England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice, Rolls Building Fetter Lane, London, EC4A 1NL
		06/03/2018

MR JUSTICE MORGAN:

1. On 16 January 2018, I handed down judgment in this case: see [2018] EWHC 44 (Ch). Following judgment, I heard argument on a number of consequential points and I made an order which provided that (so far as now relevant):

1) Judgment be entered for de Pury & de Pury LLP ("the LLP") against the Defendants for $10 million ("the Judgment Debt");

2) The Judgment Debt was to be bear interest at 3% above Bank of England base rate from the date on which the Judgment Debt had originally become due until the date of the judgment;

3) The Judgment Debt together with interest as aforesaid was referred to as "the Judgment Sum";

4) The Defendants were entitled to make payment of the Judgment Sum in US dollars or the sterling equivalent at the time of payment;

5) The Defendants were to pay the LLP's costs of the action, save for certain specified costs;

6) The Claimants were to pay the Defendants' costs of certain specified matters;

7) The costs variously ordered were to bear interest at 3% above Bank of England base rate from specified dates.

2. At the hearing on 16 January 2018, there was discussion as to the rate of interest payable on the Judgment Sum following judgment. The parties appeared to assume that the rate of interest would be 8% pursuant to section 17 of the Judgments Act 1838. I suggested to the parties that the matter would instead be governed by section 44A of the Administration of Justice Act 1970 as the Judgment Sum was expressed in US dollars. Both parties then wished to be allowed to make written submissions as to the rate of interest to be awarded in accordance with section 44A of the 1970 Act. I gave directions accordingly. Thereafter, I duly received submissions as to the appropriate rate of interest. This judgment deals with that issue.
3. Before addressing the submissions made by the parties in relation to this issue, it is helpful to refer to my reasons for awarding interest at 3% above Bank of England base rate on the Judgment Debt and also to refer to the nature of the discretion conferred by section 44A of the 1970 Act.
4. My award of interest on the Judgment Debt was made in the exercise of my discretion under section 35A of the Senior Courts Act 1981. I awarded interest in order to provide fair compensation to the LLP for being kept out of its money. When selecting the rate of interest, I took into account certain offers of settlement which had been made on behalf of ACLBDD, rather than the LLP, and in that respect I had regard to the comments made in Petrotrade Inc v Texaco Ltd (Note) [2002] 1 WLR 947 at [64], [74], [77], [85] and [86]. Although the Judgment Debt was expressed in US dollars, neither party suggested that that was a material matter when assessing fair compensation for the purposes of section 35A of the Senior Courts Act 1981. Neither party suggested that I should be influenced by the rate of interest which could be earned by investing the amount of the Judgment Debt in 6-month US Treasury Bills nor influenced by the cost of borrowing in the United States, for example at the US Prime Rate.
5. The nature of the discretion conferred by section 44A of the 1970 Act was considered by the Court of Appeal in Novoship (UK) Ltd v Mikhaylyuk [2015] QB 499 at [128]-[138]. It was held that the purpose of section 44A was to compensate the creditor for being kept out of its money; this was referred to as "the compensatory principle". Although that was also the original purpose of section 17 of the Judgments Act 1838, the fact that the current rate of interest under section 17 is fixed at 8% means that interest under the 1838 Act will often be at a rate which is above the rate needed to compensate the creditor for being kept out of its money. It was held that the trial judge in that case had been right to apply the compensatory principle when determining the rate of interest pursuant to section 44A of the 1970 Act in relation to a debt in a foreign currency and was therefore entitled to award a rate of interest lower that the rate prescribed under section 17 of the 1838 Act for a sterling judgment debt.
6. Given that I have already determined that the appropriate rate of interest on the Judgment Debt, applying the compensatory principle under section 35A of the Senior Courts Act 1981, was 3% above Bank of England base rate, it is not obvious to me why I should choose a different rate of interest when applying the compensatory principle under section 44A of the 1970. Nonetheless, both parties contended for a rate of interest under section 44A of the 1970 Act which was radically different from 3% above Bank of England base rate.
7. The LLP submitted that I should award interest under section 44A of the 1970 Act at the rate of 8% (being the rate under section 17 of the 1838 Act). Alternatively, the LLP submitted that I should be influenced by the cost of borrowing in the US which I should take to be the US Prime Rate: see McGregor on Damages, 19^th ed., at para. 19-120 and that I should add 3% to that rate in the same way as I had added 3% to the Bank of England base rate when assessing interest under section 35A of the Senior Courts Act 1981. As the US prime rate is currently 4.5%, the LLP contended that the rate of interest under section 44A of the 1970 Act should be determined to be 7.5%.
8. The Defendants submitted that I should not use the cost of borrowing in the US but that I should instead use the rate of interest which could be earned if the amount of the Judgment Sum were placed on deposit either with HSBC (0.35%) or invested in US Treasury Bills (the 6-month US Treasury yield being 1.66%).
9. I am not able to accept the submissions made by either party on this issue. The rate of 8% which is prescribed for the purposes of section 17 of the 1838 Act is a rate which is much higher than is needed to compensate the LLP for being kept out of its money. I also do not favour the use of the US Prime Rate in this case. Although the Judgment Debt and the Judgment Sum are expressed in US dollars I have no reason to think that any borrowing which might be needed on the part of the LLP would involve it borrowing in the US at the US Prime Rate. Further, I have no evidence that the LLP needs to borrow anywhere in the world. As I am not persuaded to award interest at the US Prime Rate, I am even less inclined to award interest at 3% above US Prime Rate. As to the suggestion that I award interest to reflect the income which would be earned on a deposit of the Judgment Sum, that fails to recognise that the usual way in which the compensatory principle is applied when determining rates of interest is to make a pragmatic compromise between the position of the claimant as a notional borrower and as a notional saver: see Sycamore Bidco Ltd v Breslin [2013] EWHC 174 (Ch) at [45].
10. When addressing the compensatory principle for the purposes of section 35A of the Senior Courts Act 1981, it obviously did not occur to the parties to submit that the court should be influenced by interest rates on borrowing or on deposits in the US. They were right not to make submissions of that kind because this case does not really involve US companies or US trade or US debt. I recognise that the trust of which the Defendants are trustees is governed by New York law. However, that was rightly regarded by the parties as an irrelevant fact when considering the compensatory principle for the purposes of section 35A of the 1981 Act.
11. Having heard full argument as to what would be fair compensation for the LLP for the purposes of section 35A of the 1981 Act, I do not see any reason to arrive at a different answer when considering the identical question for the purposes of section 44A of the 1970 Act. In any event, I remain of the view that the right rate of interest to provide fair compensation for the LLP is 3% above Bank of England base rate.
12. Accordingly, I determine that the rate of interest payable on the Judgment Sum for the purposes of section 44A of the 1970 Act is 3% above Bank of England base rate from time to time.
13. As to the costs incurred by the parties in connection with this issue, my provisional view is that each party should bear its own costs in that respect.