OMV Petrom SA v Glencore International AG [2017] EWCA Civ 195 (27 March 2017)
The Court of Appeal overturned a decision not to award 10% interest on damages in a case where a defendant failed to beat a claimant’s Part 36 offer and provided guidance on the circumstances in which enhanced rates of interest may be ordered under provisions of CPR 36.14.
The background of this case is that the Claimant (“Petrom”) made a Part 36 Offer to settle the litigation for US$35 million inclusive of interest together with costs. However the Defendant (“Glencore”) has failed to respond to the offer but instead they defended the claim at a lengthy trial. At trial the Claimant was awarded damages (without interest) in the sum of US$40,071,913.00.
“According to the judge in his judgment on interest delivered on 26th March 2015, Petrom’s case on liability “rested in large measure on the evidence of witnesses who were liars and Glencore put Petrom through the hoops of having to establish liability, in a very flagrant case of fraud, in a manner which was wholly unreasonable”.”
However the Trial Judge did not award the Claimant 10% above base rate as interest for the period following the expiry of the Part 36 offer. Interest was awarded to the Claimant but at lower rates. The Clamant appealed, arguing that the Judge ought to have awarded a rate of interest enhanced by the maximum amount of 10% per annum allowed under what was then CPR Part 36.14(3)(a) and (c).
The Court of Appeal considered CPR 36 and the pre-existing case law in considerable detail and it was found that “The parties are obliged to make reasonable efforts to settle, and to respond properly to Part 36 offers made by the other side. The regime of sanctions and rewards has been introduced to incentivise parties to behave reasonably, and if they do not, the court’s powers can be expected to be used to their disadvantage. The parties are obliged to conduct litigation collaboratively and to engage constructively in a settlement process”.
The Court of Appeal also mentioned the following points:
- “The decisions concerning whether to award enhanced interest at all are to be regarded separately from decisions as to the rate of the enhancement.”
- In cases when a claimant beats their own Part 36 offer the award of interest at 10% above base rate on damages and costs is not simply a “compensatory” matter. It was found by the Court of Appeal that “In essence, in considering the rate of enhanced interest to give Petrom, the judge accepted that the award of enhanced interest was entirely compensatory.” However, “the objective of the rule has always been, in large measure, to encourage good practice”. It was found that “the likelihood that the provisions for all four possible awards are not entirely compensatory is supported by the negative formulation of CPR Part 36.14(3)(a) to the effect that “the court will, unless it considers it unjust to do so, order that the claimant is entitled to [the four awards]”. If the rule-makers had intended to say that all or any of the awards were only to be made if they represented compensation for litigation inconvenience, it would have been very easy to say so”.
- The award of interest is part of the “carrots and sticks” approach to litigation introduced by recent reforms.
- The judge was wrong in finding that the primary issue was compensation. He should have taken into account the Defendant’s conduct of the litigation. “The circumstances relevant to the determination of the appropriate rate of enhanced interest were Glencore’s refusal to engage in settlement discussions or to respond to the Part 36 offer, the fact that the eventual award was very significantly greater than the Part 36 offer itself, and, perhaps most of all, Glencore’s conduct of the litigation as described by the judge in his judgment on this issue…. A blank refusal to engage in any negotiating or mediation process, and the use of a vast asset base to seek to frustrate a claimant’s attempts to reach a compromise solution should be marked by the use of the court’s powers to discourage such conduct.”
The Court of Appeal allowed the appeal and replaced the enhanced rate of interest on both the award for the period from the date the Part 36 offer lapsed until judgment and the costs with an award of interest at a rate of 10% over base rate.
Summary prepared by Tanya Bland