HAS A PART 36 OFFER BEEN BEATEN WHEN THE VALUE OF CURRENCY CHANGES? A HIGH COURT DECISION

The judgment of Mr Justice Leggatt today in Novus Aviation Ltd -v- Alubaf Arab International Bank BSC (c) [2016] EWHC 1937 (Comm) contains some interesting observations on Part 36 offers.

KEY POINTS

  • A claimant “beat” its own Part 36 offer only because of a change in the value of currency at the time that judgment was given.
  • In these circumstances it would be unjust to apply the normal Part 36 consequences to the offer.

 

THE CASE

The claimant (Novus) had been successful in recovering damages for breach of contract from the defendant.

THE CLAIMANT’S PART 36 OFFER

Costs
  1. It is plain that Novus has been the successful party in this case. Although it has not succeeded on every issue or recovered the full amount claimed, I do not consider that any of the issues on which Novus did not succeed was of sufficient significance to justify departure from the general rule that the unsuccessful party will be ordered to pay the costs of the successful party. Nor do I consider that the criticisms made by Alubaf of the late disclosure of certain documents and the way in which the trial bundle was prepared demonstrate unreasonable conduct of the kind which merits a sanction in costs. Accordingly, before any account is taken of the Part 36 offer made by Novus which I will come to next, I think it right to order Alubaf to pay Novus’ costs of the action.
The claimant’s Part 36 offer
  1. On 30 April 2014 Novus (through its solicitors) made a Part 36 offer to Alubaf as follows:
“That your client pay our client an amount of £3,775,272. This amount is a significant 25% discount on our client’s claim.”
The letter went on to make it clear that the offer included interest.
  1. The version of Part 36 applicable to this claim is that issued in October 2013. The key provision for present purposes is CPR 36x.14, which states:
“(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.
(1A) For the purposes of paragraph (1), 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.
(3) … 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 period starting with the date on which the relevant period expired;
(b) costs on the indemnity basis from the date on which the relevant period expired;
(c) interest on those costs at a rate not exceeding 10% above base rate; and
(d) an additional amount, which shall not exceed £75,000, calculated by applying the prescribed percentage set out below to … the sum awarded to the claimant by the court in respect of costs …
(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.”
  1. Applying my decisions on the appropriate discount rate and rate of interest, the amount for which judgment is today being entered in favour of Novus is US$5,430,924 (including interest of US$160,438). At the current exchange rate this is equivalent to a sterling figure of £4,117,114. Novus submits that it has accordingly obtained a judgment which is more advantageous than its Part 36 offer and that it should in these circumstances be awarded interest at the rate of 10% above base rate, costs on the indemnity basis and an additional payment of £75,000 pursuant to CPR 36x.14(3).
  2. Of the three arguments made by Alubaf in response to this application, I see no merit in its submission that Novus has failed to beat the Part 36 offer because the offer was for Alubaf to pay 75% of the amount claimed in damages and 75% of that amount is US$6,089,148. On its plain wording the Part 36 offer was an offer to accept a specified amount of money. The statement that “this amount is a significant 25% discount on our client’s claim” was obviously only intended as an advertisement for the offer and an explanation of how the amount of the offer had been arrived at.
  3. There is more substance at least at first sight in Alubaf’s second submission that the judgment obtained by Novus is not in fact as advantageous to Novus as the proposal made in its Part 36 offer. The basis for this submission is that the currency in which Novus conducts its business and suffered loss is US dollars, and that the value in US dollars of the offer when it was made was US$6,342,457, substantially more than the amount of the judgment that Novus has obtained. This argument assumes, however, that the relevant time at which to make the comparison required by CPR 36.14 is the time when the offer was made (or perhaps the end of “the relevant period”, as defined in CPR 36x.3(1)(c) and now 36.3(1)(g)). That assumption cannot be supported. It is clear from the terms of the rule that the time at which the comparison in money terms between the judgment and the Part 36 offer is to be made is “upon judgment being entered”. I respectfully agree with the decision of David Richards J in Barnett v Creggy[2015] EWHC 1316 (Ch) at paras 26-30 that this means the date when the order containing the court’s judgment is made.
  4. This conclusion is also logical because, as Novus points out, its Part 36 offer was never withdrawn and remained open for acceptance at any time (subject to the requirement to obtain the court’s permission after the trial had begun). Thus, Alubaf could in principle have accepted the offer at any stage, if it came to the view that the offer had become sufficiently attractive – for example, because of the interest which would by then have accrued on the amount claimed or because of movements in exchange rates, or for any other reason.
  5. It does not follow that comparison of the amount of money recovered by Novus with the value of its Part 36 offer at the time when the offer was made is irrelevant. Its relevance is in considering whether it would be unjust to make orders for interest at an enhanced rate and indemnity costs or to do so for the full period. In making that assessment, the court is required by CPR 36x.14(5) to take into account all the circumstances of the case; and it is, in my view, a highly material circumstance that the only reason why Novus has beaten its Part 36 offer is not that it has recovered more than 75% of its claim but that sterling has recently fallen against the dollar.
  6. At the time when the Part 36 offer was made the sterling/dollar exchange rate stood at around £1=$1.68. Today it is around £1=$1.31. Ignoring the complicating factor that a judgment obtained at an earlier date would have included less interest, it was only when the value of sterling fell to around £1=$1.43 that the judgment sum of US$5,430,923 became as advantageous to Novus in money terms as the amount of its Part 36 offer. That did not happen until February of this year. Thereafter the exchange rate fluctuated either side of that level. At the start of the trial the exchange rate was around £1=$1.46. It was only after the UK’s referendum on 23 June 2016 that sterling fell sharply thus significantly reducing the dollar value of the Part 36 offer. If judgment had been entered at any time between the start of the trial on 26 April and 23 June 2016, Novus would not have beaten its Part 36 offer and orders for interest at an enhanced rate and indemnity costs could not have been made. It is only through the happenstance that the judgment was not handed down until 30 June 2016 that the possibility of making such orders exists.
  7. I consider that it would in these circumstances be unjust to make orders under CPR 36x.14(3) for any part of the period between the date on which “the relevant period” expired and today’s date. The reality is that if at almost any time between the date when the offer was made and the end of the trial Alubaf had accepted the offer, the sum received by Novus would have been worth more than the judgment which it has ultimately obtained (even ignoring the time value of money). It would in these circumstances be adventitious and inconsistent with the principle of risk allocation which underlies Part 36 to penalise Alubaf for not accepting the offer.
Assessment of costs
  1. It follows that the costs payable to Novus should be assessed on the standard basis, if not agreed. Novus has prepared a schedule of its costs of the action which amount to £511,798. Alubaf accepts that an order should in principle be made for a payment on account of costs and I consider that an appropriate amount to order by way of such an interim payment is £250,000.

 

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