knowledge 27 January 2017 |

Court of Appeal Limits Interest on Damages Award as a Result of Plaintiff Delay

Section 22 of the Courts Act 1981 gives the court discretion to order the payment of interest on the whole or any part of any sum awarded to a party in litigation in respect of the whole or any part of the period between the date when the cause of action accrued and the date of the judgment. This is known as Courts Act interest. The rate of interest is fixed by reference to the Debtors (Ireland) Act 1840. It was 8% per annum simple interest until 1 January 2017 and has been 2% per annum since that date.¹ In the recent case of Reaney v Interlink Ireland Ltd (t/a DPD),² the Court of Appeal considered the principles which should guide the court in deciding whether to award Courts Act interest and in what amount.

Case Before the Court

The plaintiffs operated a franchise for courier services pursuant to a contract with the defendant. In 2008, the plaintiffs issued proceedings against the defendant seeking damages for breach of contract and other relief. In 2009, the defendant gave notice of termination of the franchise agreement to the plaintiffs to expire in March 2010. In July 2010, the plaintiffs brought a second set of proceedings against the defendant relating to this termination. Both sets of proceedings were later consolidated.

The plaintiffs were successful and obtained an award of damages in the High Court. They also sought Courts Act interest on the award. However, when considering whether to award this interest, the High Court declined to include the period before judgment as the franchise agreement had not provided for interest. On appeal, the Court of Appeal held that the court did not lack jurisdiction to award interest under s22, simply because the contract did not provide for the payment of interest. While this was a factor which could be taken into account, the court held that it could not be determinative, since it must also be remembered that s22(2)(b) infact precluded the court making an order for Courts Act interest where there was an existing contractual right to interest on the debt concerned. The trial judge erred in failing to consider whether or not on the particular facts he should exercise his discretion under s22 to order payment of interest for some period.

Principles for Court when Exercising Discretion

The Court of Appeal then considered the principles according to which a court should exercise its discretion under s22. An obiter proposition from an earlier High Court judgment that in “a purely commercial case interest should as a general rule be awarded” was seen as overstated.³

The court held that a primary purpose of an award of interest under s22 was to compensate a person for being out of the money awarded from the time he ought to have received it to the date of judgment, provided, however, other facts made it just between the parties to make such an award. For example, it was also necessary in considering the period for which interest would be awarded to consider when the claim was made and how it was pursued. A plaintiff who delayed in commencing or pursuing his proceedings might not be entitled to interest for the entire period from the cause of action or the commencement of the proceedings as that would not be a just exercise of the discretion.

On this basis, the court declined to order interest on certain amounts awarded to the plaintiffs for the period prior to the institution of the second set of proceedings in 2010. Whilst a plenary summons had been issued in 2008 which could be considered to include claims for these amounts, those proceedings had not been really pursued until the commencement of the 2010 proceedings. Thus, whilst the plaintiffs might have been out of those sums from an earlier date, the later date was the date from which it was just to award interest.

However, another aspect of the judgment went in the plaintiffs’ favour. The court held that interest should also run from this 2010 date on damages for termination of the franchise. It rejected the defendant’s argument that until the High Court determined the total amount payable to the plaintiffs, the defendant was not under an obligation to make a payment and therefore the plaintiffs should not be considered to have been out of any money to which they were entitled prior to the date of the judgment. The court held that if the defendant had complied with its contractual obligations, the plaintiffs would have received monies due to them in 2010. While the defendant had made a number of offers to the plaintiffs to avoid the need for court proceedings, a portion of the payment had undisputedly been due and an offer of any additional amounts had been in full and final settlement or on the condition that the plaintiffs made certain concessions including how any additional amount should be calculated. Injunctive relief seeking payment had also been opposed by the defendant.

There had been no evidence before the High Court that the defendant had offered to pay the plaintiffs the amount of the award ultimately made in their favour. While the court accepted that in the absence of an agreement between the parties, the defendant could not make a payment in full and final settlement of its liability, the defendant had had the option of making a payment on account which it had not done. In calculating the interest due, the court would not have regard to the fact a lodgment had been made, as the High Court would not have been aware of the amount of the lodgment when reaching its decision. Also, as the notice of lodgment did not specify the amount being paid in respect of this aspect of the claim, it would be difficult to take into account.

Comment

This case gives helpful guidance on the principles surrounding an award of Courts Act interest. The Court of Appeal’s close analysis of the facts, the contract, the positions adopted by the parties once the dispute arose and the findings of the trial judge highlight that the determination of a party’s entitlement to Courts Act interest and in what amount may be a matter of some complexity. A significant further

development in this area is the reduction in the rate of Courts Act interest to 2% simple interest per annum with effect from 1 January 2017. So, the interest payable pursuant to the Courts Act may bear limited relationship to the actual cost to a party of being kept from money due to them. The rate of  2%  simple interest is strikingly low, by contrast with the rate of interest implied into most commercial contracts by the European Communities (Late Payments in Commercial Transactions) Regulations 2012 which is currently 8% per annum. ⁴

Both  the  complexity  surrounding  the right to Courts Act interest and the recent reduction of the rate at which  Courts Act interest runs makes it all the more imperative for parties to stipulate in clear terms  for  interest  in  their  contracts  and to consider once disputes arise if there is   a contractual right to interest, whether express or implied.