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Enhanced interest awards - where failure to negotiate or accept reasonable Part 36 offers bites

4 August 2017
This article is taken from August's public matters newsletter. Click here to view more articles from this issue.


In the recent case of OMV Petrom SA v Glencore International AG [2017] EWCA Civ 195, the Court of Appeal provided guidance on the award of enhanced interest where a claimant makes a Part 36 offer which is rejected and then beaten at trial.


The case concerned the claimant Romanian oil company, OMV Petrom SA, and the defendant, Glencore International AG, where a dispute arose between them as a result of the defendant’s supply of crude oil between 1993 and 1997.

Essentially, on 9 April 2014, the claimant made a Part 36 offer for $35 million inclusive of interest together with costs. The defendant did not make a counter offer, reject or respond to the offer. They failed to negotiate or enter into any sort of alternative dispute resolution. Instead the claim was defended right through to trial in January 2015 following which judgment was awarded to the claimant in the sum of $40,071,913 without interest or costs; clearly beating its own Part 36 offer. The case was exceptional in that the judge noted that liability "rested in large measure on the evidence of witnesses who were liars and Glencore put Petrom through the hoops of having to establish liability, in a very flagrant case of fraud, in a manner which was wholly unreasonable".

As a result of this, the judge then awarded the claimant the following:

  1. interest on the judgment sum up to the expiry of the Part 36 offer at the rate of 6-month US$ LIBOR plus 2.5% (the ‘Agreed Rate’) totalling over US$44 million
  2. interest from the expiry of the Part 36 offer up to judgment at the Agreed Rate plus 3.5% per annum totalling some US$2.2 million
  3. further interest after judgment
  4. the sum of £75,000 under what was then Civil Procedure Rules (CPR) Part 36.14(3)(d) (now 36.17(4)(d) plus interest
  5. indemnity costs in sterling plus interest at a rate of 2.5% per annum up to the expiry of the Part 36 offer
  6. indemnity costs plus interest at a rate of 4.5% per annum between the expiry of the Part 36 offer and judgment
  7. indemnity costs plus interest at a rate of 8% per annum (the judgment rate) thereafter.

The claimant then appealed the rate of interest awarded on both the judgment sum and on the costs for the period between the expiry of the Part 36 offer until judgment asserting that they should have been awarded a rate of enhanced interest by the maximum amount of 10% per annum. One of the arguments the claimant’s deployed was that the defendant had behaved so unreasonably in the litigation that the enhanced interest award should reflect not just difficult litigation but should also seek to dissuade parties from such conduct. The defendant, in its view, ticked every box of an extremely unreasonable litigant and merely being compensated for having to go through litigation and all the way to trial did not accurately reflect the position in this case.

On the other hand, the defendant argued that the rate of interest awarded was correct as the provisions in the CPR are intended to be compensatory and not penal as concluded by the judge in the case of McPhilemy v Times Newspapers Ltd and others [2001]EWCA Civ 871.

Relevant CPR provisions

Part 36 was revised in April 2015 and so the applicable provisions for this case were contained in CPR 36.14 as set out below. For offers made post April 2015 the provisions to be relied on are materially the same but are now contained in CPR 36.17.

CPR 36.14:

Costs consequences following judgment


(1) This rule applies where upon judgment being entered—

(b) judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant's Part 36 offer.

(3) Subject to paragraph (6), where rule 36.14(1)(b) applies, the court will, unless it considers it unjust to do so, order that the claimant is entitled to -

(a) interest on the whole or part of any sum of money (excluding interest) awarded at a rate not exceeding 10% above base rate for some or all of the relevant period starting with the date on which the relevant period expired.

(b) his costs on the indemnity basis from the date on which the relevant period expired; and

(c) interest on those costs at a rate not exceeding 10% above base rate

(d) an additional amount, which shall not exceed £75,000, calculated by applying the prescribed percentage set out below to an amount which is -

(i) where the claim is or includes a money claim, the sum awarded to the claimant by the court; or

(ii) where there is only a non-monetary claim, the sum awarded to the claimant by the court in respect of costs -

 Amount awarded by the court   Prescribed percentage
 Up to £500,000   10% of the amount awarded
 Up to £500,000   10% of the first £500,000 and (subject to the limit of £75,000) 5% of any amount above that figure

(4) In considering whether it would be unjust to make the orders referred to in paragraphs (2) and (3) above, the court will take into account all the circumstances of the case including –

 (a) the terms of any Part 36 offer;

 (b) the stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made;

 (c) the information available to the parties at the time when the Part 36 offer was made; and

 (d) the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer to be made or evaluated.”


The court allowed the appeal and awarded the full enhanced interest award of 10% to the claimant. The Chancellor of the High Court, Mr Justice Vos in his leading judgment stated that in his view “the objective of the rule has always been, in large measure, to encourage good practice”.


The court reasoned that the recent Jackson reforms and court’s rulings in Denton showed that the purpose of the CPR post-reform is to use "both the carrot and the stick” and that there is a penal element to the CPR now (especially from the additional award up to £75,000 in 36.14 (d)) to prevent parties from litigating without serious thought to the consequences. The judgment is clear that the maximum enhanced interest award will not be a starting point and the defendant’s conduct throughout the dispute had been exceptional. Even though the defendant raised an arguable but ultimately unsuccessful point of law on appeal this was not enough to negate the fact that they did not attempt to reach a compromise at all during the litigation or engage in any negotiations.

What should determine the level of enhanced interest award

Mr Justice Vos considered that where the claimant obtains a judgment at least as advantageous as its Part 36 offer the court should analyse all the circumstances of the case. There is no formula but the following factors, amongst many others, should be taken into account:

“(a) the length of time that elapsed between the deadline for accepting the offer and judgment;

(b) whether the defendant took entirely bad points or whether it had behaved reasonably in continuing the litigation, despite the offer, to pursue its defence; and

(c) what general level of disruption can be seen, without a detailed inquiry, to have been caused to the claimant as a result of the refusal to negotiate or to accept the Part 36 offer.”


The figures in dispute in this case were significant. However, this case is once again a reminder that when a defendant receives a Part 36 offer, even if it thinks it has a good defence or a point of law up its sleeve that this is not a sufficient reason to avoid all attempts to settle the case or engage in settlement discussions. Parties should think very carefully before turning down opportunities to mediate, even if they believe that the prospects of success are overwhelming. The courts believe that a good mediator can engineer a settlement of such cases without a payment or the relief claimed being recovered. The costs consequences of a Part 36 offer have long been talked about, however, the courts will now also add to the sting if absolutely necessary with the interest award.

View more articles from August's public matters newsletter.

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