Part 36 offer of 0.3% less than value of claim was “genuine attempt to settle”

A part 36 offer that was just 0.3% less than the value of the claim was a genuine attempt to settle in the circumstances of a case where the claimant had little chance of losing, the High Court has ruled.

However, Mr Justice Zacaroli decided not to apply all of the usual part 36.17(4) consequences of beating an offer because of the financial difficulties facing the defendant.

Rawbank SA v Travelex Banknotes Ltd [2020] EWHC 1619 (Ch) was a claim by the largest bank in the Democratic Republic of Congo over Travelex’s failure to supply it with the $60m of banknotes it ordered in March because of coronavirus restrictions being imposed at that time.

With the defendant (TBL) facing severe financial difficulties due to Covid-19, it said it would not deliver the notes or refund Rawbank – it paid up front – pending a restructuring.

On 4 May, Rawbank issued a claim for breach of contract and/or misrepresentation. The principal amount of the claim was $60,072,000 (including the fee it paid TBL), with the sterling equivalent put at £48,311,860. The same day, Rawbank made a part 36 offer of £48,290,000 (inclusive of interest to 25 May).

On the basis that interest was payable at 2% above Barclays Bank’s base rate, then, together with interest to 25 May, the sterling equivalent of the amount claimed was £48,448,059. The discount being offered (assuming exchange rates remained constant thereafter) was therefore £158,059, or just 0.3% of the claim.

With the defendant eventually accepting that there should be judgment entered against it, Rawbank beat its offer. One of the remaining issues was whether the judge should make an order under CPR 36.17(4).

The defendant submitted that that the part 36 was clearly not a genuine offer to settle, but a tactical move designed solely to engage the part 36 enhanced payments. Zacaroli J said: “While I see the force of that submission, I do not accept it. The critical question is not a mathematical one – the proportion of the discount – but whether it is possible to infer from the size of the discount that there is no genuine attempt to settle the proceedings.”

He noted that there was no issue as to the quantum of the claim, so the only two possible outcomes were complete success or failure, while in reality there was no defence. “From Rawbank’s perspective, therefore, there was no realistic possibility of failure. In other words, a discount of any amount would involve Rawbank giving up something which it had a near-certainty of obtaining.

“Moreover, while £158,059 is a very small amount in comparison with the principal amount of the claim, it is larger than the interest that would accrue during the period of the offer and is likely to have been greater than the costs incurred by Rawbank.”

The judge decided that, in circumstances where a claimant has near-certain chances of success, “an offer to settle on the basis that the claimant foregoes an amount equal to interest or costs is still capable of being characterised as a genuine offer of settlement”.

That conclusion was bolstered by the fact that the claimant desperately needed the money – it represented around half of the bank’s equity – and was at a loss to understand why its money had not been returned.

The defendant also relied on the fact that it was simply not in a position to pay, but the judge said: “I do not regard this as demonstrating that there was no genuine attempt to settle. Rawbank was entitled not to accept TBL’s word that it could not pay, and so long as it believed there was a possibility that TBL could pay, it could not be said that it was acting otherwise than genuinely in trying to encourage early payment.”

However, he continued, TBL’s inability to pay was relevant to whether it would be unjust to order it to pay the amounts identified in rule 36.17(4). Given that, “due to circumstances beyond its control TBL is, and has been since the date of the part 36 offer, unable by reason of its insolvency” to pay the $60m, it would be unjust to make at least some of the orders. “This is not a case where TBL fought on in the hope of beating the part 36 offer.”

Zacaroli J decided to apply two of them, ruling it was not unreasonable to order indemnity costs from the end of the offer period and interest on the principal sum because TBL had delayed judgment being entered against it so that it could explore restructuring options.

He said entering judgment would not in itself have interfered with the proposed restructuring; TBL’s concern was as to the enforcement action that would inevitably follow.

“Accordingly, I am not persuaded that TBL’s inability to pay and its desire to pursue restructuring negotiations are sufficient to mean it is unjust to require it to compensate Rawbank for the higher rate of interest Rawbank would have obtained had it obtained judgment earlier and in requiring it to pay Rawbank’s costs on the indemnity basis. I will therefore order both as from 25 May 2020.”

Alex Cunliffe (instructed by Singhania & Co) for the claimant, with Tom Smith QC (instructed by Sidley Austin) for the defendant.

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Published date
09 Jul 2020

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