Costs Litigation Blog

In this article Jake Loomes looks at the recent case of MGS v University Hospitals Bristol and Weston NHS Foundation Trust [2023] EWHC 1547 (KB).
The case concerned a child (MGS) born in October 2009 who suffered a permanent brain injury after becoming progressively hypoglycemic in the days after his birth. The claim related to the permanent injuries suffered as result of the clinical negligence of the Defendant: University Hospitals Bristol and Weston NHS Foundation Trust. Liability was admitted and two issues came before the Court, namely: (1) approval of the settlement agreement (the Claimant being a protected party); and (2) the interest payable on a Part 36 offer that had been accepted by the Defendant out of time. The second of these issues gives rise to instructive and important points of practice.

The facts

The Defendant admitted liability on 17 May 2018. The case therefore proceeded as a dispute as to quantum only. Following a joint settlement meeting in October 2022, both parties made Part 36 offers. The Claimant made a Part 36 offer dated 17 October 2022. That offer of full and final settlement was for a £9.3 million lump sum, pro rata sum for care and case management up until December 2022 and periodical payments starting in December 2022 at £190,000 and rising to £238,000 from December 2028.
On the issue of interest, the Claimant’s Part 36 offer read:

“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.”

The Defendant accepted the Claimant’s Part 36 offer on 4 May 2023 nearly six months after the expiry of the relevant 21 day period.

The Part 36 interest issue

Both parties accepted that, in principle, interest was recoverable on Part 36 offers, subject to their wording. They agreed [§16] that as the settlement involved a protected party, some period of interest between acceptance and the time taken for it to be approved by the Court was not recoverable. This is because that period of ‘delay’ cannot be attributed to the Defendant’s late acceptance of the offer.

The dispute was whether the wording used by the Claimant allowed such recovery of interest and if so, on what damages and at what rate. The Court was therefore required to resolve the interpretation of the contractual terms of the Part 36 Offer.

A key thread to one of the Defendant’s submissions was that part of the net sum of the Part 36 offer (some money having been deducted for interim payments made) included future losses. In principle interest is not recoverable on future losses. The Defendant’s contention, amongst others, was that any interest on such future losses, however construed, was not recoverable.

Decision as to Part 36 interest

Against that background, Dexter Dias KC (sitting as a Deputy High Court Judge) decided as follows:

1. The Court was not exercising discretion, it was interpreting a contract albeit in the context of Part 36 [§19]
2. The well-established approach to contractual interpretation following Wood v Capita and Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] Q WLR 896 [§912] should be applied [§21].
3. An informed and reasonable observer would understand the offer term to mean that after 21 days, interest would accrue on the entire offer sum [§22].
4. If the Claimant received that sum within the 21 days he could invest and receive interest from it. The delay of the Defendant allowed the Defendant to benefit from any such interest to the detriment of the Claimant [§22].
5. The Defendant’s argument as to future loss and interest was misconceived. While correct following Jefford v Gee [1970] 2 QB 130 that interest does not accrue on future losses as the loss has not occurred, the Part 36 offer represents the damages the Claimant is willing to accept in order to meet his future losses. It is not interest on an unquantifiable future loss, rather is it for the period of delay the Claimant was deprived of that total loss figure [§23].
6. Support for the position could be derived from Jefford. The Court of Appeal there referred to the claimant as not having been kept out of any sum of money. The opposite was true in the present case [§24]. Further support for this principle was derived from Sycamore Bidco Ltd v Breslin [2013] EWHC 174 (Ch)); and Bristow v Judd [1993] PIQR Q117 CA [§24].
7. The Claimant had been deprived of the benefit of the whole of the lump sum (subject to interim payments) over the period of delay in acceptance. He was entitled to be compensated for being kept of out this money. The fact that some of it was in respect of future losses did not change this entitlement,
8. As to the appropriate interest rate, this was unspecified in the Part 36 offer. Whilst it was open to the Claimant to have specified a rate of 8% in the offer (as was done in Calonne Construction Limited v Dawnus Southern Limited [2019] EWCA Civ 754) he had not done so [§26]
9. The judgement rate contended for the claimant was, at 8%, too high. The informed observer would not conclude that the correct rate to be applied in the circumstances (as a matter of contractual construction) was the special investment rate [§27].

Comment and practical takeaways

MGS confirms that just because a Part 36 offer includes a sum of money representing future losses, interest on the full sum is still recoverable if the terms of the offer so provide.

This case is an important reminder that a well drafted Part 36 offer should include clear and unambiguous provisions as to interest. Crucially, practitioners should be aware of the following:

1. If the interest provision is not included, then CPR 36.5(5) will apply, and the Part 36 offer will be treated as inclusive of all interest up to the date of acceptance. In the present case that would have potentially deprived the Claimant of a six-figure sum (interest of approximately £160,000).
2. When seeking interest in a Part 36 offer, the following should be stated clearly:
   • The date from when interest applies;
   • What sum the interest applies to; and
   • The rate of interest.
3. It is entirely open to claimants to specify a rate of 8% accruing after the end of the relevant period as was the case in Calonne.
4. In the absence of any specified rate, the special account rate is likely to apply.