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OMV Petrom SA v Glencore International AG

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In OMV PETROM SA v GLENCORE INTERNATIONAL AG the Court of Appeal has made a decisive judgement in relation to the effects of CPR Part 36 and more importantly the Court's powers in relation to the element of the enhanced interest that may be awarded on both damages and costs.

Background

The case between the Claimant, OMV Petrom SA (a Romanian oil company) and the Defendant, Glencore International AG, arose following the Defendant’s sale of 32 shipments of oil of lesser worth, under false pretence and misleadingly described as “Gulf of Suez Crude Oil Blend" to the Claimant’s predecessors Petrol Export Import SA between 1993 and 1996. The Claimant accordingly pursued a claim for its losses.

Following the Defendant’s ignoring of the Claimant’s Part 36 offer made on 9 April 2014 the claim proceeded all the way to trial where the Judge found the Defendant’s behaviour in the litigation unreasonable and awarded the Claimant US$40,071,913, which was significantly more than its Part 36 offer. Notwithstanding the facts, the Trial Judge did not award the Claimant 10% above base rate interest for the period following the expiry of the Part 36 offer, as allowed at CPR 36.17(4)(a) and 4(c). Interest was awarded, but at a lower rate of “interest on the judgement sum up to the expiry of the Part 36 offer at the rate of 6-month US$ LIBOR plus 2.5% (the “Agreed Rate”) totalling over US$44 million, and from the expiry of the Part 36 offer up to judgement at the Agreed Rate plus 3.5% per annum totalling some US$2.2 million, together also with further interest after judgement. In addition, the judge ordered Glencore to pay the sum of £75,000 under what was then CPR Part 36.14(3)(d) plus interest, and to pay Petrom's indemnity costs (in sterling, of course) plus interest at a rate of 2.5% per annum up to the expiry of the Part 36 offer at a rate of 4.5% per annum between that date and judgement, and at a rate of 8% per annum (the judgement rate) thereafter. The rates differed according to whether the amounts in issue were in sterling or dollars.”

Appeal

The Claimant appealed the decision firstly on the basis of the Defendant’s conduct and argued that “the Judge wrongly concluded that the essential function of CPR Part 36.14(3)(a), as to interest on the award, was compensatory, so that the level of interest could not exceed what legitimately compensated Petrom for the disruption and difficulties on the litigation”. Secondly that "the essential function of CPR Part 36.14(3)(c), as to interest on costs, was to reflect the cost of money”. The Claimant furthermore contended that “the judge ought to have concluded that a party who has behaved unreasonably "forfeits the opportunity of achieving a reduction in the rate of additional interest payable" as Lord Woolf MR held at paragraph 76 in Petrocade Inc v Texaco Ltd [2000] EWCA Civ 512”.

Having regard to the above, the Claimant submitted “… that the power to award enhanced interest enables the court to disapprove of and to discourage unreasonable conduct, that enhanced interest should be fixed at a level which creates an appropriate incentive to settle, and that having regard to Glencore’s conduct and to the absence of any meaningful incentives to settle under CPR Part 36.14(3)(b)-(d), this was a clear case to award interest at the maximum level of 10% above base rate.”

The Defendant disputed that the first judgement was correct and argued that cases such as Petrotrade case and McPhilemy v Times Newspapers Ltd and others had determined that those CPR provisions were compensatory, and such an approach had been applied consistently for over 14 years. They argued that the provisions were not intended to be penal, only CPR P36.14(d) was intended in that way and was relatively new and inadequate in that case being capped at £75,000.

In light of Mcphilemy  v Times Newspapers Ltd [2001] EWCA Civ 871 and Petrotrade Inc v. Texaco Ltd [2000] EWCA Civ 512 the Trial Judge in this matter had concluded that he could not penalise the Defendant for its unreasonable conduct by subsequently awarding the Claimant more than a compensatory level of interest.

Court of Appeal Judgement and Award of an Enhanced Interest Rate

Firstly and in order to evaluate the previous judgement, Sir Geoffrey Vos, Chancellor of the High Court (the Chancellor) made the distinction that awarding enhanced interest in a matter and the decision as to the rate of enhancement must be considered separately. He confirmed that the decision to award an enhanced rate was not in question and the point to consider was whether the first ruling and the Trial Judge's approach in accepting that the level of the enhanced interest awarded was entirely compensatory was correct or not and whether in fact there could be an element of penalisation of the Defendant for its conduct by awarding an uplift that exceeds compensation alone.

The Chancellor concluded that the first ruling was in fact incorrect and held that the rate of 10% was not a starting point but instead the maximum possible interest enhancement to be awarded above base rate. He further asserted that "in my judgement, the objective of the rule has always been, in large measure, to encourage good practice" and as Lord Woolf stated "…to create the incentive for a Claimant to make a Part 36 offer” and a party who has behaved unreasonably “forfeits the opportunity of achieving a reduction in the rate of additional interest payable”.

Furthermore, the appeal Court noted that the Trial Judge had found “Glencore was guilty of lying. It ignored the Part 36 offer that was made, and shunned any mediation solution. Its conduct was deplorable, if not outrageous. Glencore is not excused by having raised an arguable, if unsuccessful, point of law on appeal. 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. In my judgement, the judge ought in this case to have imposed the full 10% uplift for the enhanced rate of interest on the award in this case."

Decision

Concluding the matter to be bound by the Mcphilemy case, in terms of the fairer result for the Claimant to achieve a rate of interest on costs than would otherwise be the case, the Chancellor upheld that, “That does not, however, indicate that some of the factors I have already mentioned may not be relevant. Moreover, once again I do not regard the award as purely compensatory. As I have also said, different factors may in practice apply to enhanced interest under CPR Parts 36.14(3)(a) and (c)”.

He concluded that on both the interest on the award and the interest on the costs the Trial Judge ought to have imposed the full 10% uplift.

The Chancellor stated that “I do however, also think that the factors I mentioned above in relation to the enhanced rate of interest under CPR Part 36.14(3)(a) were also relevant to the interest award of the costs, because this was a very bad case of the Defendant simply ignoring a proper offer and running up the costs thereafter” and held that, “For the reasons I have given, I would allow the appeal and replace the enhanced rate of interest on both (a) the award for the period from the date the Part 36 offer lapsed until judgment and (b) the costs with an award of interest at a rate of 10% over base rate. I should not leave the case without saying that, in my judgment, appeals on issues of the kind raised in this case should in future be rare. The judge’s discretion as to the appropriate rate of enhancement under Part 36.14(3) is a wide one as I have explained and I would not expect the Court of Appeal often to be persuaded to interfere with it”.

Conclusion

This case confirms that any awards of enhanced interest after beating a Part 36 offer may not only be intended to compensate the successful party, but also be a penalisation depending on the approach to the conduct of the litigation taken by the parties. This regime encourages the parties to behave appropriately and collaboratively throughout the settlement process and therefore avoid the possible additional costs of taking the matter all the way through to trial and ignoring proper attempts to settle.

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