Royal Courts of Justice
Strand, London, WC2A 2LL
Before:
THE HONOURABLE MR JUSTICE STUART-SMITH
Between:
SABIC UK PETROCHEMICALS LIMITED (formerley HUNTSMAN PETROCHEMICALS (UK) LIMITED) | Claimant |
- and - | |
PUNJ LLOYD LIMITED (a company incorporated in India) | Defendant |
(by original action) | |
- And Between - | |
PUNJ LLOYD LIMITED (a company incorporated in India) | First Claimant |
- and - | |
SIMON CARVES LIMITED (In Administration) | Second Claimant |
- and - | |
SABIC UK PETROCHEMICALS LIMITED (formerly HUNTSMAN PETROCHEMICALS (UK) LIMITED) | Defendant |
(by Counterclaim) |
Piers Stansfield QC (instructed by Bond Dickinson LLP) for the Claimant
Nicholas Dennys QC and Steven Walker QC (instructed by Fenwick Elliott LLP) for the Defendant
Hearing dates: 10 October 2013
Judgment
Mr Justice Stuart-Smith:
As set out in the main judgment at [2013] EWHC 2916 (TCC), SABIC now contends for statutory interest rather than attempting to calculate the cost of completing the works as part of its claim under Clause 30.9 of the EPC contract. PLL/SCL accepts the principle that interest is recoverable pursuant to statute, but issues have arisen on the correct approach to be adopted.
SABIC contends for interest at 2.5% up to today and, for the future, at the Judgments Act 1838 rate (8%) until payment. It has calculated a monthly profile of the costs it incurred to complete based upon the material in the quantum experts’ reports and other evidence. That calculation has included SABIC’s management costs, the costs attributable to Foster Wheeler, SABIC’s scope completion costs and the main items of costs attributable to the repair of the EVS. Where the main judgment awards less than the amounts expended overall, SABIC has reduced its calculation pro rata to reflect the level of the awards made by the main judgment, the factor of reduction being based on the difference between £40,489,714 (the total of the costs expended by SABIC) and £39,117,514 (the amount established as costs to complete). Credit is given at the outset for the receipt of the bond monies, with the result that SABIC’s calculation goes into net deficit in April 2009. Interest is calculated from then on at 2.5% on the basis that 2.5% is 2% over base and “the normal commercial rate of interest” throughout the period from April 2009 to date. SABIC’s calculation, if accepted entirely, would lead to an award of interest of £1,271,640.
In response, PLL/SCL takes a number of points leading to the overall submission that no interest should be awarded:
First, PLL/SCL submits that interest should not run from a date before the relevant cause of action accrued. PLL/SCL submits on this basis that the earliest date from which SABIC could properly claim interest would be on or around 13 February 2009. Since SABIC does not claim interest before April 2009, it is not necessary to consider this point further;
Second, PLL/SCL submits that the sum of £11,797,514 awarded by the main judgment includes £4,250,000 in respect of SABIC personnel who would have been employed by SABIC in any event. The submission is that, since SABIC would have incurred the cost of employing them in any event, no interest should be awarded in respect of the cost of their employment;
Third, PLL/SCL points to the evidence that SABIC was funded by debt until 30 September 2009 but not thereafter. It submits that statutory interest is awarded to reflect the cost of borrowing money and that accordingly interest should not be awarded for the period from October 2009 by reference to a notional cost of borrowing since, on the evidence, SABIC was not borrowing. Instead, it submits that the appropriate rate from October 2000 would be 0.5% on the basis that such a rate reflects what SABIC would have earned if it had received the money on time and chosen to invest it in the markets;
Fourth, PLL/SCL submits that interest should be contra-charged in its favour for the period from when the bonds were called until April 2009, when the account went into deficit from SABIC’s perspective. This submission is made on the basis that, by virtue of the receipt of the bond monies, SABIC’s interest bill during that period was reduced since its borrowings were reduced. Since SABIC was then borrowing from its parent at 7.22% in 2008 and 5.87% in 2009, PLL/SCL submits that interest should be contra-charged at those rates for the period. If that is done, and PLL/SCL’s other submissions are accepted, the contra-charge attributable to the bond monies wipes out any interest that SABIC might otherwise recover.
I deal with these points in turn.
The Employment of SABIC Personnel
The costs relating to the employment of SABIC personnel were held recoverable at [412-413] of the main judgment because SABIC established that the costs were for SABIC staff who were brought in to do work which SCL staff would have done if they had not left. SABIC was therefore deprived of the ability to deploy its staff on its own work. SABIC is therefore entitled to recover interest in respect of the non-productive (from SABIC’s point of view) costs incurred. This objection fails.
Rate of Interest
I accept the factual premise of PLL/SCL’s point, which is that SABIC was, on the evidence, not funded by debt after September 2009. However, it does not follow that the appropriate rate should be the base rate from time to time.
PLL/SCL relies upon Juliet Bellis & Co v Mr Geoffrey Egan [2013] EWHC 620 (Ch) at [31-32] where Hildyard J said:
“As to (1), it seems to me that the Court's overall approach in the authorities cited to me is to distinguish between (a) cases relating to money lost in or in relation to the conduct of a business where the general assumption would be that money lost or detained would have to be replaced by money borrowed to maintain that business and (b) cases where any award is an accretion to the funds of the claimant, rather than replacement of monies which the claimant had previously had and put to use.
In cases of type (a), the Court seeks to identify an appropriate interest rate, adopting a broad brush to establish a rate approximating to the cost that a claimant in that line of business or activity would have incurred in borrowing money to replace the money lost or detained. In cases of type (b), of which the paradigm may be personal injury cases, the Court seeks to identify an appropriate rate to represent a minimum return to put the claimant in the position he or she would have been if the money had been placed on deposit at the date of the event that gave rise to the claim.”
In response, SABIC refers to BP Exploration Co (Libya) v Hunt (No 2) [1979] 1 WLR 783, 874, where Goff J said:
“Another matter which is generally ignored is the financial situation of the plaintiff; it should generally make no difference even if, for example, it could be shown that a plaintiff in a personal injury action was a person who would simply have paid the damages, if received earlier, into his current account at the bank which was permanently in credit.”
SABIC also relies upon what Forbes J said in Tate & Lyle Distribution v GLC [1982] 1 WLR 149, 154C and 155D when rejecting the submission that the Court should look at what the receiving party would in fact have done with the money if it had been paid earlier:
“I feel satisfied that in commercial cases the interest is intended to reflect the rate at which the plaintiff would have had to borrow money to supply the place of that which was withheld. I am also satisfied that one should not look at any special position in which the plaintiff may have been; one should disregard, for instance, the fact that a particular plaintiff, because of his personal situation, could only borrow money at a very high rate or, on the other hand, was able to borrow at specially favourable rates. The correct thing to do is to take the rate at which plaintiffs in general could borrow money.”
Forbes J held that the particular Plaintiff’s personal situation was irrelevant at page 155D:
“... the proper question is: At what rate could the plaintiff borrow the required sum and not what return could the plaintiff have expected if he had invested it? It is immaterial, therefore, to consider, as Mr. Davies [Counsel for the defendant] suggested, whether the plaintiff could have used the money profitably in his own business or what rate of profit he could have expected to achieve by so doing.”
The approach adopted by Goff J and Forbes J appears sound both in principle and authority because the correct question is how the Claimant could have put itself in possession of the funds that were wrongly withheld by the Defendant. The answer to that question does not depend on whether the Claimant was already funded by debt or was cash rich: in order to be in the same position as it would have been if the funds had not been wrongly withheld, it is to be assumed that it would have had to borrow them from elsewhere and would have done so on “normal” commercial terms. That is what Forbes J meant when he said that “interest is intended to reflect the rate at which the plaintiff would have had to borrow money to supply the place of that which was withheld.” I respectfully agree with that observation.
Adopting this approach entails the rejection of PLL/SCL’s submission on this point and the adoption of the normal commercial rate: see Persimmon Homes v Hall Aggregates [2012] EWHC 2429 (TCC) at [10-17] per Ramsey J.
The Bond Monies
PLL/SCL’s final submission involves a misunderstanding of the exercise being undertaken. The bonds were properly called, so that the monies were correctly in SABIC’s hands. There is therefore no logical justification for awarding interest on the amounts of the bonds to SCL or for contra-charging the amount of interest that might have been chargeable if SABIC had called the bonds and obtained the benefit of the bond monies wrongfully. In any event, PLL/SCL obtains the benefit of the transfer of the bond monies under SABIC’s calculation because they have been taken into account so that the deficit in respect of which SABIC claims interest only starts to accrue in April 2009 rather than earlier. PLL/SCL’s submission also fails because the bond monies are not a debt or damages within the meaning of s. 35A of the Senior Courts Act and therefore are not within the ambit of the section. Even if interest were contra-chargeable, the appropriate rate would be 2.5% for the reasons given earlier.
Conclusion
SABIC is entitled to interest from April 2009 to date in the sum of £1,271,640.
Interest on the judgment sum runs from today until payment at the Judgments Act 1838 rate of interest from time to time.