Rawbank S.A. v Travelex Banknotes Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Zacaroli |
| Judgment Date | 23 June 2020 |
| Neutral Citation | [2020] EWHC 1619 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: FL-2020-000012 |
| Date | 23 June 2020 |
[2020] EWHC 1619 (Ch)
Mr Justice Zacaroli
Case No: FL-2020-000012
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
FINANCIAL LIST (ChD)
7 Rolls Building
Fetter Lane, London
EC4 1NL
Alex Cunliffe (instructed by Singhania & Co) for the Claimant
Tom Smith QC (instructed by Sidley Austin LLP) for the Defendant
Hearing dates: 19 June 2020
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
This is an application by the claimant, Rawbank S.A. (“Rawbank”) against the defendant, Travelex Banknotes Limited (“TBL”).
Rawbank is the largest bank in the Democratic Republic of Congo (“DRC), one of the poorest countries in the world. TBL is a company incorporated in England and Wales, part of the Travelex group, conducting business as a wholesale supplier of banknotes to financial institutions.
The claim arises under a contract contained in a proposal letter from TBL to Rawbank dated 4 October 2013, confirming the terms upon which TBL would sell banknotes to Rawbank. Under the contract once an order is accepted by TBL, Rawbank transfers the purchase price via electronic funds transfer, and TBL then delivers the banknotes in either Kinshasa or Lubumbashi.
On 16 March 2020 Rawbank placed an order for $40 million in banknotes. The price, $40,048,000, was transferred electronically on 19 March 2020. Delivery was due to take place on 23 March 2020, but concerns arose almost immediately about the effect of international travel restrictions put in place due to the coronavirus pandemic.
On 19 March 2020 TBL indicated that it could include a further $20 million banknotes and that it was told by its secure delivery partner that the shipment could be delivered on 21 March 2020. Rawbank paid the purchase price for the additional $20 million banknotes on 19 March 2020.
TBL, still on 19 March 2020, then informed Rawbank that delivery on 21 March was not possible but that it was possible to revert to the original date of 23 March as it seemed that DRC's airports were not closing on that date after all. Later that same day, however, TBL was told that Kenya Airways had cancelled the flights from Nairobi to Kinshasa and Lubumbashi which meant that delivery on 23 March 2020 was no longer possible.
TBL then used the US dollars purchased for TBL to fulfil the order of another customer. At the end of the day on 19 March 2020, the outstanding funds in TBL's US dollar account with Bank of New York were swept into the Travelex Group accounts, in accordance with normal practice.
By early April 2020, the banknotes had still not been delivered. Rawbank was facing the real possibility of a run on the bank. The total amount of the order was equivalent to roughly 50% of Rawbank's equity.
Discussions then took place between TBL and Rawbank (which I deal with more fully below) in which it was made clear that TBL would not be delivering the banknotes or making a refund in the near future, because it was in serious financial difficulty and in need of a restructuring, which it hoped would be completed by the end of May 2020.
On 14 April 2020 Rawbank made an application for a freezing order, based on an allegation of fraud. The application was made without notice, but adjourned by Fancourt J until 17 April so that notice could be given to TBL. On 17 April 2020 the matter was adjourned by consent by Trower J to the week commencing 4 May 2020.
On 4 May 2020, Rawbank issued the claim form, in which the allegation of fraud had been abandoned. The claim was now based simply on breach of contract and/or misrepresentation.
On the same date, Rawbank's solicitors wrote to TBL's solicitors, without prejudice save as to costs, making an offer under Part 36 of the CPR. I will return to the details of this offer below.
The injunction application was heard by Birss J on 7 May 2020. In a judgment delivered on 11 May 2020 he declined to grant an injunction but made a limited disclosure order and ordered TBL to give seven days' advance notice of any disposal of assets that would reduce its assets by more than £5 million.
Rawbank issued this application for summary judgment on 18 May 2020. TBL filed an acknowledgment of service on 27 May 2020 ticking the box that indicated an intention to defend the whole of the claim.
On 1 June 2020, TBL issued an application for a stay of the proceedings, alternatively a stay of the judgment, on the grounds that it wished the opportunity to agree a restructuring with its lenders or an M&A deal, in order to avoid its insolvency and to obtain a better outcome for its creditors as a whole.
Aside from ticking the box indicating an intention to defend the claim, no substantive defence has ever been advanced by TBL. On 15 June 2020 its solicitors wrote to Rawbank's solicitors agreeing to judgment being entered against it in respect of the contractual claim in the amount of $60,072,000. It also withdrew its stay application, because while significant progress had been made in discussions with its lenders, they had not reached a stage that would enable TBL to adduce an agreed set of terms.
In these circumstances, TBL accepts that there should be judgment entered against it and that it should be ordered to pay Rawbank's costs of the action, the summary judgment application and the stay application. Three matters, however, remain in issue.
i) First, Rawbank seeks an order that pre-judgment interest be paid at the rate of 4.67163%. TBL submits that it should be paid at 2% above Barclays Bank's base rate.
ii) Second, Rawbank seeks an order giving effect to the consequences set out in CPR 36.17(4) on the basis that it has achieved an outcome that was at least as advantageous as the proposals contained in its Part 36 offer.
iii) Third, Rawbank seeks an order requiring the judgment sum to be paid immediately. TBL submits that the amount should be payable within 14 days.
Interest
Mr Cunliffe, who appears for Rawbank, submitted that interest should be paid at a commercial rate and that the best indication of an appropriate commercial rate was the rate applicable to default interest under TBL's revolving credit facility with its lenders. That rate is 3.5% over Libor or Euribor (depending on the currency of the borrowing) plus an additional 1% to take account of the default. Mr Cunliffe said that on the basis of 3-month Libor (which was appropriate in view of the fact that the debt had been outstanding for 3 months) the rate was 4.67163%.
Mr Smith QC, who appears for TBL, submitted that the rate of interest at which TBL can borrow funds has no relevance. What might be of relevance would be the rate at which Rawbank could borrow, as to which there is no evidence. In any event, he submitted, the best guide to an appropriate rate of interest is that which the parties had agreed upon in the contract between them. By clause 4.4 of the terms and conditions annexed to the agreement date 4 October 2013, “if either party fails to pay to the other party any amount payable by it under the Contract such other party shall be entitled to interest on the overdue amount…” at the rate of 2% over Barclays Bank's base rate.
TBL's failure to deliver banknotes is not properly characterised as a failure to pay an “amount” due under the contract. Nor is there any express provision in the contract for the payment of a refund, or for liquidated damages. Nevertheless, while the claim is not for the payment of a sum due by way of primary obligation under the contract, it is for payment of a secondary obligation (payment of damages) arising from the contract as a result of a breach of a primary obligation. It is difficult to see why the parties would have intended that TBL should pay interest at 2% over Barclays' base rate in circumstances where it failed to comply with a primary obligation to pay money (as envisaged, for example, by clause 6) but should pay interest at a different rate if it failed to comply with a secondary obligation to pay the value of banknotes it promised to deliver, in case of breach of that promise. Even if that is wrong, it seems to me that the contractually agreed rate in respect of overdue payments under the contract is a reasonable proxy for an appropriate commercial rate to be applied to this claim for breach of the same contract. I agree with Mr Smith that the rate of interest at which TBL can borrow from its lenders has no relevance in determining an appropriate commercial rate at which it should pay interest to Rawbank.
For these reasons, I prefer the submissions of Mr Smith on this issue, and I will order (subject to my conclusions below in respect of the Part 36 offer) that pre-judgment interest shall be payable on the principal judgment sum at the rate of 2% over Barclays Bank's base rate. It is common ground that interest is payable on the judgment sum at 8% per annum.
Part 36 Offer
The letter from Rawbank's solicitors dated 4 May 2020 begins by pointing out that “given the admissions contained in your client's evidence, we are confident that our client will obtain an early judgment against your client”. This refers to the witness statements of Ms Angela Smith, head of Wholesale Banknotes at TBL, and of Mr Andrew Thompson, a Senior Banknote Dealer at TBL. These statements contained a description of the facts which demonstrated the existence of the contract and TBL's...
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