INTEREST ON DAMAGES FOR PERSONAL INJURY CANNOT BE USED AS A MEANS OF PENALISING A DEFENDANT FOR POOR BEHAVIOUR: PART 36 ISSUES ALSO CONSIDERED

The judgment of Mr Justice Ritchie in Smout v Wulfrun Hotels Ltd [2023] EWHC 1128 (KB) considers the question of the use of interest as a penalty for the poor conduct of a defendant.  The judge held that interest should not be used to penalise conduct by a defendant, there were other means of doing so. In this case indemnity costs were awarded.  The decision to award 6% interest on damages for pain and suffering was overturned and the conventional 2% substituted.  This had consequences in relation to the effectiveness of the claimant’s Part 36 offer. However the judge held that the defendant’s conduct still had relevance to the issue of costs and indemnity costs were awarded as a result of that conduct.

THE CASE

The claimant brought an action for damages for personal injury. The defendant appeared without a lawyer. During the course of the action the defendant made several assertions against the claimant and his solicitors, including the assertion that the solicitors were to blame for “extorting money”. Several letters were written which were attacks on the claimant’s solicitors.

THE RESULT AT TRIAL

The claimant was successful at trial at which the defendant appeared without a lawyer. After the trial the claimant’s counsel argued that a higher rate of interest on general damages should be awarded to reflect the conduct of the defendant.  The trial judge agreed with this and ordered interest on the damages for pain and suffering at 6%.   This had the effect of leading to the claimant beating his own Part 36 offer and the Part 36 consequences applied.

THE DEFENDANT’S APPEAL

The defendant appealed on a large number of grounds. Ultimately only one of them proceeded. That related to the award of interest.

THE DECISION ON APPEAL

The defendant’s appeal on this issue was allowed.  It was held that increased rate of interest was not an appropriate means to deal with a defendant’s misconduct.  That part of the judgment was set aside.  This had the result of setting aside the effectiveness of the Part 36 offer. However the judge still awarded costs on the indemnity basis from the date of the first abusive letter.  No order was made in relation to the costs of the appeal.

THE JUDGMENT
    1. The appeal before me gives rise to an interesting question about the circumstances in which the conventional interest rate set by the Court of Appeal for awards on pain suffering and loss of amenity can be increased by a judge at trial as a result of the conduct of the first Defendant. To a certain extent I am hampered in my consideration of whether the Recorder was wrong to award a different interest rate because the Appellant has failed to obtain a transcript of the reasons provided by the Recorder. However, that is ameliorated by the helpful information provided by the Claimant’s counsel, Mr. Davy, from his notes, which show that his submissions were that the increased rate should be awarded because of the conduct of the first Defendant in the defence and the emails set out above.
    1. There are various methods for the Courts to deal with inappropriate conduct by parties to litigation. Costs can be awarded on an indemnity basis. The party can be deprived of the costs it might otherwise be awarded as a result of its conduct. However, no authority has been put before me that abusive or unprofessional conduct by the representative of a Defendant company has previously justified a tripling of the conventional interest rate awarded on damages for pain, suffering and loss of amenity. Whilst it is true, that the statute provides a broad discretion when awarding interest on damages generally in all forms of litigation, for all types of loss, it is clear that the body of case law built up since the 1970s has, for good reason, produced the conventional interest rate on awards for pain, suffering and loss of amenity. Indeed when one looks at Part 36 and the rationale behind the rule, I consider that it is an argument for following the conventional award of interest on damages in personal injury cases. Under CPR Part 36 where a party makes an offer which is not accepted and the offeror goes on to beat its own offer at trial, certain financial benefits are available to the Court to award to the successful party. Those benefits were awarded in this case by the Recorder. They include an additional liability of a damages award up to 10% higher, and interest on the costs award up to 10% and indemnity costs rather than costs on the standard basis. However, it would be double counting for the Recorder first to award a higher rate of interest on pain and suffering due to conduct and then because that higher interest rate tipped the party who made the Part 36 offer into success, to award the benefits available under Part 36. Indeed the Part 36 system only works efficiently if there is consistency, not only in the scale of award, but also in the awards of interest on the damages awarded.
    1. In Reinhard v Ondra [2015] EWHC 2943, Warren J stated that the objective of the award was compensatory not punishment:

“3. It is common ground that an award of interest is intended to compensate the claimant for being kept out of his money after it should have been paid, not, of course, as a punitive measure. I find that a more useful description of the purpose than the reference to the Latin tag restitutio in integrum , although that is an expression used in the cases. The real question is, “What is the level of that compensation by way of interest?” when, on any view, such interest is only a proxy for the actual detriment suffered by the claimant for being kept out of his money.

    1. . I agree. I also bear in mind that in Birkett v Hayes [1982] 1WLR 816gross delay in bringing a claim was taken into account as a reason for disallowing interest for the delay period.
    1. In my judgment, on the authorities, it was clearly wrong in law and not justifiable on the facts for the Recorder to award interest on pain, suffering and loss of amenity at 6% based on conduct. Interest on damages is awarded to compensate the Claimant for being kept out of his compensation not to punish him for his poor conduct in defending the claim.
    1. I set aside that part of the Recorder’s order which related to interest on damages. In its place I substitute an award of interest on damages at 2% per annum on the award of £4,000 from the 25th of November 2019 to the 3rd of August 2022. By my calculation that amounts to £220. I also award interest on the special damages of £125 at the full special investment account rate because the sums were incurred in the first few months after the injury was suffered. By my calculation, taking the relevant special investment account rates, the interest amounts to 1.16%, which produces interest on special damages of £1.45. Adding the award for damages together with interest comes to a total of £4,346.45. Thus, on the conventional basis, the Claimant did not beat his own Part 36 offer.
    1. I therefore also set aside the Recorder’s award of indemnity costs and interest on costs and additional liability on damages.
    1. The next issue which arises is whether the Recorder would have penalised the first Defendant for its conduct in costs had he calculated interest correctly. It is clear to me from the judgment and the order that he would have and indeed I consider it right to do so. Thus I award indemnity costs against the first Defendant from the date of the start of the abusive correspondence, which had taken place before the action had commenced, indeed from February 2019. So the award of indemnity costs will be from the 4th of February 2019. The costs order will therefore be that the first Defendant will pay the Claimant’s costs on the standard basis until the 3rd of February 2019 and on the indemnity basis from the 4th of February 2019 onwards.
Conclusion
    1. For the reasons set out above I set aside the whole of the order of Mr Recorder Wilson KC save that I uphold the judgment for damages in the sum of £4,125. I award interest thereon at 2% on general damages and the full SIAR on past loss and expense amounting to £221.45, making a total of £4,346.45. I award costs to the Claimant on the standard basis until the 3rd of February 2019 and on the indemnity basis from the 4th of February 2019
    1. As for the costs of the appeal, as is apparent from the above, the first Defendant has succeeded. However, the reason why the first Defendant needed to appeal is partly because the first Defendant failed to appear before the Recorder at the hearing at which interest and costs was determined. Further, the reason why the Part 36 point arose is because the first Defendant was abusive to the Claimant and his lawyers in its conduct of the claim. In addition at the appeal hearing the first Defendant’s representative continued to make rude and abusive comments about the Claimant’s solicitor which were, in my judgment both unfair and inappropriate. For those reasons I make no order for costs on the appeal.
    1. No stay was imposed pending the appeal. The first Defendant shall have 14 days from the date of the handing down of this judgment to pay.