Mr Justice Ritchie has confirmed that, for the costs consequences of Part 36 to apply where an offer combines both a lump sum element and a periodical payment award, both must be beaten.

In the case of CCC v Sheffield Teaching Hospitals NHS Foundation Trust, the claimant was awarded £6.8m on a lump sum basis together with an indexed PPO of £394,940 at trial. She applied for an order for indemnity costs, additional award and interest on costs and damages based on a Part 36 offer made seven weeks before trial. The Part 36 offer made was for a lump sum of £7m and a periodical payment award of £360,000 per annum. The PPO awarded therefore beat the offer made by sum considerable margin, but she failed to beat the lump sum element of the award. The claimant’s view was that, on a capitalised basis, the total award made by Mr Justice Ritchie was greater capitalised value of the offer by some £600,000. For the purposes of Part 36, she had therefore beaten her offer at trial: the total award was “more advantageous to the claimant” – Rule 36.17 (1) (b).

Mr Justice Ritchie disagrees.

As defined at Rule 36.17 (2); “in relation to any money claim or money element of a claim, “more advantageous” means better in money terms by any amount, however small, and ‘at least as advantageous’ shall be construed accordingly.”. Mr Justice Ritchie notes the distinction between single offers and combined offers. He notes that a Part 36 offer could be made in respect of a single head of loss, which if beaten at trial would have associated consequences for that head of loss alone – the same of which could be said for a PPO. A combined offer could be made, however, an offeree cannot just accept one part of that offer – it is a “take it or leave it offer”. The formulation of such an offer is dependent on the heads of loss within it and there will be cross over between the two - the “catch up lump sum” between the date of the award and the first payment of the periodical payment.

Mr Justice Ritchie rejects the claimant’s argument that the correct way to determine the value of an offer in “money terms value” is to capitalise the PPO. Firstly, there may be no agreement on the multiplier and this may have to be determined by the court. Secondly, the purpose of a PPO is to avoid the use of a multiplier. The only certainty about life expectation estimates is that they will be wrong! To introduce a multiplier to determine the money terms value of a PPO is therefore contrary to principle. Finally, Mr Justice Ritchie says that combined offers should not be treated differently to single offers for a PPO – the money terms value is the multiplicand.

Mr Justice Ritchie rejects that the claimant would suffer injustice as a result of not receiving the benefit of Part 36 as the total money terms value, on the basis of her argument, was significantly less than the award made at trial. He states that it was open to make individual offers and, had she done so, she would have failed to beat the lump sum evidence: “her estimate was not successful”.

The lack of previous authority on this point was noted, however, Mr Justice Ritchie’s view was that the method to assess the success of a Part 36 offer must be “kept simple and clear”.

So what does this mean for practitioners? Mr Justice Ritchie has reinforced the message that the offeror must “beat everything” for the consequences of Part 36 to arise. In doing so, he has highlighted the risk of making combined offers for claims which will attract a periodical award. We may now see separate Part 36 offers, with one for a lump sum and one for a PPO – and insurers need likewise to consider single offers to ensure the best costs protection in their claims.

Kate Mikolajewski is a Solicitor/Catastrophic Injury and Large Loss Injury Team Manager, and is a member of the Clyde & Co Actuarial SMG.