Beating the odds: High Court clarification on lump sum and PPO Part 36 offers

On 13 July 2023, Mr Justice Ritchie sitting in the High Court found that a claimant must beat both the lump sum and a periodical payment element at trial to be awarded Part 36 advantages.

Background

This was a clinical negligence claim where there was an admitted failure to prevent the claimant (aged eight at trial) sustaining severe chronic partial hypoxic ischaemia before and during her birth, causing cerebral palsy. Mr Justice Ritchie awarded a gross lump sum of £6,866,615 with an indexed Periodical Payment Order (PPO) of £394,940.

The claimant had previously made a combined Part 36 offer of a gross lump sum of £7,000,000 with an indexed PPO of £360,000 two months prior to trial. She had therefore beaten her offered indexed PPO but failed to beat the lump sum offered. The claimant argued she had beaten her own Part 36 offer on the basis of the PPO being capitalised into a lump sum. She applied for an Order under Part 36.17 for indemnity costs, additional damages and interest.

Decision

Mr Justice Ritchie rejected the argument that the claimant had beaten her offer. The claimant had made a combined offer to settle all heads of losses which could only be accepted as a whole.

The court rejected the claimant’s argument that it should approach the Money Terms Value (MTV) of the total award by capitalising the PPO using the agreed life multiplier and adding the total to the lump sum. Mr Justice Ritchie considered this was flawed as:

1. Parties would often disagree as to the multiplier, such that the court would have to use the awarded multiplier, which did not exist at the time of the Part 36 offer;
2. Reintroducing the multiplier to determine the MTV of a PPO is contrary to principle; and
3. He did not consider that combined offers should be treated differently from single offers in relation to MTV (the MTV of a single offer being the figure stated as the multiplicand).

The judge did not agree that the claimant would suffer an injustice, firstly where the claimant could have made individual offers, such that her PPO offer would have been beaten and she would have enjoyed the consequent Part 36 advantages of that. Secondly, she would have failed to beat a single lump sum offer and the combined offer was not the same as two individual offers, and did not have the same result. The claimant’s aim in making a combined offer was to settle the whole of her claim by estimating the value of the two different forms of award, which was unsuccessful.

Whilst there was no prior authority on the point, Mr Justice Ritchie considered that the rules on whether an offer has been beaten or not should be kept simple and clear. He accepted the Trust’s argument that a combined offer has two parts:

1. A lump sum figure; and
2. A PPO figure.

He noted that no capitalisation of the PPO is relevant in ascertaining the MTV and therefore, in order for a party to beat their combined Part 36 offer, both parts must be beaten. In this case, the claimant had not beaten her combined Part 36 offer on that basis.

Comment

This is the first authority on the point which in our view represents a sensible, pragmatic and workable solution. The intention of the Part 36 Rules has always been to encourage good practice and create an incentive for early settlement together with the bite of sanctions; this decision is very much in keeping with those guiding principles.

Interestingly, Mr Justice Ritchie also certified the issue of damages for children’s lost years claims as justifying leapfrog appeal to the Supreme Court.