Appropriate rate of discretionary interest following judgment/Part 36 issues
The claimant won at trial, having beaten its Part 36 offer to the defendant. Some of the issues considered by the judge were are follows:
- Would it be unjust to order the usual Part 36 costs consequences? Leggatt J held that it would be for the period of time when the claimant had failed to disclose the evidence relied on in support of its claim (as a result of which, the defendant had been unable to take an informed view of the quantum of the claim);
- After the evidence had been supplied, was the claimant entitled to interest on its costs at a rate of 10% above base rate? The judge held that it could not be argued that the claimant would receive a "windfall", when Part 36 was intended to provide a deliberate incentive to promote settlements. However, the 10% uplift was "a ceiling and not a guideline". The judge said it was relevant to take into account the current historically low interest rates: "That said, the judgment rate of interest still stands at 8% and I consider that this would be an appropriate rate to apply in the present case";
- What would be the appropriate rate of interest on damages? In Fiona Trust v Privalov (see Weekly Update 12/11), Smith J concluded that 2.5% over 6 month US dollar LIBOR is an appropriate rate of interest on a claim made in US dollars by a reasonably creditworthy commercial party which operates outside the United States.
The defendant sought to argue that there should be a downwards adjustment from that rate here because the claimant was not merely reasonably creditworthy, but in fact was "highly creditworthy". It pointed to the claimant's recent annual report which showed that the weighted average interest rate for its borrowings in US dollars last year was 2.18%.
The judge held that, although it "may well be right" that the claimant is more than reasonably creditworthy, there was insufficient evidence to conclude that the claimant could obtain short term unsecured loans during the relevant period at a lower spread than 2.5% over LIBOR. The loans referred to in the annual report had terms of 1-5 years and so were not comparable to short term borrowings. Accordingly, the appropriate rate of interest was 2.5% over 6 month US dollar LIBOR.