OMV Petrom SA v Glencore International AG

Under Civil Procedure Rules 1998 r 36.14(3), enhanced interest after a claimant has bettered its Part 36 offer is not confined to compensation for litigation disruption or the cost of money. The court must set a proportionate rate having regard to all the circumstances, including the need to encourage reasonable settlement conduct and to mark unreasonable conduct.

The 10% figure is a maximum, not a starting point. Relevant matters may include the post-offer period, the reasonableness of continuing the litigation, the disruption caused, the way costs were incurred, and the combined effect of the other Part 36 consequences.

OMV Petrom SA brought a deceit claim arising from oil shipments supplied under misleading descriptions. It made a Part 36 offer to settle for US$35 million inclusive of interest and costs. Glencore did not engage with the offer or make a counter-offer.

Flaux J gave Petrom damages exceeding US$40 million in OMV Petrom SA v Glencore International AG [2015] EWHC 666. On interest, he awarded uplifts of 3.5% on the damages and 4% on costs for the relevant post-offer period. Petrom appealed only those rates, contending that the full 10% uplift was justified under r 36.14(3)(a) and (c).

The central issue was whether enhanced interest was limited to compensation, or could include a proportionate non-compensatory element that promoted settlement and responded to unreasonable litigation conduct.

1. Appeal allowed. The judge had exercised his discretion on a wrong basis by treating enhanced interest on the damages award under r 36.14(3)(a) as wholly compensatory. The Court of Appeal substituted interest at 10% above base rate from expiry of the offer until judgment.

2. The decision whether to make a Part 36 order is distinct from the decision as to the rate of enhancement. The court must have regard to all the circumstances when fixing that rate. Enhanced interest may contain a non-compensatory element, provided that the resulting rate is proportionate. Its purposes include encouraging reasonable settlement discussions, acceptance of proper offers, and proper engagement in mediation.

3. The 10% limit in r 36.14(3)(a) is a cap, not a presumptive starting point. Relevant considerations can include the duration of the post-offer period, the defendant’s reasons for continuing the litigation, evident disruption to the claimant, and the overall effect of the other Part 36 orders. The court should not conduct detailed satellite inquiries into every item of loss caused by prolonged litigation.

4. The guidance in Petrotrade Inc v Texaco Ltd [2000] EWCA Civ 512 was not binding because its ratio concerned summary judgment under the earlier rule. Its observations on incentives and the effect of unreasonable conduct nevertheless deserved great respect. The relevant comments in McPhilemy v Times Newspapers Ltd and others [2001] EWCA Civ 871 concerning interest on damages were obiter and did not confine the rate to compensation.

5. On interest on costs under r 36.14(3)(c), McPhilemy was binding insofar as the award should achieve a fairer result. That principle did not make the award purely compensatory. The costs had largely been incurred in meeting a dishonest and unreasonable defence, so the same maximum 10% uplift was appropriate.

6. Glencore had ignored a proper offer, refused to engage in settlement or mediation, and pursued a deplorable defence. Given the short period of 10½ months and the combined Part 36 consequences, an additional US$2.6 million was neither excessive nor disproportionate. The orders for enhanced interest on both damages and costs were varied accordingly.

• Court of Appeal (Civil Division): Allowed Petrom’s appeal and substituted 10% above base rate as the enhanced interest rate on both damages and costs for the relevant post-offer period: [2017] EWCA Civ 195 .
• High Court, Commercial Court: Flaux J gave judgment for Petrom on its deceit claim and awarded substantial damages: [2015] EWHC 666. In the subsequent interest order, he awarded lower enhanced rates which this appeal varied.