WHAT HAPPENS TO INTEREST WHEN A DEFENDANT ACCEPTS A CLAIMANT’S PART 36 OFFER LATE? HIGH COURT DECISION

July 10, 2023 · by · in Damages, Interest, Part 36, Personal Injury

In MGS v University Hospitals Bristol and Weston NHS Foundation Trust [2023] EWHC 1547 (KB) Dexter Dias (sitting as a Deputy High Court Judge) rejected an argument that interest should run at 8% following the defendant’s late acceptance of the claimant’s Part 36 offer.  The offer had been silent on the rate of interest claimed if the defendant accepted late. The court could not imply a rate of 8%.  The SIA rate was held to apply.

“I can deal with this shortly. There is no authority to support the claimant’s submission that the due rate should be 8 per cent. Thus the matter must be decided on first principles. The rate claimed is a very significant uplift from the SIA rate. It was open to the claimant to specify this rate in the offer term. He did not.”

THE CASE

The judge was considering an approval application for a seriously injured child.   The defendant accepted a Part 36 offer made by the claimant of £9.3 million and periodical payments of £190,000 rising to £238,000.   The acceptance was made some six months after the relevant date for acceptance. The judge approved the settlement.  There was an issue between the parties as to what interest rate applied after the relevant date.

THE JUDGMENT ON THIS ISSUE
§I. INTEREST DISPUTE
    1. What, if any, interest is payable to a claimant when the defendant accepts the Part 36 offer out of time?
    1. A dispute arose between parties about the effect of the defendant accepting the claimant’s Part 36 offer after the 21-day relevant period specified in the offer. The offer was made in compliance with the provisions of CPR Part 36 on 17 October 2022 and was accepted by the defendant on 4 May 2023, the relevant 21-day period having expired on 7 November 2022. The relevant net capital lump sum is £7.4 million (£9.3 million minus interim payments) plus the first PPO of £190,000. About this the parties agree.
    1. The claimant’s offer was put in these terms:
“The offer is deemed to include interest up to the 21 days of service of this notice.
Thereafter, interest will accrue up to the date it is accepted.”
    1. The defendant’s objection to paying interest is not because such a contractual term is inherently invalid. Indeed, the validity of such a term is confirmed by authority, including Calonne Construction Limited v Dawnus Southern Limited [2019] EWCA Civ 754. Following Calonne, CPR r.36.5 was amended on 6 April 2021 to provide:
“(5) A Part 36 offer to accept a sum of money may make provision for accrual of interest on such sum after the date specified in paragraph (4) [i.e. 21 days after it was made, as specified within the offer pursuant to r.36.5(1)(c)]. If such an offer does not make any such provision, it shall be treated as inclusive of all interest up to the date of acceptance if it is later accepted.”
    1. The White Book notes:
“Claimants might well wish to include some such provision in their offers since otherwise they will not be able to recover any additional interest upon late acceptance.” (36.5.1)
    1. While the claimant submits that this was the objective of his offer, the true nature of the term is hotly contested. To my mind, the dispute between parties is reducible to two issues:
(1) Whether interest is payable at all and on what – the question being one of contractual interpretation of the offer term;
(2) If (1), what the applicable interest rate should be.
    1. The stances of parties are clear and irreconcilable. However, the parties do agree that whenever the offer was accepted, there was likely to be a given amount of time before the matter came before the court and was approved, the claimant being a protected party, such court approval was unavoidable. Parties agree that the period would have been the same whether the offer was accepted on Day 21 or later (confirmed at DS §24). Thus, we can take this set block of time out of the analysis – it would be the same either way. The focus instead is on the extra time caused by the delay in acceptance.
    1. There are, in fact, two delay periods, parties agree, as there was a PPO due on 15 December 2022, with a consequent shorter period of delay (the “delay period”). Thus, the delay period for the net lump sum was 178 days and 141 days for the PPO.
Issue 1: contractual interpretation
    1. Submissions. The claimant submits that interest must be payable on the whole lump sum offer given the explicit terms of the Part 36 offer – in other words, this was the contractual agreement between parties. Thus, interest should be payable for such extra period as the claimant was kept out of the money he was owed. The defendant submits that while the term may be valid, the net effect of the precise arrangements is that no monies are payable to represent interest. That is because the contractual term does not specify that the interest would be payable on the whole net offer sum on any different basis to the way it had already accrued from issue of the claim form (on general damages) or from the date of loss (on past losses). That being so, it is payable for the delay period on “conventional personal injury principles” settled and recognised in personal injury litigation (DS §41). These are set out clearly in the White Book 2023 (p.500). Interest to trial is awarded on PSLA at 2% from date of service of the claim form, on special damages from the date of injury to the date of judgment at one half of the special investment account (“SIA”) rate on continuing losses and at full rate on crystallised pre-trial losses. Once judgment has been obtained, the judgment attracts interest pursuant to s.17 Judgments Act 1838. Since interest had accrued in this way until the point of offer, this is how it should continue until acceptance: 2 per cent on PSLA from the date of service of the claim form and one half SIA for continuing past losses over the period during which they were incurred. It is irrelevant that acceptance was outside the 21-day limited offer period. However, in this case the historic interim payments which must be offset, exceed these figures, so there is no interest to pay.
    1. Analysis. The court’s role is to construe a contract. It is not to exercise a discretion. There is no special or favourable allowance made because the claimant is a child and protected party. The court should not ordinarily disapply the usual rules of Part 36 (Matthews v Metal Improvements [2007] EWCA Civ 215; IEH v Powell [2023] EWHC 1037 (KB) (Senior Master Fontaine) applying SG v Hewitt [2012] EWCA Civ 954).
    1. The defendant submits and the court accepts that the contract must be interpreted in the context of Part 36. While that is a self-contained code (CPR 36.1(1)), it seems to me that a Part 36 offer term that forms the essential part of a contract should be read in the context of the principles of Part 36. The defendant is correct about that. The offer term is simply a contractual term the meaning of which is disputed by parties. It is the duty of the court to interpret it.
    1. The orthodox canons of contractual interpretation apply. The court must establish objectively what the term means. In Ho v Adelekun [2019] EWCA Civ 1988, each side approached the case on the basis that the respondent had accepted the appellant’s Part 36 offer made by a letter dated 19 April 2017. The Court of Appeal applied the well-known dicta in Wood v Capita and Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] Q WLR 896 at 912:
“ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.”
    1. It seems clear to me that such an informed and reasonable observer would understand the offer term to mean that after 21 days interest would accrue on the entire offer sum. The way to understand it is to imagine a black box. The amount the claimant offered to compromise the claim and that the defendant accepted to pay is in that black box. By accepting the claimant’s offer, the defendant agrees to give the black box to the claimant. But there is a delay in giving the claimant the box. If the claimant had been given the box with the full sum on the Day 21, he could have invested it and received interest. But he did not get it. Instead, the defendant kept the money for that extra period. In that delay period, two things happened. The defendant benefited from the monies and the claimant was deprived of them. It seems to me obvious that the claimant should receive interest for the net sum for the delay period (or periods, strictly).
    1. The defendant’s argument about future loss is misconceived. One understands the sensitivity of the issue for the defendant as future loss comprises “a very substantial part of the lump sum” (DS §16). It is true that courts do not award interest on future losses as the interest has not accrued (Jefford v Gee [1970] 2 QB 130 (per Lord Denning MR (as then was) reading out the judgment prepared by Lord Justice Salmon). But that is not the case here. What is in the black box is the sum that represents the damages the claimant is willing to accept to meet his future losses. The interest due is not some unquantifiable future loss interest. Instead, it is interest for the period of delay that the claimant was deprived of the total loss figure – a different matter entirely, which includes the future loss, naturally. If the defendant had accepted the offer in a timely way on Day 21, the claimant could have taken possession of the clearly ascertainable total loss sum and invested it earlier by the period of the untimely delay. Instead, he was deprived of its use for the delay period. That is the interest due on the total loss sum, including interest on the amount that represents the future loss.
    1. This analysis is supported by the Court of Appeal in Jefford. There the court stated that interest was not payable on future economic losses because the loss not having occurred, the claimant had not been kept out of any sum. Here, the claimant had been kept out of the offer sum, including its future loss constituent element, for the delay period. Viewed another way, interest is payable is to compensate a party for money that she or he has been kept out of (Sycamore Bidco Ltd v. Breslin [2013] EWHC 174 (Ch)); Bristow v Judd [1993] PIQR Q117 CA). Interest is not punitive or condemnatory. It functions solely to repair the loss of possession of the monies for the delay period. That can be viewed as the loss of ability to invest the money or the depreciation in value over time of money or an element of both.
Issue 2: interest rate
    1. Submissions. The claimant submits that the rate payable should be the judgment debt rate – 8 per cent (s.17, Judgments Act 1838). That is because the delay by the defendant is conceptually equivalent to a default in payment post-judgment: the claimant has lost “the value of a consent judgmiNent” (CS §15). The claimant’s alternative case is that the rate should be the SIA. The defendant argues that delay following Part 36 offer expiration is entirely distinguishable from judgment debt. The rate should be SIA.
    1. Analysis. I can deal with this shortly. There is no authority to support the claimant’s submission that the due rate should be 8 per cent. Thus the matter must be decided on first principles. The rate claimed is a very significant uplift from the SIA rate. It was open to the claimant to specify this rate in the offer term. He did not. In Calonne ([8]), the 8 per cent rate was spelled out in terms:
“3. The Settlement Sum is inclusive of interest until the relevant period has expired. Thereafter, interest at a rate of 8% per annum will be added.”
  1. I cannot see how an informed reasonable observer would read that far higher rate into the term of the offer, which is silent about it. The observer would not conclude that the parties agreed to 8 per cent. That is because it is such a departure from the rate at which interest had been accruing that the reasonable observer would expect, as would the court, that it should be spelled out. Thus, I cannot accept that the judgment debt rate can be read into the contract. If this ambitious submission fails, the claimant accepts that the rate should be the SIA rate. This is what the defendant submits. It is also what the court finds.
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