ABFA Commodities Trading Limited v Petraco Oil Company SA

Part 36 consequences are mandatory unless it would be unjust to impose them. The burden on the party seeking departure is formidable. The court may consider the parties’ wider conduct, including serious and prolonged dishonesty, when deciding whether departure is unjust.

A Part 36 offer may be a genuine attempt to settle despite offering a high percentage of the claim, including where the claim has a binary outcome. The assessment is not mathematical; the question is whether the discount permits an inference that the offer was not genuine.

Costs arising from advancing a dishonest case may be addressed by a broad-brush percentage reduction, provided double recovery is avoided. An interim payment on account should be a reasonable estimate of likely recovery, allowing for assessment uncertainty.

The judgment determined consequential issues following the court’s earlier decision, reported at [2024] EWHC 147 (Comm), which upheld Petraco’s claim for US$27,034,184.87.

The issues were the consequences of Petraco’s successful Part 36 offer, an interim payment on account of costs, ownership of money held by the claimant’s solicitors to the order of the court, and interest under the Judgments Act 1838.

1. Part 36. Petraco had beaten its compliant offer of US$24 million. CPR 36.17 required the stipulated consequences unless it would be unjust to impose them. The listed factors were non-exhaustive, and the court could consider the parties’ conduct in the litigation more broadly. Petraco’s dishonest and prolonged case about its knowledge of VTB Commodities’ contractual rights materially prolonged the trial and increased costs. That conduct justified modifying the costs consequences, although it did not justify disapplying the Part 36 regime altogether.

2. The offer was a genuine attempt to settle. The court rejected a purely mathematical approach. The relevant question was whether the size of the discount showed that the offer was not genuine. The offer represented a material discount in relative, absolute and subject-matter terms, notwithstanding the binary nature of the claim and the absence of overwhelming prospects of success.

3. Petraco was awarded 100% of its standard-basis costs up to 9 July 2021 and 40% of its indemnity-basis costs from 10 July 2021. The reduction was intended to address fully the additional costs of advancing the dishonest knowledge case, while recognising that Petraco remained the successful party. The court also awarded the £75,000 additional amount and interest uplifts of 3% over US Prime on damages and 4% over Bank of England base rate on costs, subject to the 10% maximum.

4. Interim costs. The proper question was what constituted a reasonable sum on account, not an irreducible minimum. The court estimated likely recovery while allowing for the uncertainty of detailed assessment and ordered an interim payment of £1.9 million within 14 days.

5. Secured Sum. Money held to the order of the court in a solicitors’ client account was equivalent in substance to money paid into court. VTB Commodities had no legal or equitable interest in the sum after the court’s determination of the parties’ rights. It was therefore not funds owned, held or controlled by a designated person under regulation 11 of the Russia (Sanctions) (EU Exit) Regulations 2019. The court declared that the sum was payable to Petraco.

6. No postponement of Judgments Act 1838 interest was justified in relation to sums payable beyond the Secured Sum, as there was no evidence that sanctions prevented payment.

The judgment was a consequential judgment following the High Court’s earlier judgment in the same proceedings, reported at [2024] EWHC 147 (Comm). The court had upheld Petraco’s claim and then determined costs, interest, an interim payment, and the ownership and payment of the secured funds.