Alison Grant v FR Acquisitions Corporation (Europe) Ltd

Hearing date: 8 December 2022

Approved Judgment

This judgment was handed down remotely at 10.30am on 23 December 2022 by circulation to the parties or their representatives by e-mail and by release to the National Archives.

The Honourable Mr Justice Hildyard

Further to my main judgment handed down on 11 October 2022, the parties have largely agreed a draft form of Order, including the terms of Declarations to give effect to that judgment and provision for an interim payment on account of costs by Firth Rixson. 1 However, there remain two issues for my determination:

(1) whether what was described as a Part 36 offer made by letter from their solicitors (Linklaters LLP) dated 17 April 2020 (“the Administrators' Offer”) was a compliant Part 36 offer; and if so, (a) whether the Administrators have obtained a judgment which is at least as advantageous to LBIE as the proposals contained in their Offer, and if it is, (b) what consequential orders should be made in respect of costs and interest having regard to the provisions of CPR 36.17; and

(2) whether Firth Rixson should be given permission to appeal.

I address these issues in turn.

The Administrators' Offer: the essential dispute

The Administrators were the successful parties, and it is not in dispute that Firth Rixson should pay the Administrators' costs of the Application. As stated above, Firth Rixson have accepted that they should make a payment on account of those costs. The issue is not as to the incidence of costs but as to the application of CPR Part 36 and its consequences.

It was not disputed either that CPR Part 36 applies in principle to the Application: CPR 12.1(1) of the Insolvency Rules 2016 provides that “ the provisions of the CPR (including any related Practice Directions) apply for the purposes of proceedings under Parts 1 to 11 of the Act with any necessary modifications, except so far as disapplied by or inconsistent with these Rules”. CPR Part 36 is not disapplied by or inconsistent with the Insolvency Rules 2016, and no relevant modifications to CPR Part 36 are required.

There are, in essence, three questions in dispute:

(1) The first is whether CPR Part 36 is engaged at all. Firth Rixson submitted that it was not, essentially because there was such a “disconnect” between the offer and the claims as to disqualify the offer in terms of Part 36. This was referred to in argument as the “disconnect point”.

(2) The second question, if CPR Part 36 is engaged and the Administrators' Offer is to be treated as compliant, is what test should be adopted in determining whether the declaratory judgment to which I have held the Administrators are entitled “is at least as advantageous to the claimant as the proposals contained in [the Administrators' Offer]”. In particular, the question arises whether the claim in this case falls within CPR 36.17(2).

(3) The third question arises if the relief to which I have held the Administrators are entitled “is at least as advantageous to the claimant as the proposals contained in [the Administrators' Offer]” is whether, and if so to what extent, the Administrators should be entitled to consequential orders enhancing their recovery as set out in CPR 36.17(4).

The Administrators' Offer: key terms

The starting point is the terms of the Administrators' Offer. The key part of the Administrators' Offer read as follows:

“ 3.1 As set out above, it is not in dispute that the principal sums due to LBIE are £8,149,086.21 (in respect of the Sterling Swap) and US$53,629,230.05 (in respect of the Dollar Swap). Moreover, interest has been accruing (and continues to accrue) on the Dollar Swap in accordance with Section 9(h)(i)(3)(A) of the 2002 ISDA Master Agreement. That interest entitlement will be significant in light of the time for which it has accrued.

3.2 Notwithstanding the strength of our clients' position, in order to avoid unnecessary court proceedings, we are authorised to make your clients an offer to settle under Part 36 of the Civil Procedure Rules (the “CPR”) (the “Offer”). The Offer relates to the entirety of the proposed application and is intended to be a claimant's Part 36 offer with the consequences prescribed by that Part. The Offer may only be accepted in full.

3.3 The terms of the Offer are as follows:

3.3.1 Firth Rixson will pay a sum of US$53,535,379 in full and final settlement of the outstanding sums in relation to the Dollar Swap.

3.3.2FR Acquisitions will pay a sum of £7,334,117 in full and final settlement of the outstanding sums in relation to the Sterling Swap.

3.3.3The sums referred to at paragraphs 3.3.1 and 3.3.2 above are inclusive of all applicable interest.

3.3.4Payment shall be made within 14 days of acceptance of the Offer to the following bank accounts …”

The Administrators' Offer was open for acceptance for 21 days from the date when it was made. This period expired on 8 May 2020 (the “Relevant Date”).

As at the Relevant Date, the sums owing 2 by Firth Rixson to LBIE in respect of the Dollar Swap amounted to principal of US$53,629,230.05 plus accrued contractual interest (conservatively estimated to amount to at least US$3,253,950), i.e., US$56,883,180.05 in total, and £8,149,086.21 in respect of the Sterling Swap. In relation to interest:

(1) No contractual interest arises on the principal amount owing under the Sterling Swap, since there is no relevant provision for the accrual of interest on a suspended payment obligation under the 1992 ISDA Master Agreement.

(2) However, contractual interest has been accruing (and continues to accrue) on the principal amount owing under the Dollar Swap pursuant to Section 9(h)(i) (3)(A) of the 2002 ISDA Master Agreement. The accrual of interest on the Dollar Swap was expressly mentioned in the Administrators' Offer [B7/133] and has never been challenged by Firth Rixson (nor could it be, since it is expressly provided for by the terms of the 2002 ISDA Master Agreement). The contractual interest which had accrued under the Dollar Swap amounted to at least US$3,253,950 as at the Relevant Date. The Administrators emphasised that this is a conservative illustrative calculation: it is necessarily only an estimate, given that the ISDA contemplates applying a rate “ certified by the relevant payer to be a rate offered to the payer by a major bank in a relevant interbank market for overnight deposits”.

The Administrators' Offer thus provided, in effect, for a small discount or ‘haircut’ to the principal amount owing under each Swap and a complete write-off of the accrued interest on the Dollar Swap.

The Administrators presented the total discount proposed in their Offer as therefore amounting to at least US$3,347,801.05 and £814,969.21 (compared to the total sums owing to LBIE as at the Relevant Date). 3 Firth Rixson summarised the effect of the Administrators' Offer as being that they should settle the proceedings in return for a very limited haircut to the Principal Amounts claimed under the Master Agreements:

(a) In the case of the 2002-form Master Agreement, the Administrators' Offer was for 99.8% (US$53,535,379) of the principal amount.

(b) In the case of the 1992-form Master Agreement, the Administrators' Offer was for 90% (£7,335,117) of the principal amount.

The first issue and competing submissions as to application of CPR 36.17

As indicated in paragraph 4(1) above, Firth Rixson's principal and “threshold” argument was their “disconnect point”. This argument focused and was based on the stipulation in the Administrators' Offer of immediate payment (within 14 days) of the Administrators' Offer amounts. In particular in that regard, Firth Rixson emphasised that the Administrators' Offer required payment irrespective of whether the “Relevant Steps” were taken and what were then (as they are still) continuing Events of Default. They submitted that the inclusion in the Administrators' Offer of relief which would never have been sought or available in the proceedings, was thus a proposed benefit extraneous to the claimant's asserted rights, and was no part of the declaratory relief they sought and obtained, produced what they described as “a fundamental disconnect between the terms of the Part 36 Offer and the matters in issue in the proceedings.”

Firth Rixson submitted further that in consequence, or as an aspect of the “disconnect”, the Administrators' Offer did not satisfy the specific requirements of a valid Part 36 offer as prescribed by CPR 36.5(1). Pursuant to CPR 36.5(1)(d), a valid Part 36 offer must “relate to” the whole or part of a claim or to an issue that arises in the claim: it cannot be said to “relate to” a claim which has not been advanced, and likewise cannot properly be said to “relate to” a claim if it includes relief which could not have been and has never been advanced. Further, in light of (and as a further illustration of) the “disconnect” it was not possible fairly to compare the...