Telefonica UK Ltd v The Office of Communications

Where a claimant obtains a judgment at least as advantageous as a genuine CPR Part 36 offer, the four forms of enhanced relief normally follow unless their award would be unjust. A high offer may bear on whether it was a genuine settlement offer. Once it has been found genuine, however, its high level or the small margin by which it was beaten cannot itself justify refusing enhanced interest.

Proportionality concerns go to the rate of enhanced interest, for which the court has a wide discretion, rather than to whether any interest should be awarded. Reasonable conduct of litigation may affect the rate of interest on costs, but does not alone make an award unjust where the defendant caused avoidable costs by failing to accept the offer.

Telefónica sought restitution of annual licence fees paid under invalid regulations. It made two unaccepted Part 36 offers before trial. The Commercial Court awarded the full revised principal claim, with simple interest, in the underlying proceedings: [2019] EWHC 1234.

On consequential matters, the judge awarded indemnity costs and the maximum additional amount under CPR 36.17(4), but refused enhanced interest on the judgment sum and costs. Telefónica appealed that refusal. The central issue was whether the factors identified by the judge made it unjust to award either form of enhanced interest.

1. Appeal allowed unanimously. The judge’s refusal of enhanced interest under CPR 36.17(4)(a) and (c) was set aside. Telefónica was awarded an additional 1.5% per annum on both the principal sum and its costs from the relevant date, making total interest 3.5% above base rate.

2. CPR 36.17(4) establishes the ordinary consequences where a claimant beats its Part 36 offer. The judge had correctly awarded indemnity costs and the additional amount. It would be unusual for the same circumstances to justify only some of the four consequences. Ofcom’s public status and the fact that public money was involved did not relieve it from those ordinary consequences.

3. The high level of an offer can be relevant to whether it was a genuine attempt to settle. Once the judge found the offers genuine, however, their level could not itself make enhanced interest unjust. Refusal on the basis that the enhancement was disproportionate to the margin by which the offers were beaten improperly reintroduced the approach displaced after Carver v BAA plc [2009] 1 WLR 113.

4. As explained in OMV Petrom SA v Glencore International AG [2017] 1 WLR 3465, the decision whether to award enhanced interest is distinct from fixing its rate. The court must ensure that the rate is proportionate in all the circumstances. It may therefore award a low or nominal uplift, but cannot refuse any enhanced interest merely because a significant uplift would be disproportionate.

5. The same distinction applied to interest on costs. The relevant question was which party caused costs that should not have been incurred. Reasonable conduct after rejection of an offer may affect the rate, but could not alone make any award unjust where Ofcom could have avoided the costs by accepting the offer.

• Court of Appeal (Civil Division): Allowed Telefónica’s appeal and awarded enhanced interest on the principal sum and costs.
• Commercial Court (QBD): In the underlying proceedings, awarded Telefónica its revised principal claim and simple interest in [2019] EWHC 1234. On consequential matters, it awarded indemnity costs and £75,000, but refused enhanced interest. The substantive decision was upheld on appeal at [2020] EWCA Civ 183.