In the second part of his article, District Judge Stephen Gerlis continues his examination of the subject of interest on claims


Jefford v Gee [1970] 1 All ER 1202, at 1208-1209 identified two types of special damage - those where there was a loss continuing until the date of trial, such as loss of earnings, and a discrete loss which was not continuing, such as damage to clothing. In the former case, interest is awarded on the full sum at half the rate; on the latter at the full rate.



The reason for the difference is the difficulty involved in calculating interest where the loss is continuing; half the special account rate was a compromise approach. This approach has come under some criticism, not least from the Law Commission, which was concerned about its accuracy. It suggested that 'the Court Service should provide parties with easy-to-use tools that would allow the accurate calculation of interest on continuous loss'. Needless to say, this has not happened.



Rate of interest in other cases

As far as non-personal injury claims are concerned, where there is no statutory rate of interest for a debt or pecuniary loss, the rate that can be claimed is 8% per annum and should be properly pleaded (see above). It has been at this rate for some years. It was previously 15%. The Law Commission was unhappy about the arbitrary way in which the rate was fixed, with no apparent regard to the prevailing Bank of England rate.



With the bank rate as low as 4%, a figure of 8% did seem to represent an unfair bonus for the claimant. Now the bank rate is nearer 6%, it is a little more realistic. The commission's suggestion was to replace it with a rate set each year at 1% above the Bank of England base rate, which seems a reasonable approach. It has not been implemented.



However, as the purpose of an award of interest is to compensate a claimant for being kept out of money, the court has a discretion as to how to go about the award of interest. This may result in the application of different rates for different circumstances, for example:

l A commercial rate - or rate which the claimant would have had to pay to borrow the money. This is commonly used in commercial cases. The practice of the Commercial Court is to award interest at base rate plus 1%. There is some suggestion that this rate can be challenged if it is shown to be unfair (see Shearson Lehman Hutton Inc v Maclaine Watson & Co Ltd (No2) [1990] 3 All ER 723);

l An investment rate - at which the claimant could have invested the money. This is the basis of the practice in personal injury cases;

l A 'true' interest rate - disregarding that element in the market rates of interest attributable to 'inflation' (that is, the depreciation in the value of the currency). This rate is reflected in the yield on index-linked government stock. This rate is used if damages are assessed as at the date of trial in depreciated currency; the claimant might be over-compensated if he were awarded interest from the accrual of the cause of action at market rates; see Wright v British Railways Board [1983] 2 AC 773, [1983] 2 All ER 698 for a fuller explanation;

l A 'wilful default' rate - the court has the power to award a high rate in appropriate cases, for example breach of fiduciary duty;

l Foreign interest rates - if judgment is given in a foreign currency, interest is usually taken at the rate at which that currency could be borrowed in the country in which the debt should have been paid;

l Compound interest - the court has jurisdiction at common law to award compound interest where the claimant sought a restitutionary remedy for the time value of money paid under a mistake. This is intended to reflect the potential enrichment that the party holding the money may have gained prior to a court order for its return. It was open to the defaulting party to prove that there had been no actual enrichment (see the very recent case of Sempra Metals Ltd v Inland Revenue Commissioners and HM Attorney-General [2007] UKHL 34, [2007] All ER (D) 294 (Jul)). This approach was approved by the Law Commission in its 2004 report.



Important statutory rates

l Commercial debts rate - since August 2002, businesses recovering debts from other businesses are usually entitled to claim higher rates of interest under the Late Payment of Commercial Debts (Interest) Act 1998. Interest can be charged at a rate fixed every six months at Bank of England base rate plus 8% (currently 13.5% - see the Gazette's regular Data Page, most recently at [2007] Gazette, 11 October, 40), plus a fixed sum of between £40 and £100 to cover enforcement costs.

l Judgment rate - in the absence of any contractual or statutory right to interest, a judgment creditor is entitled to interest on a judgment debt from the date of judgment until payment. This also applies to most county court judgments for £5,000 or over - judgments relating to Consumer Credit Act-regulated agreements, and certain other categories of case, are excluded. The present rate of interest is the same as for ordinary debt claims - 8%.



In its 2004 report, the Law Commission was heavily critical of the bewildering array of rates of interest that were available to be awarded. It called for a computer programme and tables to be made available by the Court Service 'to make interest calculations as simple and straightforward as possible'; a specified rate of interest set each year at 1% above Bank of England base rate; and the power of for courts to award compound interest in appropriate circumstances.



It is only in the last few weeks that the courts have taken it upon themselves to adopt the last suggestion (Sempra). There is no sign of movement on the others.



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

District Judge Neil Hickman writes: After I had written my article on the new Civil Fees Order (see [2007] Gazette, 11 October, 34), yet another order appeared, amending the amendments - the Civil Proceedings Fees (Amendment) (No2) (Amendment) Order 2007 (SI 2007/2801). Much of it is made up of minor corrections to issue fees, but I must draw readers' attention to the fact that, contrary to what I stated in my article, the fee on assessment of a bill of costs is now to be calculated on the amount of the bill including VAT and disbursements.