Thai Airways International Public Company Ltd v KI Holdings Co Ltd & Anor

Where a claimant beats its Part 36 offer, indemnity costs and enhanced interest are the presumed consequences unless such orders would be unjust. The relevant question is not whether the defendant had sound reasons for refusing the offer, but whether all the circumstances justify withholding the prescribed consequences. The court must consider the information available when the offer could reasonably be evaluated, including whether the claimant’s evidence was sufficiently developed. Statutory interest under section 35A of the Senior Courts Act 1981 is simple interest. Compound interest requires a separate damages claim supported by proof of actual loss. A Part 36 uplift is a ceiling, not an automatic maximum, and should reflect the circumstances, including prevailing interest rates.

This was a consequential judgment following an earlier judgment in the same commercial contract proceedings. The court determined the damages payable by KI Holdings Co Ltd to Thai Airways, the appropriate costs order, interest on damages and costs, and applications for permission to appeal.

The principal issues were whether fuel costs formed part of the recoverable damages, when indemnity costs should begin following Thai’s Part 36 offer, what interest rate should apply, whether a Part 36 interest uplift was justified, and whether the proposed appeal grounds had a real prospect of success or raised another compelling reason.

1. Damages. The court included €218,376 in fuel costs within the costs of replacing and installing aircraft seats. The evidence supporting the factual basis of the claim was unchallenged, and the fuel costs had not been disputed at trial. Damages were therefore ordered in the sums of US$82,732,284, €19,857,165 and THB 4,640,417 (paras [3]-[8]).
2. Costs. Thai was the successful party and was entitled to its costs. Its Part 36 offer had been substantially beaten. Under CPR 36.17(4), the question was whether the prescribed consequences would be unjust; whether Koito had sound reasons for refusing the offer, or had acted reasonably, was not the applicable test, following Matthews v Metal Improvements Co Inc [2007] EWCA Civ 215 (paras [9]-[13]).
3. In assessing injustice, the court considered the stage of proceedings, the information available, and the parties’ conduct concerning information. Koito could not realistically assess the claim until it had received Thai’s witness statements and joint expert report. It had sufficient information by 3 October 2014. Indemnity costs therefore applied from that date, with standard-basis costs before then. Koito was ordered to pay £2m on account of costs (paras [14]-[20]).
4. Interest. Section 35A of the Senior Courts Act 1981 permits simple interest only. A claim for compound interest must instead be advanced as damages and supported by proof of actual loss, as explained in Sempra Metals Ltd v Inland Revenue Commissioners [2008] AC 561 (paras [21]-[23]). The appropriate ordinary rate was 2.5% above six-month US dollar LIBOR, following Vis Trading v Nazarov [2013] EWHC 491 (QB) and Fiona Trust and Holding Corp v Privalov [2011] EWHC 664 (Comm) (paras [24]-[27]).
5. The Part 36 interest uplift was unjustified before 3 October 2014 but justified thereafter. The appropriate rate was 8% rather than the maximum 10% above base rate, because the 10% figure is a ceiling and prevailing interest rates were historically low. Thai also received the additional £75,000 amount under CPR 36.17(4)(d) (paras [28]-[31]).
6. Permission to appeal. Permission was refused. None of the proposed grounds had a real prospect of success, and no other compelling reason for an appeal had been shown (paras [32]-[34]).

This was a first-instance consequential judgment following an earlier judgment handed down on 11 May 2015 in the same proceedings. No citation for that earlier judgment is stated.