Interest and Part 36 Offers
MGS v University Hospitals Bristol and Weston NHS Foundation Trust [2023] EWHC 1547 (KB)
Facts
This case related to a high value brain injury from neonatal hypoglycaemia, which settled on the basis of a lump sum of £9.3 million plus periodical payments.
Procedural Background
The Claimant made a Part 36 offer on 17 October 2022 which was accepted by the Defendant on 4 May 2023. The Part 36 offer, after setting out what would be accepted in terms of lump sum and periodic payments, stated: “The offer is deemed to include interest up to the 21 days of [sic] service of this notice. Thereafter, interest will accrue up to the date it is accepted.”
On the Defendant’s acceptance of the offer well after the 21-day period, a dispute arose as to the effect of the term relating to interest. It will be seen that the relevant term did not expressly identify either the capital sum on which interest would run, nor the rate of interest.
It was common ground that:
(a) the interest term was valid in principle, as specifically sanctioned by CPR r.36.5(5); and
(b) that the meaning and effect of the term fell to be determined by the court applying ordinary principles of contractual interpretation.
The Defendant argued that interest only ran on generals and past losses (the heads on which interest would have been assessed at trial). On that basis, because interim payments exceeded anything that might have been awarded for generals and interest together, no interest was payable under this term.
The Claimant argued that interest ran on the full capital sums that would have been payable, following court approval, from the end of the 21 day period to the date of the Defendant’s acceptance (but not over the period between acceptance and court approval which would have occurred in any event, even with prompt acceptance within the 21-day period). In the absence of a specified rate, it was argued that the rate to be implied was:
(a) the Judgment Act rate of 8%, alternatively;
(b) the High Court Special Account rate.
The Judgment
Dexter Dias KC (sitting as Deputy High Court Judge), after argument at the approval hearing, found that interest was payable on the full capital sums due (the lump sum net of interim payments, and the first periodical payment that would have been payable on 15 December 2022) at the High Court Special Account rate. As it happened the effect of this was to add interest of about £129,000.
Analysis – Points to Consider in Formulating Part 36 Offers for Claimants
(a) there is generally no reason not to make provision for interest to run after the end of the 21-day period;
(b) there is no harm in making clear that interest runs on the full capital sum(s) that are due as at the date of acceptance, although the court in this case accepted that this was implicit; and
(c) it is worth specifying the rate at which interest will run after the 21-day period.
As to (c), the rate to specify in the Part 36 offer: this may be a matter of judgement and tactics. In theory it could be the Judgment Act rate, or even higher than 8%, but if it is pitched too high then it may reduce the chances of the offer being accepted after the 21-day period, or conversely possibly improve the chances of it being accepted within the 21-day period. In many circumstances it may be that the Special Accounts rate is felt to be most appropriate rate to specify.
