This case was an offshoot of the extensive litigation arising from the collapse of Lehman Brothers during the 2008 financial crisis and involved a dispute between the administrators of Lehman Brothers International (Europe) Limited and Firth Rixson in respect of interest rate swap transactions incorporating the terms of an ISDA Master Agreement.
In April 2020, the administrators made an offer to Firth Rixson (the “Administrators’ Offer”). The Administrators’ Offer was purportedly made pursuant to Part 36 of the Civil Procedure Rules.
The Administrators’ Offer provided for payment of a fixed sum to be paid within 14 days of acceptance in relation to the entire claim (both principal and interest). The offer involved a small reduction in the sums due under the relevant swaps.
The Administrators’ Offer was not accepted and the case proceeded to trial with judgment in favour of the administrators in October 2022.
Following the judgment, it was accepted that that Firth Rixson should be liable for the administrators’ costs. However, it was disputed whether Part 36 was engaged and, if so, whether the costs consequences under CPR 36.17 applied, and what those consequences were.
The court considered the following issues in respect of the Part 36 offer.
First, did the offer fall within the scope of Part 36?
Firth Rixson had argued that Part 36 was not engaged because the Administrators’ Offer had required immediate payment whilst their payment obligations under the ISDA Master Agreements were contingent on relevant steps being taken and Events of Default occurring. Immediate payment had not been sought in the proceedings and was not available in any event. They asserted that this caused a disconnect between the offer and the proceedings. Accordingly, the requirement of Part 36.1(5)(d) was not met as the offer did not “relate to” the claim.
In contrast, the administrators argued that the offer did relate to the claim as it was a genuine attempt to resolve the matters in dispute.
Second, did the terms of the judgment trigger CPR rule 36.17 (i.e. were the terms of the order at least as advantageous as the terms of the offer)?
Third, if it was held that the relief awarded to the Administrators was at least as advantageous as the proposals contained in the Administrators Offer, what consequential orders should be made under CPR 36.17?
1. Part 36 engaged?
The judge found that Part 36 was engaged and that the Part 36 offer did ‘relate to’ the claim. The judge found that the test (in CPR 36.5) is not exacting and does not require an precise correlation. It would suffice for an offer to (1) be made by reference to identified claims and to offer proposals in relation to them and 2) be genuine and clear in nature.
The Court considered whether it was material (1) that the offer included an outcome which could not, in the particular form in which it was put forward, have been achieved by the claim or (2) that it could not easily be calculated whether the judgment was more or less advantageous than the offer. The judge found that neither fact made the comparison directed by CPR 36.17 either inapplicable or unreasonable.
2. Was the relief obtained at least as advantageous?
The judge considered that it was. In assessing this, the court would look at the question in broad terms. Although the judge found that the claim was not a ‘money claim’ and so the mathematical test prescribed in CPR 36.7(2) was not applicable, the judge was still able to conclude that the relief obtained was more advantageous than their offer. It was not a merely mathematical calculation where more innominate considerations were at play.
3. What orders should be made?
The judge found that some, but not all the costs consequences of Part 36 applied. For instance, as the sub provisions in CPR 36.17 relating to interest were only intended to apply to the award of money judgments, the judge found they were inapplicable in this case. The judge did however order the payment of indemnity costs and interest on those costs, and also the additional amount provided for under the relevant sub rule of CPR 36.17.
This case highlights the importance of considering the terms of any Part 36 offer not just from a settlement perspective but also from the perspective of how Part 36 operates. The case demonstrates that whilst the terms of the offer do not need to mirror the relief sought in the claim, care must be taken to link the offer to the claim (albeit in the broad way identified by the judge as opposed to the narrow interpretation advanced by Firth Rixson).
The consideration given to rule 36.17 is also of interest. The broad approach to assessing advantage demonstrates that wider factors can be taken into account. However, if further litigation on the application of this rule is to be avoided, offer makers would be sensible to think about how the terms of the proposed offer relate to the terms of any relief sought (or potentially available) and to frame the offer in a manner which makes such a comparison more apparent.