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England and Wales Court of Appeal (Civil Division) Decisions |
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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> OMV Petrom SA v Glencore International AG [2017] EWCA Civ 195 (27 March 2017) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2017/195.html Cite as: [2017] WLR 3465, [2017] 2 Costs LR 287, [2017] EWCA Civ 195, [2017] 2 Lloyd's Rep 93, [2017] CP Rep 24, [2017] 1 WLR 3465, [2017] WLR(D) 218 |
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ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
MR JUSTICE FLAUX
Case No: 2008 Folio 417, [2015] EWHC 666 (Comm)
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE KITCHIN
and
LORD JUSTICE FLOYD
____________________
| OMV PETROM SA |
Claimant/ Appellant |
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| - and |
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| GLENCORE INTERNATIONAL AG |
Defendant/Respondent |
____________________
Mr Richard Southern QC and Mr Fionn Pilbrow (instructed by Clyde & Co) for the Respondent
Hearing date: 7th March 2017
____________________
Crown Copyright ©
Sir Geoffrey Vos, Chancellor of the High Court:
Introduction
The relevant provisions of the CPR
"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
The Petrotrade case
62. However, it would be wrong to regard the rule as producing penal consequences. An order for indemnity costs does not enable a claimant to receive more costs than he has incurred. Its practical effect is to avoid his costs being assessed at a lesser figure.
63. The ability of the court to award costs on an indemnity basis and interest at an enhanced rate should not be regarded as penal because orders for costs, even when made on an indemnity basis, never actually compensate a claimant for having to come to court to bring proceedings. The very process of being involved in court proceedings inevitably has an impact on a claimant, whether he is a private individual or a multi-national corporation. A claimant would be better off had he not become involved in court proceedings. Part of the culture of the CPR is to encourage parties to avoid proceedings unless it is unreasonable for them to do otherwise. In the case of a corporation, corporation senior officials and other staff inevitably will be diverted from their normal duties as a consequence of the proceedings. The disruption this causes to a corporation is not recoverable under an order for costs.
64. The power to order indemnity costs or higher rate interest is a means of achieving a fairer result for a claimant.
65. There are circumstances where a just result is no order for costs or no interest even where the award exceeds an offer made by a claimant. Part 36.21 does no more than indicate the order which is to be made by the court unless it considers it is unjust to make that order. The general message of Part 36.21, when it applies, is that the court will usually order a higher rate of interest than the going rate. As to what the additional rate of interest should be, it is not possible to give specific guidance. "
75. If it is accepted that a court has power to depart from the going rate because of a claimant's offer The court would have to take into account all the circumstances in considering whether it would be just to make an order of enhanced interest.
76. Looking at the facts of this case, it is relevant that no-one suggests that the defendants were otherwise than bona fide in disputing the claim. They may have been wrong as to their assessment of the legal position but it is not a situation where the conduct of the proceedings justifies any specific criticism. If there is cause to criticise a party, then, in accord with the policy of the CPR, I would not say that this would justify increasing the rate of enhanced interest to punish that party. It would, however, mean because the party had behaved in that way, the party had forfeited the opportunity of achieving a reduction in the rate of additional interest payable. This is not the position.
77. The amount of the claim is also a relevant factor. If a claim is small, enhanced interest has to be at a higher rate than if the claim is large, otherwise the additional advantage for the claimant will not be achieved. In this case the sum involved was neither particularly large nor particularly modest. The conclusion that I would come to is that, if the matter was one for my discretion at first instance, I would award in the region of 4 per cent above base rate for the appropriate period."
The McPhilemy case
"19. It is plain, as Lord Woolf pointed out in the Petrotrade case, that paragraphs (2) and (3) of CPR 36.21, in conjunction with paragraph (4), are intended to provide an incentive to a claimant to make a Part 36 offer. The incentive is that a claimant who has made a Part 36 offer (which is not accepted) and who succeeds at trial in beating his own offer stands to receive more than he would have received if he had not made the offer. Conversely, a defendant who refuses a Part 36 offer made by a claimant and who fails to beat that offer at trial is at risk of being ordered to pay more than he would have been ordered to pay if the offer had not been made. But those incentives have to be set in the context that, as this Court emphasised in the Petrotrade case, CPR 36.21 is not to be regarded as producing penal consequences. The powers conferred by the rule to order indemnity costs or a higher rate of interest are intended to provide 'a means of achieving a fairer result for a claimant' (see paragraph 64 in Lord Woolf's judgment, to which I have already referred). Exercise of the powers cannot achieve 'a fairer result' if it leads to the claimant receiving more than can properly be regarded as a full and complete recompense for having to resort to, to pursue and to endure the strain and anxiety of, legal proceedings. An exercise of the powers which led to the claimant receiving more than could properly be regarded as compensation, in that enlarged sense, would, necessarily in my view be penal in nature. It could only be supported on the basis that there was a need to punish the defendant by requiring him to pay an amount which went beyond any amount needed to compensate the claimant. But, subject to the limitation that the powers are intended to be used in order to achieve a fairer result for the claimant and not to punish the defendant, it is plain that they are to be used in order to redress elements, otherwise inherent in the legal process, which can properly be regarded as unfair.
20. Two of those elements, which many would regard as obviously unfair, were identified by Lord Woolf in the Petrotrade case. First, an award of costs on the standard basis will, almost invariably, lead to the successful claimant recovering less than the costs which he has to pay to his solicitor. So, although he has been successful, he is out of pocket. Costs on an indemnity basis should avoid that element of unfairness. Second, neither costs on an indemnity basis nor interest awarded under section 35A of the Supreme Court Act 1981 will compensate the successful claimant for the inconvenience, anxiety and distress of proceedings or (where the claimant is a corporation) the disruption caused by the diversion of senior management from their normal duties. Interest at an enhanced rate, that is to say at a rate which is higher than the rate which would otherwise be ordered, under section 35A of the 1981 Act, may redress that element of unfairness.
22. An order, under paragraph (3) of CPR 36.21, for the payment of costs on an indemnity basis does not give rise to a risk of double compensation. The purpose for which the power to order the payment of costs on an indemnity basis is conferred, as it seems to me, is to enable the court, in a case to which CPR 36.21 applies, to address the element of perceived unfairness which arises from the fact that an award of costs on the standard basis will, almost invariably, lead to the successful claimant recovering less than the costs which he has to pay to his solicitor. "
"Nor do I see any injustice, in principle, in an order under paragraph (3)(b) of CPR 36.21 for the payment of interest on the costs which are the subject of the order which I would make under paragraph (3)(a). The purpose for which the power to order interest on costs under that paragraph is conferred is, I think, plain. It is to redress, in a case to which CPR 36.21 applies, the element of perceived unfairness which arises from the general rule that interest is not allowed on costs paid before judgment see Hunt v R M Douglas (Roofing) Ltd [1990] 1 AC 398, 415F. So, in the ordinary case, the successful claimant who has made payments to his own solicitor on account of costs in advance of the trial will be out of pocket even if he obtains, at the trial, an order for costs on an indemnity basis. He will get interest on his costs from the date of the order (whether he has actually paid them or not); but he will get nothing to compensate him for the cost of money (or the loss of the use of money) which he has had to bear before trial in relation to payments which he has made on account of costs. An order under paragraph (3)(b) of CPR 36.21 enables the court to achieve a fairer result in that respect. But, having regard to the point which, as it seems to me, paragraph (3)(b) is intended to meet, I would order payment of interest at a rate which reflects (albeit generously) the cost of money say, 4% over base rate; and I would direct that interest runs, on the costs to which the order applies, from the date upon which the work was done or liability for disbursements was incurred".
" The Judge below wrongly directed himself that an indemnity costs order under CPR 36.21 is of a penal nature and implies condemnation of the defendant's conduct and so would be unjust unless the defendants have behaved unreasonably in continuing the litigation after the offer. That misunderstands the rationale of the rule. It is not designed to punish unreasonable conduct but rather as an incentive to encourage claimants to make, and defendants to accept, appropriate offers of settlement. That incentive plainly cannot work unless the non-acceptance of what ultimately proves to have been a sufficient offer ordinarily advantages the claimant in the respects set out in the rule. Given that in a defamation action it would generally be unjust to award interest on the damages, let alone at an enhanced rate, it becomes even more important that a Part 36.21 order is made as to costs, irrespective of whether or not the claimant is represented under a conditional fee arrangement. Otherwise the rule will simply become ineffective in this area of litigation, an area where to my mind it should play a prominent part."
The judge's judgment
"11. It does seem to me that there is a tension between Lord Woolf MR's judgment at para 76, on the one hand, and Chadwick LJ's judgment at para 19-21 in McPhilemy, on the other. Certainly those passages of Chadwick LJ's judgment which I have just read, seem to me to focus very clearly on the concept of compensation of the claimant for those elements of the overall effect of proceedings, which he had to pursue since the date of the Part 36 order, which are not otherwise compensated for in terms of the amount for interest or costs and, in particular, he clearly has in mind the disruption that is caused in a case of a corporation, such as Petrom in the present case, by the fact that senior management have to engage in litigation rather than in their normal duties
12. It does seem to me, trying to make sense of the two judgments together, that although the court can take account of the conduct of Glencore in, as I said, fighting this case to the bitter end in an entirely unreasonable manner, what the court cannot do is penalise Glencore for the way in which they conducted the case by awarding Petrom more by way of uplift on interest than legitimately compensates Petrom for the disruption and what might be described the disruptions and difficulties which this litigation has inevitably caused them.
13. Doing the best I can to reflect that approach and ensuring that I am not penalising Glencore for its conduct, it does seem to me that Mr Matthews is wrong in submitting that the court should take the full 10 percent figure. It seems to me that a lower enhancement or uplift is appropriate in the circumstances of this case."
"It seems to me that Mr Southern is right about this, that what this provision is intended to do is to reflect, albeit generously, the cost of money and, therefore, what one is looking for is an uplift on what the rate would otherwise be which is nothing like the 10 percent rate, which is the maximum under the rule. It seems to me that the appropriate uplift for that period of time, which is some ten months, the rate should be 4 percent over base".
The parties' arguments
Discussion
The award of enhanced interest under CPR Part 36.14(3)(a)
"40. The foregoing analysis is enough, on the face of the correspondence between the parties, to justify a conclusion that the defendant's silence in face of two requests to mediate was itself unreasonable conduct of litigation sufficient to warrant a costs sanction, without the need for the detailed point by point analysis of the Halsey guidelines, carried out both before the judge and on this appeal, on the basis of the allegation that silence amounted to a deemed refusal. But the sanction imposed by the judge followed his determination that there had indeed been a refusal, and that it had been unreasonable.
56. The court's task in encouraging the more proportionate conduct of civil litigation is so important in current economic circumstances that it is appropriate to emphasise that message by a sanction which, even if a little more vigorous than I would have preferred, nonetheless operates pour encourager les autres".
"The court will be more ready in the future to penalise opportunism. The duty of care owed by a legal representative to his client takes account of the fact that litigants are required to help the court to further the overriding objective. Representatives should bear this important obligation to the court in mind when considering whether to advise their clients to adopt an uncooperative attitude in unreasonably refusing to agree extensions of time and in unreasonably opposing applications for relief from sanctions. It is as unacceptable for a party to try to take advantage of a minor inadvertent error, as it is for rules, orders and practice directions to be breached in the first place. Heavy costs sanctions should, therefore, be imposed on parties who behave unreasonably in refusing to agree extensions of time or unreasonably oppose applications for relief from sanctions. An order to pay the costs of the application under rule 3.9 may not always be sufficient. The court can, in an appropriate case, also record in its order that the opposition to the relief application was unreasonable conduct to be taken into account under CPR rule 44.11 when costs are dealt with at the end of the case. If the offending party ultimately wins, the court may make a substantial reduction in its costs recovery on grounds of conduct under rule 44.11. If the offending party ultimately loses, then its conduct may be a good reason to order it to pay indemnity costs."
The award of enhanced interest on costs under CPR Part 36.14(3)(c)
Conclusion
Lord Justice Kitchin:
Lord Justice Floyd:
