PART 36 & CURRENCY FLUCTUATIONS
a claimant beat its own Part 36 offer only because of a change in the exchange rate between the pound and the dollar by the time the Judgment was given.
The claimant had made an offer of £3,775,272.00.
The court made an award of $5,430,924.00 equating to £4,117,114.00 at the exchange rate current on the day of judgment.
However when the offer was made it equalled $6,342,457.00 and thus taking that figure the claimant had not beaten its offer.
The court held that the value must be taken as at the date when the order containing the court’s judgment is made – see Barnett v Creggy  EWHC 1316 (Ch).
Thus the claimant had beaten its offer.
However the court held that it was entitled to take into account the fact that the only reason that the claimant had beaten its offer was the fall in the value of Sterling against the Dollar.
Even at the start of the trial the value of the offer was more than subsequently awarded:-
“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.”
The court exercised its discretion to refuse to award these extras as it would be unjust so to do as provided by CPR 36 itself:-
“I consider that it would in these circumstances be unjust to make orders under CPR 36.14(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.”
Variations on this theme throw up some interesting points.
Supposing the Pound strengthens against the Dollar and the claimant had made an offer of £4 million.
The court makes a Dollar award which at the exchange rate at the date of the offer exceeded £4 million but, due to the weakening of the Dollar, as at the date of judgment is, say, £3.5 million.
Following the logic in Novus, that the claimant had beaten its offer as the relevant date is the date of judgment, then it must follow that in this scenario the claimant has failed to beat or match its offer.
In those circumstances the court has no discretion to give the extras, although arguably it could use its general discretion to award the claimant indemnity costs from the date of expiry of the relevant period.
However, traditionally, where a claimant does not match or beat its own offer then there can be no criticism of the defendant for failing to accept an offer that is higher than the court eventually awards.
In any event the court has no discretion to award the 10% uplift in damages. That only occurs when a claimant matches or beats its own Part 36 offer.
Thus, on the logic of Novus, a claimant making a Part 36 offer always loses out on currency exchange.
My view is that the court exercised its discretion wrongly, or at least failed to consider its effect in other scenarios.
Defendants’ Part 36 offers
The defendant makes a Part 36 offer of £4 million, which at the time it is worth $6 million.
Sterling weakens. The court orders exactly $6 million and so by that measure the claimant has failed to beat the defendant’s Part 36 offer and is liable for costs from the expiry of the relevant period until judgment.
However, due to the weakening of Sterling, that award of $6 million is now worth £5 million and thus the claimant has beaten the defendant’s Part 36 offer.
Again, absent any wrongdoing on the claimant’s behalf, the court appears to have no discretion to award costs against the claimant, even though, at one level, the claimant clearly should have accepted the offer.
The defendant makes an offer of £4 million, which equates to $5 million.
The court awards $6 million, but that is now worth only £3.9 million as Sterling has strengthened and therefore more Dollars buy less Pounds.
Thus the claimant has failed to beat the defendant’s offer even though it has recovered more in Dollars than was effectively on offer for the period of accepting the defendant’s offer.
Presumably there the court would exercise its discretion not to order the claimant to pay costs from expiry of the relevant period.
Are parties under a duty to keep an eye on exchange rates in such circumstances?
In the Novus case the claimant simply did not get the benefit following from beating its own offer.
Is it open to a court, under its general discretion on costs – which is very wide – to say in such a situation:-
“You should have lowered your offer. You knew any award would be made in Dollars and therefore you would require fewer Pounds as those Dollars would be worth more on judgment.”
Matters can become extremely complicated if both parties have made Part 36 offers – a blog on that must wait another day.