Barnett & Anor v Creggy

Following the handing down of my judgment in this matter on 19 December 2014, there are a number of consequential matters to be decided.

In short, the effect of my judgment was that I dismissed the claim for an account in respect of a long period beginning in the 1970s and ending in about 1999, but I found in the claimants’ favour on two claims.

First, I upheld Jeffrey Barnett’s claim for equitable compensation in respect of the payment made by the defendant of a little under US$1.2 million to a Maltese lawyer, Dr Spiteri.

Secondly, I said that I would order an account in respect of a shorter period beginning in about 1999.

I also ordered that interest should be paid on the equitable compensation at a rate of 3 per cent above 6-month US dollar Libor and I gave my reasons for ordering interest at that rate.

The parties have agreed that the total amount payable in respect of the equitable compensation, including interest of US$1.108,579.98, is a little over US$2.3 million.

There are a number of points outstanding on which I have today heard argument from counsel.

The first point raised was the rate of interest applicable to the judgment sum for the period after judgment. If the judgment sum were a sum in Sterling, interest would be payable at the rate which has now been fixed for many years, pursuant to the Judgments Act 1838, of 8 per cent per annum. At any rate since the autumn of 2008, this has been a high rate of interest compared with market rates, including rates which would normally be payable by a commercial borrower.

The judgment here, though, is a sum in US dollars. Under section 44A of the Administration of Justice Act 1970, the court has a discretion as to the rate of interest to be awarded on the judgment. Interest is not automatically payable at the statutory rate of 8 per cent under the Judgments Act.

In a recent decision of the Court of Appeal in Novoship UK Ltd. v. Nikitin [2014] EWCA Civ 908, a judgment creditor appealed against an award of interest on a judgment in a foreign currency at commercial rate rather than a rate of 8 per cent. It was submitted on behalf of the appellant that given the way that judgment rate had departed so clearly from commercial rates without any reduction being made to it, it must be taken that there was a legislative policy of providing more than ordinary financial compensation by the award of interest, which should accordingly inform the approach of the court in deciding the rate of interest on a judgment in a foreign currency.

The Court of Appeal rejected this argument. It held that the underlying purpose of both the Judgments Act and section 44A of the Administration of Justice Act is to provide compensation to the claimant for being kept out of its money. As it was put by Longmore LJ at [56], those considerations:

In my view, this decision of the Court of Appeal resolves the debate as to whether, when awarding interest on a judgment in a foreign currency, the court is to apply a conventional compensatory approach, or is to apply an approach in some way linked to interest at the higher rate of 8 per cent.

It follows, therefore, that I reject the submission of Mr Thompson on behalf of the claimants, that interest should be awarded from the date of judgment at 8 per cent. I consider that I should award interest at a commercial rate on the compensatory principle, and it seems to me that the rate should be the same rate as applied prior to judgment, that is to say 3 per cent above 6-month US dollar Libor.

The second issue was whether in ordering the account in respect of the last few years of the relationship between the claimants and the defendant, I should depart from the usual approach, that the accounting party prepares the accounts which can then be challenged by the party to whom he must account.

CPR PD 40A makes provision for accounts. Paragraph 2 provides that, subject to any order to the contrary, the accounting party must make out his account and verify it by an affidavit or witness statement to which the account is exhibited, thereby imposing the burden of preparing the accounts, as was always conventional, on the accounting party.

Mr Lundie, on behalf of the defendant, submitted that this was an appropriate case in which to depart from the conventional order, on the grounds that the work in identifying the sums which had been paid by the claimants to the defendant in the period in question had already been done for the purposes of the trial and it would therefore be just as easy and appropriate for the claimants to produce the accounts.

I do not accept this submission. If anything, the fact that the work as to the amounts paid to Mr Creggy was done for the purposes of the trial seems to me to make it all the more appropriate that the standard approach should be adopted and that it is Mr Creggy who should prepare the accounts. It is after all for him to identify how he has dealt with the funds which were entrusted to him. So the usual order will be made in that respect.

The third issue or set of issues concerns the effect of an offer made by the claimants under Part 36. The offer was contained in a letter from their solicitors dated 21 February 2014. It provided for the defendant to pay £1.5 million in cleared funds in full and final settlement of the whole of the claimants’ pleaded claims, including interest.

The defendant, presumably confident of his ground, rejected the offer and made a counter-offer in the sum of £1 to include costs and interest. Unsurprisingly, the claimants did not accept it.

The amount which the claimants have recovered is the figure of a little over US$2.3 million, including interest, that I earlier mentioned. The claimants submit that they have therefore done better than their Part 36 offer, and accordingly the consequences set out in CPR 36.14 should apply.

It is not in doubt that the Part 36 offer was in terms which complied with the requirements of Part 36 but a number of points are raised by the defendant.

First, the defendant submits that the Part 36 offer has not been beaten by the claimants. The judgment that I have awarded in favour of the claimants is in US dollars but the offer was made in Pounds sterling. At the time that the claimants made their offer, they were advancing claims for an account which involved sums in three currencies, US dollars, Canadian dollars and sterling. Although no doubt it might be possible to make an offer under Part 36 in more than one currency, in the context of this case I think it was sensible to make an offer in a single currency.

Whether the offer is beaten by the judgment sum depends on the relevant rate of exchange between the Pound sterling and the US dollar. If the mid-market exchange rate at today’s date is taken, the sum of a little over US$2.3 million exceeds the US dollar value of the offer of £1.5 million, (US$2,274,900). But, if exchange rates are taken at various dates between 21 February 2014 and today’s date, the reverse is true. That is partly the result of interest accruing on the debt but it is very much affected by changes in the exchange rate. Just by way of illustration, the mid-market exchange rate on 21 February was US$1.669 to the Pound. It went up to US$1.683 to the Pound in May 2014, but was down on 19 December 2014 to US$1.564 and today stands at US$1.5166.

There was some debate about whether one takes the mid-market rate or the buying or selling rate. The figures that were initially put to me were on the basis of the mid- market rate, but the debate on this point was in part sparked by comments of mine as to whether it should be the higher or lower rate depending on whether the judgment creditor is buying or selling dollars.

As it seems to me, as the judgment was sought and entered in US dollars, the claimants are entitled to payment in US dollars, but the defendant is given the option under the rules to pay that judgment in the equivalent amount of sterling. So the question is then what amount of sterling for these purposes is equivalent. In my view, it must be an amount in sterling which will enable the claimants to purchase the dollar amount of their judgment. It follows that the correct rate of exchange is that at which the claimants would have to exchange sterling into dollars. The effect is that, taking an exchange rate as at today’s rate, the claimants have beaten the Part 36 offer by recovering a slightly larger amount.

A point of construction arises on CPR 36.14(1), which provides that 36.14 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.” The calculation under the rule is to be made “upon judgment being entered”.

Mr Lundie submits that judgment was entered on 19 December 2014 when I handed down my judgment.

Mr Thompson submits that judgment is entered today when I make the Order which will include an order for the payment of the sum of a little over US$2.3 million.

I accept Mr Thompson’s submissions. It seems to me clear that in the phrase “upon judgment being entered" the judgment is the Order of the court containing the court’s judgment that the defendant pay the sum of a little over US$2.3 million. What occurred on 19 December 2014 was that I handed down the reasons for the Order which I will make today.

It is, in my judgment, therefore right that the calculation is as at today’s date. If it were as at 19 December 2014 the result would be different and the claimants would not have beaten their Part 36 offer.

Accordingly, I conclude that applying the terms of CPR 36.14 the claimants have done better than their Part 36 offer.

The second point arises from the fact that the judgment for US$2.3 million is in favour of Jeffrey Barnett alone and not Peter Barnett. That is because there was an acknowledgement, as I have held, by Mr Creggy of his indebtedness to Jeffrey Barnett but no such acknowledgement to Peter Barnett and therefore any claim by Peter Barnett is time-barred. It is worth recording that Peter Barnett’s claim in this respect was very small, I think something of the order of US$23,000; it was Jeffrey Barnett who had the significant claim.

The point taken by Mr Lundie is that the Part 36 offer made in February 2014 was made on behalf of both claimants and the effect of the judgment is that Jeffrey Barnett has done better than the Part 36 offer but Peter Barnett has not.

I did not understand Mr Lundie to submit that Jeffrey Barnett could not say that he had done better than the Part 36 offer, but what he did submit was that Peter Barnett cannot take any advantage under the terms of Part 36, in particular in relation to the basis on which costs are to be assessed and interest is to be awarded on costs.

As a matter of analysis, the point taken by Mr Lundie is correct. If Peter Barnett and Jeffrey Barnett had been advancing claims on different bases for different amounts depending on different facts, and one of them had done better than the offer but the other one had not, it would only be the former who would be entitled to the benefit of the consequences under Part 36.14.

In this case there is, so far as I have been able to ascertain, no or at any rate no significant difference in the costs incurred by Peter Barnett as opposed to those incurred by Geoffrey Barnett. They were represented by the same solicitors and counsel and the evidence and submissions all covered the same ground. With what I think would be inconsequential exceptions, the costs will be the same whether both claimants succeeded or only one. So, on the facts of the case I do not consider that this is a point which will make any difference.

Mr Lundie submitted as his third point on the Part 36 offer that the court should in the circumstances of this case conclude that it would be unjust to order the consequences which would otherwise follow under Part 36.14(3). This is not an exercise of a discretion but a value judgment by the court as to whether it would be unjust to allow those consequences to follow.

Mr Lundie relied on three circumstances as making it unjust for those consequences to follow. The first is the point to which I have already referred, that the judgment is in US dollars but the offer was in Pounds sterling, and, as things have transpired, it is a close call whether the judgment is better than the Part 36 offer. It is, as I have observed, the product in large part of changes in the US dollar-Pound sterling exchange rate.

Of course, the exchange rate might have gone the other way making it clear that the claimants had not done better than their offer, and it might have been that the exchange rates at earlier dates would have meant that they would have done better if judgment had been entered on those dates. In other words the inevitable changes in exchange rate may work to the advantage or disadvantage of both sides.

When Mr Creggy took the decision to reject the Part 36 offer, he took the risk of movements in the exchange rate. This is no presumption on my part, although I think it would normally be a matter of presumption; having heard Mr Creggy and seen him give evidence I have no doubt at all that he is very much alive to the financial consequences of matters such as movements in exchange rates. As it seems to me, he knowingly took that risk.

The second circumstance on which Mr Lundie relied was that, were it not for the legal argument that the letters written by Mr Creggy amounted to an acknowledgement of Jeffrey Barnett’s claim in respect of the payment of monies to Dr Spiteri, his claim would have been time-barred. Mr Lundie drew attention to the fact that the acknowledgement argument was not raised on the pleadings but was taken by Mr Thompson in his skeleton for the trial. Mr Lundie accepts rightly that it was a point of law and that it was properly dealt with at the trial because it did not require any further evidence.

For two reasons I do not consider that this is a point of substance in Mr Creggy’s favour for present purposes.

First, at whatever stage this point had been raised, Mr Creggy would not have accepted it and would have resisted the claim, arguing as Mr Lundie did at trial on his behalf, that the letters, properly construed, did not amount to acknowledgements.

Secondly, the status of those letters as being acknowledgements of the claim in respect of the money paid to Dr Spiteri was expressly raised both in the original letter of claim sent in February 2011, and in the particulars of claim. It is true that it is not expressly made as a response to the defence under the Limitation Act, but that seems to me a point of no importance; there was no real significance in pointing to the acknowledgements unless they were to have that effect.

The third circumstance relied on by Mr Lundie was that the claimants failed in a significant part of their claim -- that is for the account in respect of the years from the mid-1970s to the late 1990s. But the offer that was made by the claimants was an offer which, in large part, discounted that part of their claim and I cannot see in those circumstances why it makes any difference that they lost on that claim.

Overall, I can see no good grounds to consider that it would be unjust - which is a strong word - to dis-apply the consequences which otherwise flow under 36.14.

The consequences are those set out in 36.14(3). First, the claimants are entitled to “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 period starting with the date on which the relevant period expired.” The relevant period expired 21 days after the offer was made.

Pausing there, two points were argued. The first was as to the rate to be awarded under this paragraph. It is to be noted that it is a rate “not exceeding” 10% above base rate (base rate means Bank of England base rate for Pounds sterling). Those words of course express a maximum and there has been consideration in the authorities as to the approach to be adopted in fixing the relevant rate. Those authorities, in particular the decisions of the Court of Appeal in Petra Trade Inc. v. Texaco Ltd [2001] 4 All ER 853, and McPhillamy v. Times Newspapers Ltd No. 2 [2001] EWCA Civ 933, [2001] 4 All ER 861 emphasise that the award of interest under this paragraph is principally to compensate the successful party for the non-financial costs in taking a case to trial, including stress, time, inconvenience and so on.

In Petra Trade, Lord Woolf said that the amount of the claim is a relevant factor. He said that if a claim is small, enhanced interest has to be at a higher rate than if the claim is large, because the additional advantage for the claimant will not otherwise be achieved. In that case the sum involved was, he said, neither particularly large nor particularly modest, being a sum of about £125,000. Against that background, he awarded interest at the rate of 4 per cent above base rate.

There have been awards of interest at varying amounts in subsequent cases which are conveniently referred to by Coulson J. in Greenwich Millennium Village Ltd v. Essex Services Group plc [2014] EWHC 1099 TCC. They show significant variations. In that case, where the claim was for £5 million, the judge concluded that it fell somewhere in the middle of the range, judged by the standards of the Technology and Construction Court, it being neither a modest sum nor a very significant sum. He did not think it was a case where a percentage towards the upper end was appropriate and he too awarded 4 per cent over base rate, which he described as a not uncommon uplift in Rolls Building litigation.

The amount awarded in the present case is also, I think, in the context of litigation here, a middling amount; it is a great deal less than many awards made in the Chancery Division but it is certainly more than a modest amount. I consider likewise that a rate of 4 per cent above base rate meets the justice of the case.

The second point is whether interest under 36.14(3) is in addition to or in substitution for interest otherwise payable on the principal amount of the claim.

36.14(5) provides:

As Chadwick LJ in the McPhillamy case observed, that is a clear acknowledgement that there can be two rates of interest applicable to the same sum and they are cumulative subject only to the overall cap of 10 per cent above base rate.

Accordingly, I see no reason why the figure of 4 per cent above base rate should not apply in addition to the sum of 3 per cent above 6 month US dollar Libor. I doubt whether those will total a sum of more than 10 per cent above base rate but, if for any period they do, the cap will apply.

If interest were restricted to one rate or another, it would mean that the claimants were being compensated only for the financial costs involved or for the non-financial costs involved, but it is clear from the scheme of Part 36 and the other rules that they are entitled to both types of compensation.

The second consequence under 36.14(3) is that from the date on which the relevant period expired the claimants are entitled to costs on the indemnity basis. That automatically follows but I will come in a moment to the extent of the costs order to be made in this case.

The third consequence is that the claimants are entitled to interest on those costs at a rate not exceeding 10 per cent above base rate. The purpose of that provision was explored by Chadwick LJ in the McPhillamy case. In contrast to the purpose of paragraph (a) providing for interest on the judgment sum, he analysed the purpose of paragraph (c) as being to compensate the successful party for, in effect, the financial cost of having to pay costs.

In the circumstances and given that the costs are in sterling, I am going to order the same rate of 4 per cent above base rate.

The fourth and final consequence is that under paragraph (d), and there is no dispute about this, a sum of £75,000 is payable by the defendant to Jeffrey Barnett.

That concludes the issues on Part 36 and leaves only the question of costs.

In approaching the question of costs under CPR 44.2, I first have to consider whether it is appropriate to make any order for costs. Given the nature of this litigation it seems to me clear that it is appropriate to make, or to consider making, an order for costs.

The next question under CPR 44.2(2) is who was the successful party?

Mr Lundie made the bold submission that Mr Creggy was the successful party and he pointed to Mr Creggy’s success in defeating the claim for an account for the period up to the late 1990s. I find it very difficult to describe a defendant who leaves court with a liability to pay a judgment sum of US$2.3 million plus interest as the successful party in circumstances where the offer he made was to pay £1.

In my judgment, there is no doubt that in this case the claimants are correctly identified as the successful party. Jeffrey Barnett has succeeded in his claim for equitable compensation and they have both succeeded in obtaining an account for the period from the late 1990s.

The question then arises under CPR 44.2 as to the order for costs I should make. The relevant factors include those listed in 44.2(4) of which (b), “whether a party has succeeded on part of its case, even if that party has not been wholly successful,” is particularly in point.

The claim for an account in respect of the period from the mid-1970s to the late 1990s was a very significant part of the claim. It is worth adding that if the order for such an account had been made it would itself have been a very extensive and time-consuming exercise.

A very substantial amount of time was taken in dealing with this claim. A good deal of the evidence, both written and oral, was directed to issues relating to it and a good deal of the time of the trial was taken up with it. A very substantial amount of the documentation and the detail related to it, and I may add that in terms of preparing the judgment it accounted for a very significant amount of the time required.

If the claimants had limited themselves to the claims on which they have succeeded, the scope of the proceedings both before and at trial would have been significantly less. While it would have been necessary for them to give some account of their relationship with Mr Creggy from the mid-1970s, it would have occupied much less time than it in fact did.

It seems to me inevitable that the order for costs should reflect the failure of the claimants on this part of their claim.

It also seems to me, and Mr Thompson did not dissent from this, that in fixing the appropriate order for costs the court should not only disallow part of the claimants’ costs but should take into account the costs incurred by Mr Creggy in meeting that part of the claim.

I should add that the claim failed not only in terms of legal analysis but also in terms of whether it would in any event have been appropriate to order an account; I held that it would not have been.

Taking account of the fact that there are clearly overlapping costs which the claimants are entitled to recover, I conclude that the right order is that the defendant pay 50 per cent of the claimants’ costs of this action. That, I think, reflects as best one can, the relative contributions to the overall costs of the different claims made by the claimants.

That concludes the matters I have to decide.

MR LUNDIE: There is one short point which I would invite your Lordship to give judgment on. You did not hear argument from my learned friend and myself so it may be quite a short point, but under 36.14(3)(a) the claimants are entitled to interest at the rate you have determined. Now, for some or all of the period from 21st March down to Judgment? I invite your Lordship to make that for all the period. You did not expressly deal with that in your Judgment.

JUDGE RICHARDS: I cannot see any basis for----

MR LUNDIE: No.

JUDGE RICHARDS: Good, it will be for that, all, the whole, that whole period.

MR LUNDIE: I am very grateful for your clarification.

JUDGE RICHARDS: Yes, certainly.