Lonestar Communications Corporation LLC v Daniel Kaye
| Jurisdiction | England & Wales |
| Judge | Mr Justice Foxton |
| Judgment Date | 30 March 2023 |
| Neutral Citation | [2023] EWHC 732 (Comm) |
| Docket Number | Case No: CL-2018-000648 |
| Court | King's Bench Division (Commercial Court) |
[2023] EWHC 732 (Comm)
Mr Justice Foxton
Case No: CL-2018-000648
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
KING'S BENCH DIVISION
COMMERCIAL COURT
Tony Singla KC, Kyle Lawson and Mohammud Jaamae Hafeez-Baig (instructed by Freshfield Bruckhaus Deringer LLP) for the Claimant
Neil Kitchener KC and Andrew Lodder (instructed by Norton Rose Fulbright LLP) for the Fifth Defendant
Hearing date: 22 March 2023
Draft Judgment Circulated: 23 March 2023
Approved Judgment
I direct that no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
THE HONOURABLE Mr Justice Foxton
This judgment was handed down by the judge remotely by circulation to the parties' representatives by email and release to The National Archives. The date and time for hand-down is deemed to be 30 March 2023 at 10:00am.
The Honourable
This judgment deals with consequential issues arising from my judgment at [2023] EWHC 421 (Comm).
Interest
In this case, as I explain below, a “Without Prejudice Save as to Costs” offer was made by Orange Liberia in November 2021 ( the First WPSATC Letter) – a second, higher, offer was made on 2 February 2022. For the purpose of determining whether Lonestar has “beaten” that offer, it is necessary to resolve a dispute as to whether the court should award interest on the US$ amount which I have ordered Orange Liberia to pay at US Prime or 6-month US$ LIBOR, and, if so, with what uplift. I intend to take the issue of the starting point, and the uplift, separately.
The starting point
It is possible to find various observations on this issue in reported cases, and it is an issue which has become more topical since the Bank of England and the FCA committed to discontinuing LIBOR.
In Black Sea & Baltic General Insurance Co Ltd v Baker [1996] LRLR 353, 360, Staughton LJ referred to US Prime and stated “my recollection is that, unlike base rate in the United Kingdom, those are rates at which reliable borrowers, or some of them, can actually borrow money. If that be right, they would seem to be close enough to the base-rate-plus-one that is used in commercial cases for sterling awards. But, as I have said, the conventional rate can be displaced by evidence if the judge thinks that course appropriate.”
In Kuwait Airways Corp v Kuwait Insurance Co (No. 3) [2000] 1 All ER (Comm) 973, 992, Langley J referred to the practice of the Commercial Court at that time being to award base rate plus 1% on sterling sums, and stated “the nearest equivalent of base rate plus 1% is US Prime rate. In normal circumstances that in my judgment would be the appropriate rate…”.
In Mamidoil-Jetoil v Okta Crude Oil Refinery AS [2002] EWHC 2462 (Comm), Aikens J observed at [16]:
“When damages are assessed in pounds sterling the conventional rate of interest that is awarded in commercial cases is “base rate plus 1%”. That is the rate that a commercial borrower of good credit will have to pay to borrow sterling in London. But when the currency of the loss and the currency of damages is US dollars, then the Commercial Court will consider the cost of borrowing US dollars. That is the position in this case. The cost of borrowing US dollars is usually expressed by reference to the US Prime Rate. That is the rate that commercial banks charge their most creditworthy customers if they are borrowing US dollars. It is a short-term borrowing rate. Prime Rate includes an element of profit for a bank, so that the most creditworthy borrowers can obtain, loans at Prime Rate itself. Less creditworthy borrowers will have to pay Prime Rate plus one or more percentage points.”
In Fiona Trust v Privalov [2011] EWHC 664 (Comm), [15], Andrew Smith J noted that it had become conventional, at least in the Commercial Court, for interest to be awarded at the US Prime rate on compensation awarded in US dollars, citing a number of cases in which this had been done. He said that the court would depart from this starting point if just to do so, and the burden of demonstrating this lay upon the party seeking to displace the conventional rate. In that case, Andrew Smith J heard evidence that LIBOR was widely used for setting interest rates on loans to shipping companies (London, of course, being a major centre for ship finance) and that the US Prime rate was not used for lending to borrowers outside the USA. He concluded that LIBOR should be used for determining the rate in that case ([18]).
In Vis Trading Co Ltd v Nazarov [2013] EWHC 491 (QB), Leggatt J referred to Fiona Trust and made the following observations:
“[10] Andrew Smith J went on to note (at paragraphs 17–18) that a different practice prevails in arbitrations, where LIBOR is more commonly used as a benchmark – at least where the claimant operates outside the United States. That is because commercial parties outside the United States are not accustomed to using the US prime rate as a reference point for loans, whereas LIBOR rates have acquired international recognition.
[11] Mr Nazarov and Ansol have submitted that a more appropriate rate of interest to apply would be 1% above the 6-month US$ LIBOR rate. They argue that this is much more closely equivalent than the US prime rate to the rate of 1% above base rate which is conventionally used in the Commercial Court for sterling interest awards.
[12] The purpose of an award of interest is to compensate the claimant for the loss of use of the principal sums owed. In the absence of proof of actual loss suffered, the assumption is made that the loss is fairly measured by the rate of interest which the claimant could reasonably been expected to pay to borrow an equivalent amount of money. As stated in Kuwait Airways v Kuwait Insurance [2000] 1 All ER (Comm) 973 at 991–2 and confirmed in Fiona Trust at paragraph 21, the appropriate rate for this purpose is that which would be charged for a short-term unsecured loan and should reflect the creditworthiness of the claimant.
[14] In my view, the 6-month US$ LIBOR rate is a more appropriate rate to use as a benchmark in a case of this kind than the US prime rate for the reason already indicated that LIBOR has become the most widely used benchmark outside the United States for lending denominated in US dollars. That is so not only in the shipping field but generally in international commerce”.
In Certain Underwriters at Lloyd's London v Syria [2018] EWHC 385 (Comm), in which the defendant did not appear, the US Prime rate was awarded both pre and post judgment. That was a claim based on a final judgment rendered in the claimants' favour in the US District Court for the District of Columbia. The use of US Prime was justified on the basis that: (a) it is used as a benchmark in the US market; (b) US cases have held it to be the most borrowing; and (c) it is generally considered the starting point for awards in US$ in the English courts (para. [82]).
In Orexim Trading Ltd v Mahavir Port and Terminal Private Ltd [2019] EWHC 2338 (Comm) (another case in which the defendant did not appear), an award of interest on a US$ amount was made at a rate of 6-month LIBOR, plus 2.25%. The use of LIBOR as the starting point was justified on the basis that the claimant was not a US company and carried on business outside the USA.
In Aercap Ireland Ltd v Hainan Airlines Holding Co Ltd [2020] EWHC 2025 (Comm), [109]–[110], there was an issue as to the amount of interest which should be awarded post judgment (applying the discretion in relation to non-sterling judgment sums afforded by s.44A of the Administration of Justice Act 1970). The court awarded 2% above US Prime.
In Trafigura Maritime Logistics Pte Ltd v Clearlake Shipping Pte Ltd [2022] EWHC 2625 (Comm), [2] (a shipping case), HHJ Pelling KC stated:
“My attention has been drawn to one authority which is relevant to the issues I have to determine, and that is the decision of Leggatt J in VIS Trading Co Ltd v Nazarov … The relevant part of the judgment starts at para 9, where Leggatt J cites from the relatively well-known decision of Fiona Trust and Holding Corp v Privalov … Leggatt J observed that Andrew Smith J had noted a different practice in relation to arbitrations where LIBOR was more commonly used as a benchmark rate, and then he concluded at para 14 as follows:
‘In my view, the six-month US LIBOR rate is a more appropriate rate to use as a benchmark in a case of this kind than the US prime rate for the reason already indicated that LIBOR has become the most widely used benchmark outside the United States for lending denominated in US dollars. That is so not only in the shipping field but generally in international commerce …’
I respectfully concur with that analysis, which reflects my experience in the Commercial Court and the London Circuit Commercial Court. For those reasons, I conclude that in principle the appropriate base rate is the six-month US LIBOR rate.”
Finally, in Pisante v Logothetis [2022] EWHC 2575 (Comm), [74], Mr Justice Andrew Baker held:
“The task of the court is to choose an interest rate it considers will be a realistic reflection of the cost of borrowing for a claimant such as Swindon, in the absence of evidence seeking to prove its actual borrowing costs (since no such evidence was provided). Given the factors set out in the previous paragraph, I consider that US Prime + 2%, as proposed by the claimants, is such a rate. The defendants proposed US$ libor + 2 1/2%. It suffices to say that there is no presumption or practice favouring the use of US$ libor over US Prime. If anything, the...
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