OMV Petrom SA v Glencore International AG
| Jurisdiction | England & Wales |
| Judge | Lord Justice Kitchin,Lord Justice Floyd |
| Judgment Date | 27 March 2017 |
| Neutral Citation | [2017] EWCA Civ 195 |
| Docket Number | Case No: A3/2015/1417 |
| Court | Court of Appeal (Civil Division) |
| Date | 27 March 2017 |
[2017] EWCA Civ 195
THE CHANCELLOR OF THE HIGH COURT
Lord Justice Kitchin
and
Lord Justice Floyd
Case No: A3/2015/1417
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
MR JUSTICE FLAUX
Case No: 2008 Folio 417
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Duncan Matthews QC and Mr Andrew Fulton (instructed by Withers LLP) for the Appellant
Mr Richard Southern QC and Mr Fionn Pilbrow (instructed by Clyde & Co) for the Respondent
Hearing date: 7 th March 2017
Approved Judgment
Sir Geoffrey Vos, Chancellor of the High Court:
Introduction
This appeal raises a straightforward but important point concerning the interest that the court may award when a claimant's CPR Part 36 offer is rejected, but the claimant achieves a greater award at trial. The claimant, OMV Petrom SA ("Petrom"), made a Part 36 offer on 9 th April 2014 offering to settle the litigation for US$35 million inclusive of interest together with costs. The defendant, Glencore International AG ("Glencore"), did not respond to or accept that offer or make any counter-offer. Instead, Glencore defended the claim up hill and down dale at a lengthy trial that began on 20 th January 2015, after it had been adjourned from its original 6 th May 2014 start date. On 13 th March 2015, the judge, Mr Justice Flaux (as he then was), handed down his judgment awarding Petrom damages (without interest) in the sum of US$40,071,913. According to the judge in his judgment on interest delivered on 26 th March 2015, Petrom's case on liability "rested in large measure on the evidence of witnesses who were liars and Glencore put Petrom through the hoops of having to establish liability, in a very flagrant case of fraud, in a manner which was wholly unreasonable".
Against this background, the judge awarded Petrom interest on the judgment sum up to the expiry of the Part 36 offer at the rate of 6-month US$ LIBOR plus 2.5% (the "Agreed Rate") totalling over US$44 million, and from the expiry of the Part 36 offer up to judgment at the Agreed Rate plus 3.5% per annum totalling some US$2.2 million, together also with further interest after judgment. 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 judgment, and at a rate of 8% per annum (the judgment rate) thereafter. The rates differed according to whether the amounts in issue were in sterling or dollars.
Petrom challenges in this appeal (with the permission of Lewison LJ) the rates that the judge ordered on both the judgment sum and on the costs for the period between the expiry of the Part 36 offer on 30 th April 2014 until judgment on 13 th March 2015. Petrom claims 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).
Petrom contends that the judge wrongly concluded first 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 of the litigation, and secondly that the essential function of CPR Part 36.14(3)(c), as to interest on costs, was to reflect the cost of money. In both cases, Petrom says 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 Petrotrade Inc v. Texaco Ltd [2000] EWCA Civ. 512, [2002] 1 WLR 947 (the " Petrotrade case"). Petrom submits 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.
Conversely, Glencore maintains that the judge was right, because the Petrotrade case and McPhilemy v. Times Newspapers Ltd and others [2001] EWCA Civ. 871, [2002] 1 WLR 934 (the " McPhilemy case") which followed it, have concluded that these CPR provisions are compensatory, and these decisions have been applied consistently for over 14 years. The provisions are not intended to be penal, but to achieve a "fairer result" for claimants by providing for enhanced interest on damages and costs, including disruption caused by the distraction of senior management. Although CPR Part 36.14(3)(d) which allows for an additional award of up to £75,000 is penal, it is relatively new, and its relative inadequacy in a case of this size is no reason for the court to overturn the compensatory basis of CPR Part 36.14(3)(a) and (c).
Before dealing with these competing arguments, I should first set out the relevant provisions of the CPR and a very brief resume of the long and complex history of this unfortunate litigation.
The relevant provisions of the CPR
CPR Part 36 .14 (which is now contained in materially the same form in CPR Part 36.17) provided as follows:-
" Costs consequences following judgment
36.14
(1) This rule applies where upon judgment being entered—
…
(b) judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant's Part 36 offer.
…
(3) Subject to paragraph (6), where rule 36.14(1)(b) applies, the court will, unless it considers it unjust to do so, order that the claimant is entitled to—
(a) interest on the whole or part of any sum of money (excluding interest) awarded at a rate not exceeding 10% above base rate for some or all of the relevant period starting with the date on which the relevant period expired;
(b) his costs on the indemnity basis from the date on which the relevant period expired; and
(c) interest on those costs at a rate not exceeding 10% above base rate
(d) an additional amount, which shall not exceed £75,000, calculated by applying the prescribed percentage set out below to an amount which is—
(i) where the claim is or includes a money claim, the sum awarded to the claimant by the court; or
(ii) where there is only a non-monetary claim, the sum awarded to the claimant by the court in respect of costs—
Amount awarded by the court
Prescribed percentage
Up to £500,000
10% of the amount awarded
Above £500,000
10% of the first £500,000 and (subject to the limit of £75,000) 5% of any amount above that figure
(4) In considering whether it would be unjust to make the orders referred to in paragraphs (2) and (3) above, the court will take into account all the circumstances of the case including –
(a) the terms of any Part 36 offer;
(b) the stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made;
(c) the information available to the parties at the time when the Part 36 offer was made; and
(d) the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer to be made or evaluated."
Essential factual background
Petrom is a Romanian oil company. Petrom's claim against Glencore related to 32 shipments of oil made between 1993 and 1996, bought by its predecessors through an agent, Petrolexportimport SA ("Petex"). Instead of the crude oil types known as "Iranian Heavy" and "Gulf of Suez Mix", Glencore's predecessor, Marc Rich & Co AG, supplied a blend of various crude oils misleadingly described as "Gulf of Suez Crude Oil Blend". These were of lesser worth than the standard types, both in terms of their chemical properties and economic market value. In May 2002 a whistle-blower approached Petex, but not Petrom, and divulged the details of the deceit. Petex and the whistle-blower agreed to split the costs and proceeds of London-based arbitration proceedings against Glencore. Petex obtained an award in its favour on 16 th January 2006, but its claim for damages failed on the basis that it had recovered its commission under all the contracts; further, and more seriously, as an agent it should have brought proceedings on behalf its principal, Petrom, which had still not been informed of the arbitration at all. Petex ultimately informed Petrom of the fraud in April 2006, and assigned to Petrom its rights under the relevant supply contracts with Glencore. Petrom commenced its own arbitration proceedings, as well as proceedings in the High Court for the tort of deceit. The arbitration proceedings failed, as Petrom's claim was res judicata by virtue of the first arbitration.
Petrom failed to strike out part of Glencore's defence in these proceedings (see Blair J's judgment in OMV Petrom SA v. Glencore International AG [2014] EWHC 242 (Comm)). Flaux J gave judgment for Petrom in OMV Petrom SA v. Glencore International AG [2015] EWHC 666, and the Court of Appeal dismissed Glencore's appeal on 21 st July 2016 (see Christopher Clarke LJ's judgment, with whom Black and Kitchin LJJ agreed, in OMV Petrom SA v. Glencore International AG [2016] EWCA Civ 778). Flaux J rejected Glencore's evidence that it had made Petex aware of the true nature of the crude oil, and also Glencore's submission that any deception was attributable to Petex. Petrom succeeded in deceit and was awarded substantial damages as I have said. As Flaux J concluded at...
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