Money doesn't stand still

District Judge Sabi Hasan examines the strict criteria for claiming interest fromthe court on its awards

A claimant has a right to recover interest as compensation for being denied access to money awarded by the court under a judgment.

The entitlement is governed by s.69 of the County Court Act 1984, s.35A of the Supreme Court Act 1981 and s.17 of the Judgments Act 1838.Interest may also be payable by contract and under other statutory provisions (for example, the Taxes Management Act 1970 and the Solicitors (Non Contentious Business) Remuneration Order 1994).

Where interest is sought by a claimant, the Civil Procedure Rules 1998 (CPR) rule 16.4(2) sets out the mandatory requirements for inclusion in the claim form such as the statute or contract relied on or on what other basis the claim is made.In addition, where the claim is for a specified amount, there must be set out the percentage rate, the dates between which interest is calculated, the amount of such interest and the daily rate.

Unless the requirements are strictly satisfied, solicitors run the risk of having all or part of the interest claim disallowed.

Respite for consumersThe claimant is entitled to statutory or contractual interest, if properly claimed, as of right.

An exception is under the Consumer Credit Act 1974: if an exorbitant rate is charged in a consumer contract, then the consumer can apply to the court under ss.137-9 to reopen the agreement.The court might alter the terms, including the interest rate charged.

A recent case under the same Act but on a slightly different point is Director-General of Fair Trading v First National Bank plc [2000] All ER 240 CA, which we have already met in this column.The bank's standard mortgage conditions provided that interest was payable on unpaid instalments and would be charged until repayment, whether before or after a judgment and, specifically, that the obligation would be independent of and not merge with the judgment.Thus a borrower making all payments under an instalment order still faced further payments in respect of contractual interest at the contractual rate.

The Court of Appeal held that the bank's term as to interest was unfair under regulation 8 of the Unfair Terms in Consumer Contracts Regulations 1994 as it caused an imbalance between the parties by allowing the bank to obtain contractual interest after judgment.

Commercial debts and late paymentsUnder the Late Payment of Commercial Debts (Interest) Act 1998, debts arising out of contracts made after 1 November 1998 attract interest at 8% over base rate: a substantial sum.The Act applies to commercial debts on a contract for supplies or services where both parties are acting in the course of a business.

Since 1 November 1998 the Act has applied to contracts between small business suppliers (50 or fewer employees) and large business purchasers (over 50 employees), and UK public authorities, including government departments and, since July 1999, the Scottish Parliament and Welsh National Assembly have been included in the definition of business purchasers.It is expected that, as from November 2000, the Act should be available to small business suppliers against small business purchasers and, as from November 2002, to small and large businesses and the public sector who have supplied against small and large businesses and the public sector who have purchased.Interest runs either from the end of the contract term or, if none, the later of 30 days after the invoice or delivery.

If other statutes govern the right to interest then the 1998 Act will not apply.

The parties to a qualifying contract may not oust the provisions of the Act but may vary them provided there is an overall substantial remedy for late payment of the debt.

Contrary to expectation, the Act is only occasionally relied on in proceedings although, according to a recent survey by the Credit Management Research Centre at Leeds University, 5% of small businesses have taken advantage of it, at least as 'a credible threat' to procure settlement of the capital debt.

Discretionary awardsIn other cases, the court has discretion as to whether interest should be granted at all and, if so, for what period.

The House of Lords judgments in President of India v La Pintada [1984] 2 All ER 773, contains a useful overview of the principles on which interest may be granted.

One of the major innovations under the CPR is to encourage parties to try and settle their disputes at an early stage.

Part 36 enables a defendant to make a payment into court and a claimant to offer to settle the claim for a specified amount and, unless stated to the contrary, interest is deemed to be included in any such offer.

If a claimant does better at trial than their part 36 offer, the court has the power to award interest at up to 10% over base rate in respect of all or part of the sum awarded to them.Interest rate modificationsThe current interest rate on judgment debts is 8% per annum: the special account rate was also 8% until 1 August 1999 when it was reduced to 7%.

As the rate of interest on personal injury special damages is linked to the special account rate, lower awards of interest will now be made under this head of claim.Prior to the decision in Wells v Wells [1999] 1 AC 345 HL fixing at 3% the rate of discount to defendants when awarding lump sum damages for future losses (to take account of the fact that claimants are receiving their money sooner than if they had worked for it or it might be needed to meet care costs), interest on general damages for personal injury and loss of amenities was usually claimed at 2%.After Wells, the rate is occasionally claimed and allowed at 3%.

The High Court ruled in Barry v Ablerex Construction (Midlands) Ltd (2000) The Times, 30 March, that the Wells discount rate should be reduced to 2% (in view of the lower rates of interest on government securities over the last three years).

But in Warren v Northern General Hospital Trust (2000) The Times, 10 April, the Court of Appeal ruled that Wells and 3% should continue to be followed.

Damage liabilityAnother development is the ruling of the House of Lords in Wisley v John Fulton (Plumbers) Ltd (Scotland) and Wadey v Surrey County Council (2000) The Times, 7 April.

Under s.17 of the Social Security (Recovery of Benefits) Act 1997 the amount of any benefit due to a claimant is to be disregarded when assessing damages.Provisions for assessing interest are contained in s.103 of the Social Security Administration Act 1992, but this section was not in the 1997 Act.

It was held that the effect of s.17 was to permit the award of interest on the whole of the amount found due to the claimant even though there was no corresponding duty to account for interest recovered on benefits received.

Certificate of judgment And so to CPR schedule 2 CCR rules 22.8 and 25.13.

Where a judgment creditor wishes to enforce a county court judgment in the High Court pursuant to CCR rule 22.8 (1) (ii), a certificate of judgment may be issued.

The Senior Master's Practice Direction of 31 August 1998 sets out the procedure to be followed.

For enforcement purposes, the judgment is treated as one of the High Court, which means that 8% judgment debt interest will run from the date of the certificate on an under 5,000 judgment.District Judge Sabi Hasan sits at Central London County Court