England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		7 Rolls Building Fetter Lane London EC4A 1NL
		29th July 2015

MR JUSTICE WARREN:

1. This judgment is to do with interest on the sums which were paid into Mishcon de Reya's current account pending the appeal. This relates immediately to the expenses payment and the PILON payment. There is a dispute whether interest is due at all on the dividend payment and issue I will deal with at the September hearing about the impact, if any, of Mr Reinhard's breach of duty on his right to a dividend.
2. His claim is restricted to statutory interest under s.35A of the Senior Courts Act 1981. He does not claim interest by way of damages. His claim is therefore one for simple interest only, which is all that can be ordered under the Act. Under that section the court has a wide discretion as to the amount awarded. It is surprising, to me at least, that there has been no clear statement of principle by the Court of Appeal or House of Lords or Supreme Court about the correct approach to the exercise of the discretion in a case such as the present.
3. It is common ground that an award of interest is intended to compensate the claimant for being kept out of his money after it should have been paid, not, of course, as a punitive measure. I find that a more useful description of the purpose than the reference to the Latin tag restitutio in integrum, although that is an expression used in the cases. The real question is, "What is the level of that compensation by way of interest?" when, on any view, such interest is only a proxy for the actual detgriment suffered by the claimant for being kept out of his money.
4. I have been referred to five cases each of which I have considered to a greater or lesser extent and they are:

a. Tate & Lyle [1983] 2 AC 509, [1983] UKHL 2,

b. Claymore Services [2007] EWHC 805 (TCC) (20 March 2007) Jackson J

c. Attrill v Dresdner Kleinwort [2013] EWCA Civ 394,

d. Challinor v Juliette Bellis & Co [2013] EWHC 347 (Ch),

e. Sycamore Bidco v Breslin [2012] EWHC 3443 (Ch)

5. Tate & Lyle (is a decision of Forbes J in 1981.) Damages were awarded to the claimant against the GLC in respect of its failure to dredge a channel in the Thames as a result of which the plaintiff itself carried out the dredging and sought, successfully, to recover the costs. It was in that particular commercial context, namely that of a substantial company carrying on business and which could be expected to need to borrow for the purposes of carrying on that business, that the quantum of interest fell to be decided. It was in that context that the judge said what he did in the well-known passage of his judgment at page 154 B-F. That shows that it is not right, in a case such as Tate & Lyle or indeed the present case, to consider the profits which the defendant makes through the use of the money, but rather it is right to consider the cost to the plaintiff of being deprived of his money.
6. And so the judge said:

"I feel satisfied that in commercial cases the interest is intended to reflect the rate at which the claimant would have had to borrow money to supply the place of that which was withheld."

He went on to say that it was not right to look at the special position of the plaintiff, but that one should look at the rate which plaintiffs in general could borrow money, being plaintiffs having the general attributes of the particular plaintiff. The evidence before the judge was that large companies such as Tate & Lyle could borrow at one per cent over minumum lending rate and that was the figure the judge awarded. Since then, until comparatively recently, one per cent over base rate has been taken as the norm in commercial cases.

7. And so we see in Tate & Lyle a clear and reasonably principled approach to the award of interest in commercial situations such as were present in that case. I say reasonably principled because the award of simple interest does not compensate the claimant for being kept out of his money if, in fact, he has to borrow. He would be carrying interest charges if he in fact borrowed; he would either have to pay interest periodically or the interest would be compounded. Over a short period it might be possible for simple interest to achieve a similar economic result by an award of a slightly higher rate than would otherwise be the case. Over a long period that would be more difficult. In either case it might be an impermissible application of the statutory provision which allows an award only of simple interest.
8. The next authority is Claymore. I mention it only for the citation by Jackson J at paragraph 72 of his judgment, with apparent approval, of the decision of Webster J Shearson Lehman Hutton Incv v MacClaine Watosn & Co [1990] 3 All ER 723. I do not propose to read that passage into this judgment. Jackson J's conclusion was that the practice of the Commercial Court amounts to no more than a presumption which can be displaced if its application would be substantially unfair to one party or the other. The burden is on the party which seeks to displace it. The court awarded interest at two per cent over base in that case, that being a rate which the judge considered was the minimum which this particular claimant would have had to pay on its borrowings.
9. The next case is Attrill v. Dresdner Kleinwort Limited Commerzbank AG [2013] EWCA Civ 394 It is perhaps the high point of Mr Reinhard's case. In that case an award of interest of five per cent over Barclays' base rate was awarded. The facts do not appear clearly from Owen J's judgment, but one can see that the clamaints sought and obtained damages for non-payment of a bonus to which they considered they were entitled and of which they had been deprived. That resonates with Mr Reinhard's claim in the present case. The interest aspect of the judgment is short. I think it is worth reading the whole of paragraph 2 into, including the citation by the judge from the decision of Andrew Smith J in Fiona Trust and Holding Corporation [2011] EWHC 664 (Com).

"2. The Interest Rate

The relevant principles are not contentious. The rate of interest is at the discretion of the court. Secondly the purpose of an award of interest is fairly to compensate the recipient for being deprived of money that he should have received. Thirdly a "broad brush" approach is taken to determine what rate of interest is just and appropriate. As Andrew Smith J put it in Fiona Trust and Holding Corporation and Others v Yuri Privalov and Others [2011] EWHC 664 (Com) at para. 16:

"… it would neither be practical nor proportionate (even in a case involving as large sums as these) to attempt a minute assessment of what will precisely compensate the recipient. In particular, the courts do not have regard to the rate at which a particular recipient of compensation might have borrowed funds. This policy is adopted in order to control the extent of the enquiry to ascertain an appropriate rate: see Banque Keyser … the court will, however, consider the general characteristics of the recipient in order to decide whether to assess interest at a rate that is higher or lower than is conventional. So, for example, in Jaura v Ahmed [2002] EWCA Civ 2010 , Rix LJ awarded interest at the base rate plus 3% to reflect that "small businessmen" had been kept out of their money and in recognition of the "real cost of borrowing incurred by such a class of businessmen". Thus, the court will examine what has been called "a question of categorisation of the plaintiff in an objective sense" (see the Banque case Allman case) … recognise relevant characteristics of the party who was awarded interest and reflect them when determining the fair and appropriate rate. …"

10. Fiona Trust itself was a case where compound interest was awarded and was not one where statutory interest only was in issue. What Andrew Smith J said was clearly in the context of commercial cases where the borrowing cost was the proxy by which to assess the appropriate rate of interest.
11. The claimant sought interest at five per cent above base rate to reflecting the cost of unsecured borrowings by individuals. The defendant argued that the normal award was one per cent over base and that it was for the claimants to show that that would be substantially unfair. The judge rejected the defendant's arguments as based on a false premise, namely that the case was to be treated as, or as akin to, a commercial case. The claims were brought as individuals against their former employer. There was not a sound basis on which to assume that they could borrow at rates available to commercial concerns.
12. The judge's conclusion is found in paragraph 5 where he said:

"I am satisfied that the appropriate rate at which to compensate the claimants for being kept out of their money is the cost of unsecured borrowing by individuals. There will therefore be an order for interest on damages at the rate of 5% above Barclays bank base rate."

Now, that conclusion was making a choice between two different borrowing rates. The judge did not describe why the borrowing rate would be appropriate rather than some other rate such as a deposit rate. If a person is to be compensated for being kept out of his money, one relevant question might be to ask what he would have done with it if he had had it. In the case of a commercial concern, the underlying assumption is that it would have needed to borrow less so that the cost of borrowing it is an appropriate yardstick. But once one moves away from the commercial context, it is not immediately apparent to me why the borrowing rate for an individual is an appropriate yardstick in the first place.

13. The next authority is the decision of Mann J in Sycamore Bidco. It does not add much to the debate. It is relevant only insofar as the judge referred to the presumption concerning the appropriate interest rate. At paragraph 44 he said this:

"44. The claimant accepts that in commercial cases the presumption is (or at least was until recently) that the rate of interest under section 35A was 1% above base rate and this was the general practice in the Commercial Court. However, the latest Commercial Court Guide indicates that in the light of recent developments in interest rates, there is no presumption that that rate "is an appropriate measure of a commercial rate of interest"". Furthermore, there are a number of cases which indicate that the court's approach can be more flexible than applying one standard rate across the board."

I do not think, after that judicial statement and the reference to the Commercial Court Guide, that there is any more a presumption that interest should be at one per cent above base rate. I reject Mr Howe's contention that there is such a presumption.

14. The final case to which I was referred is Challinor v. Juliet Bellis Limited. It is, so far as I am aware, the first modern case to attempt to grapple with the question of interest in a principled way. In that case the claimants were investors who had invested in a property investment scheme operated by a single purpose company. The claimant paid monies into the defendant's account They used most of the money to reduce the company's short-term bank borrowing. The scheme was unsuccessful and the company was placed into administration. The claimants sought recovery of their money from the defendants. The claimants were successful before Hildyard J, although unsuccessful on an appeal. Hildyard's J judgment on interest was, of course, given in the context of the liability which he held to have been established. This case, like Attrill, concerned individuals, although their situation was markedly different in that they loss arose out of a failed commercial transaction rather than from the breach of an employment contract. The claimants sought interest at five per cent above base. The claimants produced some evidence about the cost of borrowing to an individual and reliance was also placed on Attrill. The judge eventually awarded three per cent over base.
15. I need to refer to some passages in the judgment. At paragraph 21 the judge referred to the purpose of the award as achieving restitutio and he referred to the decision of Steyn J in Banque Keyser Ullman SAv Skandia (UK) Insurance Co Ltd Q.B.D. (Com.Ct.) (Steyn J.) - December 1987. In sub-paragraph 2 of paragraph 21 he said this:

"(2) However, the Court adopts a broad brush. For practical reasons it will not make an enquiry into the claimant's actual loss; nor will it enquire or speculate as to what the claimant would have done with the money had he not been deprived of it. The Court almost invariably adopts as its measure what it would have cost a person in broadly the same position as the claimant to borrow the money of which he was deprived. Thus, to quote Steyn J in Banque Keyser Ullman again, the aim is to establish the rate(s) at which "a person in the position of the claimant would have had to pay to borrow the money" over the period for which interest is awarded."

That paragraph may be overstating matters. It is certainly true of commercial cases and I accept there is authority in the shape of Attrill for the same approach in other cases. But that is not the case in personal injury cases, although for reasons I will come to, that view that as explicable.

16. Paragraphs 24 to 27 are also relevant:

24. The Defendant Firm chose not to put in any evidence on interest rates. Its argument was broader based: it was contended on its behalf that the rates of interest proposed by the Claimants are inappropriate where it is not suggested that there has been any borrowing by the Claimants.

25. It was submitted by Mr Croxford QC on the Defendant Firm's behalf that, there being no real suggestion that any of the Claimants had had to borrow to replace the money subscribed, this case is unlike most commercial claims by businesses in which a degree of borrowing to fund the business is the norm. It is that norm which is reflected in the leading reported decisions on interest. To award interest at the rates suggested would be to provide a "windfall profit" to the Claimants.

26. Mr Croxford submitted that, whatever the more usual approach, in the particular circumstances, it would be more appropriate to apply an "investment rate", usually such rate as would be earned on deposit (except in the case of personal injury claims, where the "special account rate", now only 0.5%, is usually applied: see White Book at 7.0.17(f)).

27. Acknowledging that such rates have been unusually low over the period, he suggested that a more appropriate rate would be the rate on the Defendant Firm's client account, or not more than 1% above base. That was also consistent with the alternative approach of keeping to the old commercial yardstick of 1% over base rate."

17. The battle lines were identified by the judge at paragraph 30, sub-paragraph (1) being relevant for the purposes of the present case. The issue which the judge had to decide being:

"(1) whether to achieve restitutio in integrum, which I take all parties to accept is the objective, I should seek to assess the cost of borrowing money (as the Claimants contend) or the rate that the Claimants might have earned if they had had the money, that is "the investment rate" (as the Defendant Firm contends)."

18. Paragraphs 30 to 35 are important:

"30. In my judgment, I have to decide the following issues in this context:

(1) whether to achieve restitutio in integrum, which I take all parties to accept is the objective, I should seek to assess the cost of borrowing money (as the Claimants contend) or the rate that the Claimants might have earned if they had had the money, that is "the investment rate" (as the Defendant Firm contends);

(2) what, according to the approach selected, is to be taken to be the proxy rate to cover all of the Claimants, given that in reality each will be in a different financial position;

(3) whether interest is to be awarded for the whole of the period from 13 December 2007 until judgment or for a lesser period on the basis that the Claimants should not be entitled to interest if the delay was of their own making.

31. As to (1), it seems to me that the Court's overall approach in the authorities cited to me is to distinguish between (a) cases relating to money lost in or in relation to the conduct of a business where the general assumption would be that money lost or detained would have to be replaced by money borrowed to maintain that business and (b) cases where any award is an accretion to the funds of the claimant, rather than replacement of monies which the claimant had previously had and put to use.

32. In cases of type (a), the Court seeks to identify an appropriate interest rate, adopting a broad brush to establish a rate approximating to the cost that a claimant in that line of business or activity would have incurred in borrowing money to replace the money lost or detained. In cases of type (b), of which the paradigm may be personal injury cases, the Court seeks to identify an appropriate rate to represent a minimum return to put the claimant in the position he or she would have been if the money had been placed on deposit at the date of the event that gave rise to the claim.

33. This case does not really fit easily into either category. It seems to me an example of a third type of case, which is where the claimant is not running a business that depends upon credit, and where the loss of the money is likely to deprive the claimant of other opportunities, but where any ordinary presumption of the need for credit is weak or non-existent.

34. In cases of this third type, in my view, neither a minimum investment basis nor a proxy borrowing cost basis, is really a logical proxy. Thus, it is unlikely that any of the Claimants in this case, being sophisticated investors, would have left money on bank deposit at such low rates of return; but it is also unlikely that any of them would have borrowed at (say) 5% over base rate to make further investments: even someone with an unusual appetite for geared investment would be likely to be put off. Further, neither reflects the larger reality that in this case the Claimants' real loss is the opportunity denied for further investment: and that is not measurable.

35. Attrill may also have been a case of the third type. The claimants in that case were individuals who recovered from their employers damages for breach of contract for the difference between sums contractually due to them as bonus and the sums actually paid to them. There is nothing to suggest that any of the claimants had actually needed to borrow, nor that any of them were in business where there is the presumption of the need for credit. Indeed, Owen J relied on the fact that it was not a commercial case, nor akin to one, in departing from the old commercial rate of 1% above base rate: see paragraph 4."

19. It is important to remember that Hildyard's J analysis was given in the context of the particular facts of the case before him. His categorisation is helpful, but it is not legislation and it may not be an appropriate categorisation on the facts of a different case. It would not be right, I think, to attempt to force every case into one of the categories and say that, because it does not fit (c), it must therefore be in (b) or (a), depending on the facts.
20. However, the judge's observations on Attrill are interesting. The fact that he saw Attrill in that way casts some light on how this categorisation should be interpreted. As I see it he was drawing a distinction between "pure" commercial cases within case (a) and a case where a person has sufferrf a non-pecuniary loss, such as personal injury, which falls to be compensated by a monetary award, because that is the only way in which the law can provide a remedy. Although Attrill and, indeed, the present case might be said to be cases where there is an accretion to the funds of the claimants so therefore within case (b), Hildyard J clearly saw a third category was necessary. The case before him fell into the third category, as he described that category. He saw Attril,l too, as falling into the third category and I would do so too. Whether he or I would have adopted as high a rate as five per cent is neither here nor there. Owen J adopted that rate in the exercise of his discretion considering on the facts before him that the borrowing rate for an individual was the appropriate rate. There was no appeal against his decision so far as I know.
21. I do not regard Owen's J decision as binding on me to decide in favour of Mr Callman's submission that I should award five per cent above base or even as a strong authority which would encourage me to do so. But nor do I accept Mr Howe's submission that to award anything other than the rate at which Mr Reinhard could lend (for which he would take as the proxy the special investment rate) would be to over-compensate him. I do not accept the analogy with the personal injury cases where, as I have said the monetary compensation is for non-pecuniary injury. Further, even if it is right to regard the class of personal injury claimants as persons who would not borrow, so that a proxy borrowing rate would be inappropriate and a lending rate would be appropriate, claimants in the category of a claimant such as Mr Reinhard should be treated as sophisticated investors. I note, in any case, that notwithstanding his oral submissions, Mr Howe's skeleton argument described what he called the presumption of one per cent over base as a pragmatic compromise between the rate payable by a a potential borrower and payable to a potential saver and that was the rate which he eventually said in that skeleton argument should be awarded.
22. And so, in my view, the present calls falls into neither category (a) nor category (b); and whether or not it falls precisely in Hildyard's J category (c), (I think it does), it certainly does, in my judgment, fall into a category separate from (a) and (b). The class of claimant into which Mr Reinhard falls for the purposes of assessing interest can be described in the same way as Hildyard J described the claimants in the case before him in paragraph 34 of his judgment. I accept, of course, that I am not engaged on an enquiry as to the returns which members of the class, still less Mr Reinhard himself, might have made. They or he might have lost everything or they might have made a fortune. However, to restrict him to a rate of return in respect of low interest lending or the rate of the special investment account would, in my judgment, be unfair to him. But to award five per cent over base would be unfair to the defendants.
23. What then is a fair figure? I have not been provided with evidence about interest rates. But I think that I am entitled to take the flavour of the available borrowing rates from the recent cases; and on the other side the rate on the special investment account can be seen. Give the low interest rates which have recently prevailed and the recognition that the presumption of one per cent above base is no longer appropriate, I consider that the appropriate rate is three per cent over base.