The case of Barry v Essex County Council [2025] EWCC 64; DDJ Rathod found that the enhanced interest on costs awarded to the Claimant following their beating their own Part 36 offer should be applied to the aggregate of all costs after the expiry of the offer, not on each individual item of costs incurred.
In this case, the time between the expiry of the offer and the trial was 3 years and 8 months which was unusually lengthy. DDJ Rathod found that the natural and ordinary meaning of the final order was that the “aggregate costs method” was correct and that any punitive effect of this was consistent with authority and the policy behind Part 36, which was designed to encourage parties to seriously consider early settlement.
The Background
The Claimant in a personal injury claim succeeded at trial and beat their own Part 36 offer on liability. The Claimant had made a Part 36 offer to settle the issue of liability 70:30 in the Claimant’s favour; the date of expiry of the offer was 28 October 2019. The matter proceeded to trial, with quantum partly agreed at £27,031 subject to liability. At trial, in July 2023, the Claimant recovered damages on a 100% basis.
The Claimant was therefore awarded an additional 10% of the damages awarded, and additional interest at a rate of 9% per annum from the date of expiry of the offer to the first day of trial; this was calculated to be £8,971.33. The order read as follows:
“4. Pursuant to Part 36.17(4)(b) the Defendant do pay the Claimant’s costs up to the 28th October 2019 on the standard basis and costs from the 28th October 2019 on the indemnity basis to be subject to detailed assessment unless agreed.
5. Pursuant to Part 36.17(4)(c) the Defendant do also pay additional interest on those costs to be paid to the Claimant from 28th October 2019 at the rate of 9% per annum.”
A bill of costs, totalling £91,173.92 was prepared and costs were ultimately agreed at £75,000, excluding interest and the costs of the assessment. The parties were unable to agree to the way in which interest post expiry of the offer should be calculated and the Claimant issued an application on 25 April 2025 for this to be resolved by the Court.
The question for the Court to decide was whether the interest should be calculated by applying the additional 9% per annum to the aggregate of all costs after the expiry of the offer (the “aggregate costs method”); or on each individual item of costs incurred (the “individual item method”). These were, respectively, the Claimant’s and Defendant’s positions.
The Defendant’s position
The Defendant relied on the fact that McPhilemy was binding on DDJ Rathod and that its reasoning was that the power to award indemnity costs or a higher rate of interest was a means to achieve a fairer result for a Claimant than might otherwise have been the case. He accepted the punitive element of Part 36 but contended that the aggregate costs method went beyond that into “absurdity”; citing the example of interest being payable on Counsel’s brief fee, three years before it was incurred.
The Claimant’s position
The Claimant’s position could be summarised into two arguments:
- That based on the natural, ordinary meaning, of the words used in the order the aggregate costs method should be used.
- In the alternative, if the interpretation of the order remained at large, the aggregate costs method would be consistent with case law, the policy behind Part 36, and practical reality of calculating interest on costs after the expiry of a Part 36 offer. Counsel for the Claimant submitted that the case of McPhilemy v Times Newspapers Ltd [2001] EWCA Civ 933 (“McPhilemy), on which the Defendant relied, was not binding on DDJ Rathod in this case; relying on the interpretation in OMV Petrom SA v Glencore International AG [2017] EWCA Civ 195 (“Petrom”) and also noting that the policy behind Part 36 had now changed and it was accepted that there was a punitive element to the Part 36 “enhancements”.
DDJ Rathod’s consideration
DDJ Rathod considered the provisions at CPR 36.17 as well as the cases of McPhilemy and Petrom in detail and other relevant cases.
In McPhilemy it was decided by Chadwick LJ that it would be unjust to award enhanced interest upon a damages award that would not itself have attracted interest (the case having been a libel claim).
In Petrom, Sir Geoffrey Vos found that McPhilemy was not binding on the court in relation to interest on the Part 36 award. He commented that the court’s comments that any order under CPR Part 36.21(2) and (3) was compensatory rather than penal were obiter. However he then went on to hold that the decision on enhanced interest on costs was ratio. DDJ Rathod confessed to finding these two comments confusing when taken together, however held that his reading of the judgment was that “the Chancellor appears to interpret the extent of Chadwick LJ’s decision on enhanced interest on costs as being limited to enabling the court to achieve a fairer result in respect of payments on account of costs and reflecting the cost of money.”
DDJ Rathod’s decision
As to the Claimant’s argument that the natural, ordinary meaning, of the words used in the order was that the aggregate costs method should be used; DDJ Rathod agreed. The order specified the date from which interest should be calculated at an annual rate of 9% and identified the period of costs that such interest applies to. This accorded with how such orders are generally made, but was also faithful to Lord Neuberger’s dictum in Simcoe v Jacuzzi UK Group plc [2012] EWCA Civ 137 that decisions on interest should be broad brush.
This decision was sufficient to dispose of the application but DDJ Rathod went on to provide his alternative argument that the aggregate costs method is consistent with authority and the policy behind CPR Part 36. In that regard he found that the outcome in McPhilemy was not binding on lower courts but the reasons behind the decision were, insomuch as they were relevant to the issues in the present application. Further, he commented that the decision in McPhilemy was decided before the Jackson reforms and had been diluted further by the Court of Appeal’s treatment of it in Petrom. DDJ Rathod therefore found that he was entitled to interpret the order in such a way it would produce a response for the Claimant which was “non-compensatory” and might be regarded as punitive. This was in keeping with the ‘post-Jackson’ policy of Part 36 which has been referred to in case law as a “carrot and stick” approach. In the circumstances; DDJ Rathod was not convinced by the Defendant’s suggestion that the “aggregate costs method” would result in an absurdity; rather it was the outcome of a rule which was designed to encourage early settlement.
As to the parties’ remaining arguments, DDJ Rathod was not persuaded by the Defendant’s submission that there should be alignment between the way in which interest was awarded on damages and on costs. However he considered there to be great force in the Claimant’s argument that the “individual item method” was unworkable in practice and disagreement about the calculations would add greatly to the work done by Costs Judges carrying out detailed assessments.
For the above reasons, it was found that the “aggregate costs method” was the method which was consistent with authority, the policy behind Part 36, and the practical reality of calculating enhanced interest.
It was therefore ordered that interest would be calculated at the rate of 9% per annum on the aggregate of all costs incurred from 28th October 2019 to the date of that Order (6th July 2023).
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