Summary

Where a claimant had obtained a judgment sum more advantageous than its Part 36 offer solely because of a sharp change in the exchange rate between the sterling and dollar, it would not be just to order the defendant to pay interest at an enhanced rate and indemnity costs. Throughout the trial the exchange rate would have resulted in a less advantageous judgment sum. It was only by chance that the judgment was handed down shortly after the UK's decision to leave the EU caused the sudden change in rate.

Facts

Following the claimant's successful claim for breach of contract, a judge had to determine issues concerning damages and costs.

The claimant was a management company that had been contracted to manage the lease of an aircraft on behalf of the defendant Bahraini investment bank. Under the contract, which was intended to run until 2022, the claimant was entitled to annual management fees and a fee on disposal of the aircraft. The amounts were denominated in US dollars. When the defendant breached the contract, the claimant sued for its losses. In April 2014 the defendant refused the claimant's Part 36 offer that the defendant pay £3,775,272 (equating to USD 6,342,457 at the time). On 30 June 2016, judgment was awarded in the claimant's favour for management fees lost. As the fees would have been payable in the future, the instant hearing was arranged to calculate the damages subject to a suitable discount rate to reflect the time value of money. After the appropriate discount rate was determined and applied, the judgment sum in favour of the claimant was USD 5,430,924. At the instant exchange rate, that equated to £4,117,114. The issue was whether the claimant had beaten its part 36 offer albeit that the offer's value in US dollars when it was made in 2014 was substantially more than the judgment sum and, if so, whether costs consequences should be applied against the defendant under CPR r.36.14.

Held

When considering Part 36 offers, the comparison in money terms between the judgment and the offer had to be made on the date when the order containing the court's judgment was made, Barnett v Creggy [2015] EWHC 1316 (Ch) applied. That conclusion was logical because in the claimant's case the offer was never withdrawn and remained open for acceptance at any time. The defendant could have accepted it if it had decided the offer had become sufficiently attractive because of interest accruing on the claim, movements in exchange rates or any other reason. However, that did not mean that the value of the offer at the time it was made was irrelevant. Its relevance came in considering the Part 36 costs consequences and whether it would be unjust to make orders under r.36.14 for interest at an enhanced rate and indemnity costs, for some or all of the period. In making that assessment, the court had to take into account under r.36.14(5) all the circumstances of the case. It was a highly material circumstance that the only reason why the claimant had beaten its offer was because sterling had recently fallen against the dollar. When the offer was made, the exchange rate stood at around USD 1.68 for every pound. It was only in February 2016 when the value of the sterling fell and the rate stood at USD 1.43 that the judgment sum became as advantageous to the claimant in money terms as its Part 36 offer. Thereafter, the rate had fluctuated either side of that level. At the start of the trial on 26 April 2016 the rate was USD 1.46. It was only after the UK's decision to leave the EU in the referendum on 23 June 2016 that sterling fell sharply, significantly reducing the dollar value of the Part 36 offer. If judgment had been entered at any time between the start of the trial and the referendum, the claimant would not have beaten its offer. In those circumstances it would be unjust to make orders for an enhanced rate of interest and indemnity costs for any part of the period between the offer and the instant date. The reality was that if the defendant had accepted the offer at almost any time between the date it was made and the end of the trial, the sum received by the claimant would have been more than the judgment it had ultimately obtained. Accordingly, it would be inconsistent with the principle of risk allocation underlying Part 36 to penalise the defendant for rejecting the offer. The costs payable to the claimant should therefore be assessed on the standard basis if not agreed (see paras 20, 22-27 of judgment).