RAWBANK SA V TRAVELEX BANKNOTES LTD (GENUINE OFFER TO SETTLE?) | FULL CASE DETAILS / THE DECISION
- This was an application by the claimant, Rawbank S.A. (“Rawbank”) against the defendant, Travelex Banknotes Limited (“TBL”).
- On 4 May 2020, Rawbank issued a claim form for breach of contract and/or misrepresentation seeking $60,072,000 (£48,311,860).
- On the same date, Rawbank’s solicitors wrote to TBL’s solicitors, without prejudice save as to costs, making a Part 36 Offer in the sum of £48,290,000.
- Rawbank issued an application for summary judgment on 18 May 2020.
- TBL filed an acknowledgment of service on 27 May 2020 ticking the box that indicated an intention to defend the whole of the claim.
- On 1 June 2020, TBL issued an application for a stay of the proceedings, alternatively a stay of the judgment, on the grounds that it wished the opportunity to agree a restructuring with its lenders or an M&A deal, in order to avoid its insolvency and to obtain a better outcome for its creditors as a whole.
- In the event, no substantive defence was advanced by TBL and on 15 June 2020 its solicitors wrote to Rawbank’s solicitors agreeing to judgment being entered against it in respect of the contractual claim in the amount of $60,072,000. It also withdrew its stay application.
- In these circumstances, TBL accepted that there should be judgment entered against it and that it should be ordered to pay Rawbank’s costs of the action, the summary judgment application and the stay application.
- However, TBL submitted that it would be unjust to make the orders referred to in Rule 36.17(4) on the basis that Rawbank’s Part 36 Offer was not a “genuine offer” to settle but a tactical one designed solely to secure the benefit of the incentives provided by CPR 36.17(4).
MR JUSTICE ZACAROLI:
22. The letter from Rawbank’s solicitors dated 4 May 2020 begins by pointing out that “given the admissions contained in your client’s evidence, we are confident that our client will obtain an early judgment against your client“. This refers to the witness statements of Ms Angela Smith, head of Wholesale Banknotes at TBL, and of Mr Andrew Thompson, a Senior Banknote Dealer at TBL. These statements contained a description of the facts which demonstrated the existence of the contract and TBL’s failure to comply with it. While not containing a formal admission of liability, which is perhaps not surprising in that at the time Rawbank was alleging fraud against TBL, they clearly admit the facts which establish Rawbank’s claim for breach of contract, and do not offer anything by way of defence to that claim. At the hearing before Birss J on 7 May 2020, TBL accepted that there was a claim for breach of contract and did not identify any defence. Birss J noted, in his judgment on 11 May 2020 that “the truth is, there is no defence.”
23. The Part 36 offer letter continued by making an offer to settle the entire proceedings on terms that TBL paid £48,290,000 within 14 days of accepting the offer. The settlement sum excluded costs but was stated to be inclusive of interest until the end of the 21-day period provided for in CPR Part 36. The end of the relevant period was 25 May 2020. The letter pointed out the consequences of failing to accept the offer if Rawbank succeeded in obtaining a judgment equal to or more advantageous than the offer. These included the payment of indemnity costs, interest on the principal sum and costs at up to 10% from the end of the relevant period, and an additional amount of 10% of the damages up to £500,000 and 5% of damages awarded about that figure.
24. This reflected the terms of CPR Rule 36.17(4), which provides that where the judgment ordered against the defendant is at least as advantageous to the claimant as the proposals contained in its Part 36 offer, then
“the court must, unless it considers it unjust to do so, order that the claimant is entitled to (a) interest on the whole or part of any sum of money (excluding interest) awarded, at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired; (b) costs (including any recoverable pre-action costs) on the indemnity basis from the date on which the relevant period expired; (c) interest on those costs at a rate not exceeding 10% above base rate; and (d) provided that the case has been decided and there has not been a previous order under this sub-paragraph, an additional amount, which shall not exceed £75,000, calculated by applying the prescribed percentage set out below to an amount which is (i) the sum awarded to the claimant by the court…” (The prescribed percentage is 10% of the first £500,000 and 5% of any amount over that figure.)
In considering whether it would be unjust to make the orders referred to in Rule 36.17(4), the court must take into account all the circumstances of the case, including: (a) the terms of the Part 36 offer; (b) the stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made; (c) the information available to the parties at the time when the Party 36 offer was made; (d) the conduct of the parties with regard to the giving or refusal to give information for the purposes of enabling the offer to be evaluated; and (e) whether the offer was a genuine attempt to settle the proceedings.
26. Mr Smith made the preliminary point that Rawbank had not identified, for example in its skeleton for this application, that it would be seeking orders under Rule 36.17(4)(a), (c) and (d). That is true, but it does not preclude orders being made given that the court is mandated to make such orders in every case, unless it is unjust to do so, and the Part 36 offer letter made express reference to these consequences.
27. TBL contends that the offer was not a genuine attempt to settle the proceedings and for that reason it would be unjust to make any of the orders referred to in rule 36.17(4). Mr Smith referred me to AB v CD  EWHC 602 (Ch), per Henderson J at , where he held that the offer must contain some genuine element of concession, so that an “offer” to accept the full amount claimed would not fall within the rule. Henderson J noted that a settlement that was all take and no give would not be a settlement at all. Mr Smith also referred me to Huck v Robson  EWCA Civ 398, in which an offer to settle at 95% of the sum claimed on liability was considered to be a genuine offer to settle. Mr Smith relies on a passage in the decision of Tuckey LJ, at :
“…if it was self-evident that the offer made was merely a tactical step designed to secure the benefit of the incentives provided by the rule (e.g. an offer to settle for 99.9% of the full value of the claim) I would agree with Jonathan Parker LJ that the judge would have a discretion to refuse indemnity costs. But that cannot be said of the offer made in this case.”
28. As I have noted,
the Part 36 in this case was that TBL pay £48,290,000 (inclusive of interest to 25 May 2020). The principal amount of the claim is $60,072,000. On the first page of the Claim Form the sterling equivalent of the amount claimed was stated to be £48,311,860. I was told that on the basis that interest is payable at 2% above Barclays Bank’s base rate, then, together with interest to 25 May 2020, the sterling equivalent of the amount claimed in the proceedings is £48,448,059. The discount being offered (assuming exchange rates remained constant thereafter) was therefore only £158,059, or 0.3% of the total amount claimed.
29. In those circumstances, Mr Smith submitted that this was clearly not a genuine offer to settle, but was a tactical move, designed solely to engage the enhanced payments set out in Rule 36.17(4). While I see the force of that submission, I do not accept it. The critical question is not a mathematical one – the proportion of the discount – but whether it is possible to infer from the size of the discount that there is no genuine attempt to settle the proceedings.
30. In considering that question in the circumstances of this case, I take particular note, first, of the fact that there was no issue as to the quantum of the claim, so that there were only two possible outcomes: success (in which case the sum of $60,072,000 would be payable) or failure (in which case nothing would be payable). Second, I take note of the fact that, as pointed out in the letter of 4 May 2020, in light of the evidence contained in the witness statements filed on behalf of TBL, there was clearly no defence to the claim. From Rawbank’s perspective, therefore, there was no realistic possibility of failure. In other words, a discount of any amount would involve Rawbank giving up something which it had a near-certainty of obtaining. Moreover, while £158,059 is a very small amount in comparison with the principal amount of the claim, it is larger than the interest that would accrue during the period of the offer and is likely to have been greater than the costs incurred by Rawbank. Although the offer was not structured in this way (because it was inclusive of interest and would have required costs to be paid),
in circumstances where a claimant has near-certain chances of success, then an offer to settle on the basis that the claimant foregoes an amount equal to interest or costs is still capable of being characterised as a genuine offer of settlement. That conclusion is bolstered here by the circumstance that the claimant had a desperate need for the money and was at a loss to understand why its money had not been returned to it.
31. Mr Smith also relied on the fact that it was the case that TBL was simply not in a position to pay. I do not regard this as demonstrating that there was no genuine attempt to settle. Rawbank was entitled not to accept TBL’s word that it could not pay, and so long as it believed there was a possibility that TBL could pay, it could not be said that it was acting otherwise than genuinely in trying to encourage early payment.
32. I consider, on the other hand, that TBL’s inability to pay is relevant to the question, more generally, whether it would be unjust to order it to pay the amounts identified in Rule 36.17(4).
33. Prompted by a WhatsApp request on 3 April 2020 from Rawbank’s CEO, Mr Mustafa Rawji, requesting a refund of the price paid for the banknotes, on 6 April 2020 Mr Nathan Best, a director of TBL, spoke to Mr Rawji and told him that the banknotes would not be delivered and that no refund would be made at that time because the Travelex group was in financial difficulties and was undergoing a restructuring. Mr Best said that the group had to have regard to its duties to act in the best interests of all of its creditors and to the risk that payment of one creditor could be construed as a preference. He indicated that the group needed a cash injection in order to be able to pay all of its creditors, and that on the current timescale the restructuring was intended to be completed by the end of May 2020.
34. It is true, as Mr Cunliffe submitted, that the position stated by TBL was not that it had no funds with which to pay Rawbank but that its poor financial situation was such that it needed to take into account the interests of all creditors, that it could not properly pay one creditor without risking the payment being construed as a preference, and that a restructuring was necessary in order to be able to pay all of its creditors. TBL’s financial circumstances were explored at the hearing before Birss J who held there was no basis for inferring that the proposed restructuring was anything other than a bona fide process.
35. Mr Cunliffe submitted that TBL was favouring the interests of its western financial creditors over the interests of Rawbank and the citizens of the DRC. It is impossible not to have the greatest sympathy for the plight of Rawbank and those whom it serves, but if, as the evidence indicates, TBL is insolvent, its ability to pay its unsecured creditors is restricted by matters beyond its current control. I note that TBL is a guarantor of the group’s debt to the syndicate of lenders under the revolving credit facility, and has given security over all its assets in favour of those lenders. Rawbank, on the other hand, is an unsecured creditor of TBL.
Acceptance of the Part 36 offer could only be made by actually paying the sum referred to in it. In my judgment, the fact that due to circumstances beyond its control TBL is, and has been since the date of the Part 36 offer, unable by reason of its insolvency to pay that sum means that it would be unjust to make at least some of the orders identified in Rule 36.17(4). This is not a case where TBL fought on in the hope of beating the Part 36 offer.
37. That does not mean, however, that it is necessarily unjust to require all of the amounts set out in Rule 36.17(4) to be paid on the ground of TBL’s inability to pay. Taking into account all of the circumstances of the case, as I am required to do under Rule 36.17(5), I do not consider it would be unjust to require TBL to pay, as from 25 May 2020, (1) the costs of the proceedings on the indemnity basis and (2) interest on the principal sum owed at the Judgments Act rate of 8%. While TBL was (as I have held) unable to pay the settlement sum, it was within its power to bring an end to the proceedings by accepting that judgment be entered against it. Had TBL not sought to delay judgment then, first, no further costs would have been incurred by Rawbank in the proceedings and, second, judgment would have been entered earlier with the consequence that interest at the Judgments Act rate would have started to run in Rawbank’s favour from that earlier date.
38. Mr Smith candidly accepted that TBL never had a defence to the breach of contract claim and that its strategy was to delay judgment being entered against it so that it could explore restructuring options. It was for this reason that its formal concession to judgment being entered against it was only made as recently as 15 June 2020. That strategy included, as I have noted above, filing an acknowledgment of service which, contrary to TBL’s acknowledgment that it never had a defence, indicated an intention to defend the whole of the proceedings.
39. TBL’s application for a stay to enable it to pursue a restructuring has not been pursued before me. I am not in a position, therefore, to comment on the merits of the application to stay the proceedings, as opposed to the application to stay enforcement of any judgment. (Shortly before sending out this judgment in draft, Mr Smith provided me with a copy of Bluecrest Mercantile BV v Vietnam Shipbuilding Industry Group  EWHC 1146 (Comm), a decision of Blair J in which he stayed proceedings in order not to disrupt a restructuring. The circumstances of that case were far removed from the present case, however, and I have not considered it necessary to invite argument on the point.)
40. Notwithstanding that it may be possible to stay proceedings, as opposed to staying enforcement of a judgment, there is a clear distinction between the two. As Mr Smith accepted, entering judgment against TBL would not in itself interfere with the proposed restructuring; TBL’s concern is as to the enforcement action that would inevitably follow. Accordingly, I am not persuaded that TBL’s inability to pay and its desire to pursue restructuring negotiations are sufficient to mean it is unjust to require it to compensate Rawbank for the higher rate of interest Rawbank would have obtained had it obtained judgment earlier and in requiring it to pay Rawbank’s costs on the indemnity basis. I will therefore order both as from 25 May 2020.