Kerry Underwood

PART 36 & CURRENCY FLUCTUATIONS

with 2 comments


In Novus Aviation Ltd v Alubaf Arab International Bank BSC(c) [2016] EWHC 1937 (Comm) (27 July 2016)

 

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 [2015] 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.”

 

Comment


 

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

 

Sterling weakens

 

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.

 

Sterling strengthens

 

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.

 

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Written by kerryunderwood

July 29, 2016 at 8:45 am

Posted in Uncategorized

2 Responses

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  1. Interesting points Kerry. I have by co-incidence had something similar to this crop up only yesterday, albeit in a much more down to earth way (i.e. claims for thousands rather than millions).

    I have a claim against an Irish company for goods sold and delivered.

    When we first had the claim from the client a few months ago, the sterling equivalent of Euros (including the interest being claimed) was under £10k. We then write letters of claim, etc. Now it’s time to issue.

    As of yesterday, with the exchange rate fluctuations, it has gone over. But it changes every day, and seems liable to drop back under again.

    The court fee for a claim under £10k is fixed at £455, but over that obviously it becomes a percentage of the claim.

    What statement of value do we put, and what court fee do we pay? I’m inclined to just stick it in at “expects to recover up to £10,000 being whatever sum is the sterling equivalent of XXX at the date of judgment”.

    But I supposed a massive change in exchange rates could significantly change the amount claimed in sterling and thus the relevant court fee. But we’d never know or be able to predict this based on the stupid percentage of claim basis court fees.

    Dominic Cooper

    July 29, 2016 at 9:02 am

    • Dominic

      Yes- that is an interesting twist. Of course this could go beyond the issue of the court fee. You issue on the basis that a claim is over the Small Claims limit and will be cost-bearing. The exchange rate changes. The matter is allocated to the Small Claims track and so you will not recover costs,

      Time passes. The exchange rate changes again and now the matter is well above the Small Claims limit. Does the court re-allocate?

      Maybe there should be a provision that any exchange rate fluctuation of less than, say, 20% shall have no effect in relation to ancillary matters such as Part 36, court fees, re-allocation etc.

      Kerry

      kerryunderwood

      August 4, 2016 at 2:40 pm


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