, the sum awarded to the claimant by the court. For the same reasons as before, I do not consider it unjust in principle to order payment of the additional amount.
- Mr Eaton Turner contends that it is unjust because of the very large costs involved, the liquidator having the benefit of a CFA, extending to a large part of the costs, with a 60% uplift and an ATE insurance premium of £213,000. It seems to me that those matters are of no or very little weight. All those costs are in principle recoverable. It is not unjust for any of the other consequences to follow, just because the amounts involved are very high
- I do have to consider, however, to precisely what part of my award the prescribed percentage applies in calculating the additional amount. The basic monetary award is £360,000, to which interest has been added, for part of the period at 10% above base. I have also awarded costs.
- It is conceded by the liquidator that, in calculating the additional amount, I ignore the amount of any costs awarded, even though the costs will, eventually, be translated into a monetary award. There is no concession regarding interest, however. Mr Dean says I apply the prescribed percentage to all the interest I have awarded. Mr Eaton Turner says I do not apply the prescribed percentage to interest at all.
- Part 36.14(3)(d) requires the court:
“… unless it considers it unjust to do so, [to] order that the claimant is entitled to an additional amount which shall not exceed £75,000 calculated by applying the prescribed percentage set out below to an amount which is –
(i) where the claim is or includes a money claim, the sum awarded to the claimant by the court; or
(ii) where the claim is only a non-monetary claim, the sum awarded to the claimant by the court in respect of costs.”
I should refer to sub-rule (5) as well, which states:
“Where the court awards interest under this rule and also awards interest on the same sum and for the same period under any other power, the total rate of interest may not exceed 10% above base rate.”
- As I have awarded 10% above base rate for part of the period in question, it might be thought that the effect of sub-rule (5) is to preclude me from applying an additional amount in respect of interest.
- As a matter of strict construction, any amount payable under CPR 36.14(3)(d) does not fall within (5) because the court is not awarding interest under (d); it is simply awarding “an additional amount” calculated in a particular way. However, the commercial effect would be to turn what is a maximum interest rate of 10% above base (when ordered) into 11% above base, which is surprising.
- In those circumstances it seems to me that what the court is looking at under (d) (i) is the basic monetary award not including interest. Accordingly, in my judgment, CPR 36.14(3)(d) does not require the court to apply the prescribed percentage to an award of interest, in just the same way as (except in the case of a non-monetary claim, where costs are expressly mentioned) the prescribed percentage does not, on the concession made before me, apply to costs.
[After further submissions]
- Costs of an alarmingly high figure of approximately £500,000 are said to have been incurred, including uplift and ATE insurance premium, so I am told by Mr Dean. He is instructed by experienced and responsible solicitors and I can therefore take that figure as a reliable estimate of what the liquidator’s costs in fact are. .
- He seeks a payment on account of 70% of those, reminding me that I have ordered indemnity costs. It seems to me that that is excessive for a payment on account. I will order a payment on account, paying due but not excessive regard to the uplift and the insurance premium, of £250,000.”
POINTS TO NOTE
This judgment shows the significance of a claimant’s part 36 offer. The claimant obtained indemnity costs; a further 10% on damages and interest at 10% above base rate. The additional interest was calculated on the basis of the basic sum (prior to interest) rather than the basic figure plus “normal” interest.
OTHER POSTS ON THIS POINT
- Part 36 and monetary claims: a High Court case considered.
- Costs consequences of Part 36 claims: another interesting example
- The costs consequences of Part 36 offers: do they always apply? The cases in detail
- Part 36: a near miss is not enough
- Thanks for the £500,000, now wheres the other £50,000 you owe me? Knowing the risks and advantages for the claimant in the new Part 36