Newland Shipping & Forwarding Ltd v Toba Trading FZC

In my judgment given on 12 March 2014 on the trial of this action, I held that the claimant (“Newland”) is entitled to judgment on its claim for sums totalling US$334,967.44 (excluding interest) and that the defendant (“Toba”) is entitled to judgment on its counterclaim in a sum of US$2,495,592.60 (again excluding interest). It has been agreed that consequential issues concerning interest and costs should be dealt with on the basis of written submissions.

In their written submissions the parties disagree about what orders for interest and costs should be made. The disagreement is radical. Toba contends that it is the successful party and should be awarded its costs of the whole action (less a discount of 15%). Newland, on the other hand, relies on an offer made under CPR Part 36 which Toba did not accept, and contends that it should be awarded its costs of the whole action - with its costs since 29 May 2013 (when the offer expired) to be paid on the indemnity basis - together with interest on its claim and on its costs at 10% above base rate and an additional sum claimed pursuant to CPR 36.14(3)(d).

The issues raised by Newland’s reliance on its Part 36 offer are far from straightforward because the offer related not only to Newland’s claim in the present action but also to its claim in another action which was going to be tried at the same time but which in the event has been disposed of separately. I shall first identify what order I would have made about costs in the absence of the Part 36 offer. I will then consider what impact Newland’s offer has on the order which I should make.

The general approach to costs where the claimant succeeds in its claim and the defendant succeeds in its counterclaim used to be to make separate orders whereby the claimant would be awarded its costs of the claim and the defendant would be awarded its costs of the counterclaim. However, that is no longer the practice in commercial litigation involving purely monetary claims. Recognising the commercial reality that the disputes are all about money, the modern approach is to look at the proceedings as a whole and to start by identifying which party is overall the successful party: see e.g. ACT Construction v Mackie [2005] EWCA Civ 1336. Applying that approach to the present case, it is clear that the successful party is Toba, as it has obtained judgment for a sum of money which very substantially exceeds the sum which it has been held liable to pay.

It is necessary, however, to take account of the fact that Newland succeeded in its claim and that, although the claim was for a much smaller sum of money than the counterclaim, the issues raised by Newland’s claim occupied a much greater amount of time at the trial and must have accounted for a correspondingly larger proportion of the work involved in preparation. Having regard to these factors, I consider that the just order to make in the absence of Newland’s offer would have been that Newland should pay 50% of Toba’s costs of the action. I mention for completeness that I do not consider that any of the criticisms made by Toba of the reasonableness of Newland’s conduct of the proceedings is of sufficient substance to affect the just order to make.

As mentioned in paragraph 6 of my judgment dated 12 March 2014, this action was originally due to be tried at the same time as another action in which Newland claimed damages under a different contract with Toba, which I have referred to as the “Caspian Contract”. I shall refer to the other action (2011 Folio 1213) as the “Caspian Action”. Toba failed to comply with case management directions in the Caspian Action, with the result that on 15 November 2013 judgment was given against Toba by Field J in both actions. Toba applied for relief from sanctions. On 6 February 2014 Hamblen J granted Toba’s application and set aside the default judgment against it in the present action. However, Hamblen J refused to set aside the judgment entered in the Caspian Action, although the amount of the judgment was reduced from US$7,260,382 to US$6,605,673. This action has therefore been tried on its own.

On 8 May 2013, at a time when both actions were due to be tried together, Newland sent a letter to Toba marked “without prejudice save as to costs” and expressed to be a claimant’s Part 36 offer. The letter stated that Newland “is willing to settle the whole of its claim in both (now consolidated) actions” on terms that Toba pay to Newland, within 14 days of acceptance of the offer, the sum of US$2,900,000 “in full and final settlement of all claims and counterclaims” in the present action and the Caspian Action. This settlement sum was said to include interest but to exclude Newland’s costs.

Toba did not accept Newland’s offer. The time for acceptance of the offer expired on 29 May 2013, which was therefore the date on which “the relevant period” for the purposes of CPR Part 36 expired.

Counsel for Toba have submitted that Newland’s offer did not comply with CPR 36.2(2)(e) because the offer did not state whether it took into account Toba’s counterclaims. It is true that the offer did not say in so many words that it took into account the counterclaims and said only that Newland was willing to settle “the whole of its claims” in both actions. However, the terms of the offer sought payment of the sum of US$2,900,000 “in full and final settlement of all claims and counterclaims” in the two actions. In these circumstances I think that a reasonable recipient of the letter would have understood that the offer was intended to take into account Toba’s counterclaims in both actions. If Toba had been in any doubt about this, it could have sought clarification of the offer, which it did not. I accordingly consider that Newland’s letter dated 8 May 2013 was a valid Part 36 offer.

CPR 36.14(1) states that the 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.” Subject to certain exceptions not relevant in this case, CPR 36.14(3) provides that the court will in these circumstances:

“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 period starting with the date on which the relevant period expired;

(b)

costs on the indemnity basis from the date on which the relevant period expired;

(c)

interest on those costs at a rate not exceeding 10% above base rate;

and

(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 …”

CPR 36.14(3)(d) was added by the Civil Procedure (Amendment) Rules 2013 and is applicable to claimants’ offers made on or after 1 April 2013. Where, as in this case, the amount awarded by the court is less than £500,000, the prescribed percentage referred to in CPR 36.14(3)(d) is 10% of the amount awarded.

In accordance with CPR 36.14(1), whether this rule applies upon the present judgment being entered thus depends on whether the judgment against Toba is at least as advantageous to Newland as the proposals contained in its Part 36 offer. CPR 36.14(1A) makes it clear that for this purpose, in relation to any money claim, “more advantageous” means better in money terms by any amount, however small, and “at least as advantageous” is to be construed accordingly.

It seems to me impossible to say that the judgment now being entered against Toba is “at least as advantageous” to Newland as the proposal contained in its Part 36 offer. If simply one compares the monetary amounts, the judgment is substantially less advantageous, since the proposal was for Toba to pay the sum of US$2,900,000 whereas the judgment is for the much smaller sum of US$334,967.44; indeed, when the counterclaim is taken into account, the judgment requires Newland to pay to Toba a sum of over US$2 million. Alternatively, the proper analysis may be that the two sums are incommensurable, as the judgment against Toba relates only to Newland’s claim in the present action whereas the proposed payment would have related to all claims and counterclaims in both actions. On either view, the requirement specified in CPR 36.14(1) is not satisfied.

Newland’s argument depends upon treating the judgment now being entered in this action and the judgment already entered in the Caspian Action as if they were a single judgment and looking at the global position whereby there is a balance of US$4,445,047.84 (excluding interest) in Newland’s favour. It does not seem to me, however, that CPR 36.14(1) is apt to cover a situation where two different judgments are given at different times in two separate actions so as to enable the judgments to be aggregated and treated as if they were one.

In any event, and even if I am wrong in thinking that CPR 36.14 does not apply to the judgment entered in this case, I consider that it would be unjust to make the order which Newland seeks. I agree with the point made on behalf of Toba that treating Newland’s offer as having the effect for which Newland contends would mean that, once Newland had obtained a default judgment against Toba in the Caspian Action on terms more advantageous than the Part 36 offer (and the court had rejected Toba’s application to set the judgment aside), Newland was enjoying a ‘free ride’ in the present action. Indeed, the position would be better than a ‘free ride’, since interest would be accruing on Newland’s claim at a rate far higher than that required to compensate Newland for the loss of use of the money. Yet Toba was in a position where, unless it abandoned its counterclaim, it had to continue the proceedings in order to get a judgment for the sum owing to it. It would be unjust if, by reason of the offer made in May 2013 at a time when the actions were conjoined and the judgment obtained in the Caspian Action by default, Newland was able to resist Toba’s counterclaim after this action proceeded on its own without being at any risk as to costs and in a position where, the longer it took for Toba to obtain judgment, the more profit Newland would make by way of enhanced interest. Such a result would be completely contrary to the purpose of CPR Part 36, which is to encourage parties to reach reasonable settlements.

In my view, once the two actions became decoupled on 7 February 2014, Newland’s offer ceased to be effective. Newland had on 15 November 2013 obtained a judgment (in both actions) more advantageous than its offer. It seems to me that Newland could have applied at that stage for an order under CPR 36.14(3). However, it did not. Nor was such an application made on 7 February 2014, although when the default judgment in this action was set aside on that date the judgment in the Caspian Action (as adjusted) remained more advantageous to Newland than the proposals contained in its offer irrespective of the outcome of the present action. The proceedings then entered a new phase in which all that was in issue was Newland’s claim and Toba’s counterclaim in the present action. If Newland wished to protect itself against a liability for costs in the event that Toba obtained a judgment on its counterclaim – particularly in the event that such a judgment exceeded any judgment obtained by Newland on its claim – then it was necessary in my view for Newland to make a new Part 36 offer. Newland’s May 2013 offer was no longer applicable, alternatively it would be unjust to treat Newland as entitled to the benefit of that offer, in relation to the subsequent proceedings.

It is nevertheless still relevant to take account of Newland’s offer in deciding what order to make about costs. CPR 44.2(4) requires the court to have regard to all the circumstances, including:

“(c)

Any admissible offer to settle made by a party which is drawn to the court’s attention, and which is not an offer to which costs consequences under Part 36 apply.”

If Toba had accepted the offer made in Newland’s letter dated 8 May 2013, it would have achieved a more favourable overall result in the two actions than that which it has in fact achieved. I think it right to reflect that fact by awarding Newland its costs of this action on the indemnity basis from 29 May 2013 (when the period for acceptance of the offer expired) until 15 November 2013 (when Newland obtained a default judgment and the action came to an end until it was reinstated on 7 February 2014). It does not appear to me that the court has power to award interest at an enhanced rate, let alone an additional amount, other than under CPR 36.14. I would add that I would not in any event have awarded an “additional amount”, even if I had concluded that CPR 36.14 applies and did not otherwise consider it unjust to make an order under that rule. That is because Newland’s letter dated 8 May 2013 specified the terms of the order which Newland would seek under CPR 36.14 and those terms did not include an “additional amount”. I do not think it would be just to order payment of any “additional amount” when it was not included in the sums which Newland said it would claim if Toba did not accept its offer.

I will accordingly make the following orders with regard to costs:

For the reasons given in my judgment in Vis Trading Co Ltd v Nazarov [2013] EWHC 491, I consider that (in the absence of any special circumstances) an appropriate commercial rate of interest on sums for which judgment is given in US dollars is 6 month LIBOR plus 2.25%. I will therefore award interest on the judgment sums calculated at this rate from the dates when liability to pay the sums arose until the date when judgment is entered.