In the first of a two-part article, District Judge Stephen Gerlis explores the much misunderstood subject of interest on claims


'The current system for awarding interest before judgment leads to widespread confusion and mistakes. Even when the rules are applied correctly, they bear little relationship to commercial reality.' So said the Law Commission in its report Pre-judgment interest on debts and damages (Law Com No287), published in February 2004. Since then nothing has been done about interest, so presumably we are left with a confused situation.



The principle of the award of interest

The overriding principle is said to be that interest should be awarded to the claimant, not as compensation for the damage done but for being kept out of money which ought to have been paid to him (per Lord Herschell LC in London, Chatham and Dover Ry Co v South Eastern Ry Co [1893] AC 429 at 437). If a claimant may be entitled to interest by statute or statutory instrument (see, for example, sections 86-92 of the Taxes Management Act 1970 (interest on overdue taxes); article 5(1) of the Solicitors (Non-Contentious Business) Remuneration Order 1994 (interest on unpaid bill for non-contentious work); and the Late Payment of Commercial Debts (Interest) Act 1998), or by contract, the claimant is entitled to interest as of right, unless that right (especially under contract) contravenes any statutory provision that limits the amount of interest payable, such as consumer credit legislation.



In all other cases, it is a matter of discretion whether interest is awarded at all, as to the rate of interest or as to the period for which it should run. In claims for interest under section 57 of the Bills of Exchange Act 1882, or upon damages for personal injuries under section 35A(2) of the Supreme Courts Act 1981, the onus is on the defendant to show that interest should not be awarded. In other cases, the onus is on the claimant to obtain an award.



The rate and period are, generally, discretionary. In exceptional cases, such as when one party or the other has been guilty of gross delay, the court may increase or diminish the award of interest or alter the period for which it is allowed; for cases decided since the advent of the Civil Procedure Rules (CPR), see Walsh v Misseldine [2000] All ER (D) 261, CA; Amonoo v Grant Seifert Grower [2001] EWCA Civ 150, [2001] All ER(D) 192 (Jan) CA.



The court has statutory power to award interest on both debt and damages. In theory, the interest is in the discretion of the court and must be awarded at a trial or assessment, but there is an important exception. A default judgment on a claim for a specified amount of money may include interest to the date of judgment, subject to the provisions of CPR 12.6. The award can cover all or any part of the period between the date when the cause of action arose and, in the case of any sum paid before judgment, the date of the payment; and, in the case of the sum for which judgment is given, the date of the judgment. Interest should be computed and awarded as a gross sum without any deduction of tax, or deduction of relevant social security benefits - see Wisely v John Fulton (Plumbers) Ltd [2000] 2 All ER 545, HL.



Procedure for claiming interest

Interest must be specifically claimed in the particulars of claim (see rule 16.4). A claim for interest in any case should therefore be pleaded in accordance with rule 16.4(2), under which any claim under statute for interest must specify the particular statutory provision relied on; 'interest pursuant to statute' is accordingly insufficient. Notwithstanding this, in Greer v Alstons Engineering Sales & Services Ltd [2003] UKPC 46, [2003] All ER(D) 282 (Jun), the Privy Council on appeal from Trinidad & Tobago held that the power to award interest was exercisable, whether or not there was a claim for interest in the claim form/statement of case, and stated that this was also 'the practice in England'!



The rate of interest should be stated in the particulars of claim, together with the amount claimed up to the date of issue and thereafter the daily rate. The court does not require proof of special account or Judgments Act rates. Other rates should be proven, for example by witness statement or, in simple cases, a letter from a bank.



Rate of interest in personal injury cases

Interest in personal injuries claims fall into two categories - interest on general damages and interest on special damages.

Interest on future loss or loss of earning capacity is not recoverable.



Interest on general damages for 'pain suffering and loss of amenity' is awarded at the rate of 2% per annum from the date of the service of the writ until the date of trial (Wright v British Railways Board [1983] 2 AC 773, [1983] 2 All ER 698, HL, approving Birkett v Hayes [1982] 1 WLR 816, [1982] 2 All ER 710, CA. An attempt in L (A Patient) v Chief Constable of Staffordshire, [2000] PIQR Q349, to argue that, in the light of Wells v Wells [1999] 1 AC 345, HL, the rate of interest for damages of this variety should be whatever rate the Lord Chancellor might from time to time prescribe under section 1 of the Damages Act 1996, was unsuccessful. The low rate of 2% is used because the damages are assessed in the value of money at the date of trial. The Law Commission recommended retaining the rate at that amount.



Interest on special damages is more complicated. In the leading case of Jefford v Gee [1970] 1 All ER 1202, at 1208-1209, Lord Denning suggested that 'it would be fair to award interest on the total sum of special damages from the date of the accident until the date of trial at half the rate allowed on the other damages' and, dealing with what that rate should be, 'we ought to award a realistic rate... Bank rate fluctuates too much. A better guide is, we think, the rate which is payable on money in court which is placed on short-term investment account'. At the moment that rate is 6%.



District Judge Gerlis sits at Barnet County Court and is a contributor to Jordans' Civil Court Service