Novus Aviation Ltd v Alubaf Arab International Bank BSC(C)

Future contractual payments should be discounted for their time value and the recipient’s credit risk. The discount rate should reflect the actual payment obligation, not the hypothetical return on investing in a business. A commercial rate may be used where specific evidence is absent.

For a Part 36 money offer, the comparison with the judgment is made when judgment is entered. Earlier exchange-rate movements may remain relevant when deciding whether enhanced Part 36 consequences would be unjust. A stay of execution pending appeal requires the court to weigh the risk of injustice to both parties and may be conditional on payment into escrow.

The claimant succeeded at trial in establishing entitlement to damages for lost management fees and wasted expenses following the defendant’s repudiatory breach of contract. This judgment determined consequential issues concerning the discount rate for future payments, interest, costs, the effect of a claimant’s Part 36 offer, permission to appeal and a stay of execution.

The central issues were the appropriate commercial discount and interest rates, the date for comparing the judgment with the Part 36 offer, whether enhanced Part 36 consequences would be unjust, and whether execution should be stayed pending an intended appeal.

1. Discount rate. The defendant’s proposed rate was rejected because it sought to estimate the return on investing in a Bahrain-based asset-management business, whereas the claimant was the management company entitled to receive contractual fees. The proper exercise was to reflect the time value of money and the credit risk associated with payment by the defendant.
2. In principle, the court should estimate the yield on a comparable US-dollar bond issued by the defendant, using an appropriate short-term US government bond or swap rate as the base and adding a suitable credit spread. In the absence of specific evidence, a spread of 1–2% above the base rate was appropriate. A discount rate of 2.5% was therefore adopted.
3. The same 2.5% rate was appropriate for interest on the judgment debt under section 44 A of the Administration of Justice Act 1970, because judgment interest compensates the creditor for being kept out of money otherwise due.
4. Part 36. Under CPR 36x.14, the money comparison was required to be made upon judgment being entered, namely when the order containing the judgment was made. The court agreed with Barnett v Creggy [2015] EWHC 1316 (Ch). The offer was for a specified sum, not for 75% of the claim.
5. The value of the offer when made remained relevant to the justice assessment. The claimant had beaten the offer principally because sterling had fallen sharply against the dollar after the trial. It would therefore be unjust and inconsistent with Part 36’s risk-allocation purpose to impose enhanced interest, indemnity costs or an additional payment. Costs were payable on the standard basis, with £250,000 paid on account.
6. Stay. The principles summarised in Otkritie International Investment Ltd v Urumov [2014] EWHC 755 (Comm) required the court to weigh the risk of injustice on either side. A stay was granted on condition that the judgment debt and payment on account of costs were paid into escrow. Permission to appeal was refused.

The judgment records that it followed an earlier judgment dated 30 June 2016 in the same proceedings. No appellate history of the present judgment was stated.