Under Part 36, defendants who fail to accept a reasonable offer by the claimant risk financial penalties if the claimant goes on to beat that offer at trial. The High Court has now clarified how these penalties are to be calculated.
In Mohammed v Secretary of State for the Home Department  EWHC 3051(QB), Mr Mohammed made a Part 36 offer to accept £70,000 in compensation for unlawful detention. At trial, he was awarded £78,500.
Since Mr Mohammed had been awarded more at trial than he had offered to accept, the Home Office was also liable under Part 36 to pay him a 10% uplift on his damages and enhanced interest of up to 10% above base rate. The parties agreed that he was entitled to basic pre-judgment interest of 2% pa, but disagreed as to the appropriate rate of enhanced interest and as to the amount to which the 10% uplift should be applied. The court’s options were to apply it to:
- the net award of damages;
- the gross award of damages, including basic interest; or
- the damages plus all interest awarded, including enhanced interest.
Mr Edward Pepperall QC, sitting as a deputy High Court judge, said that the proper approach was to apply the uplift to the gross award that would have been made but for the Part 36 offer. This included basic interest, but excluded enhanced interest, which was only payable by virtue of Part 36. The appropriate rate of enhanced interest was 6% above base rate, taking into account that Mr Mohammed had conducted his claim reasonably and that the Home Office had failed to re-evaluate its case in the light of the offer.
In summary, this meant that Mr Mohammed was entitled to receive £78,500 by way of damages, plus basic interest at 2% per annum from service of proceedings until judgment, plus an uplift of 10% on the combined sum, plus enhanced interest on the same sum at 6% above base rate from the expiry of his Part 36 offer until judgment.
The case is a very useful confirmation that enhanced interest and the 10% uplift are separate penalties for non-acceptance of reasonable offers, both of which are to be applied to the gross damages including basic interest figure. Defendants who receive Part 36 offers should take this into account when assessing whether or not to accept.