The Law Commission

The Law Commission

(Consultation Paper 167)

COMPOUND INTEREST

A Consultation Paper

London: TSO

The Law Commission was set up by section 1 of the Law Commissions Act 1965 for the purpose of promoting the reform of the law. The Law Commissioners are:

The Honourable Mr Justice Toulson, Chairman
Professor Hugh Beale QC
Mr Stuart Bridge
Professor Martin Partington CBE
Judge Alan Wilkie QC

The Secretary of the Law Commission is Mr Michael Sayers and its offices are at Conquest House, 37-38 John Street, Theobalds Road, London WC1N 2BQ. This consultation paper, completed on 31 July 2002, is circulated for comment and criticism only. It does not represent the final views of the Law Commission. The Law Commission would be grateful for comments on this consultation paper before 6 January 2003. Comments may be sent either – By post to:

Simon Tabbush
Law Commission
Conquest House
37-38 John Street
Theobalds Road
London
WC1N 2BQ
Tel: 020-7453-1257
Fax: 020-7453-1297
By e-mail to:

simon.tabbush@lawcommission.gsi.gov.uk

It would be helpful if, where possible, comments sent by post could also be sent on disk, or by e-mail to the above address, in any commonly used format. It may be helpful, either in discussion with others concerned or in any subsequent recommendations, for the Law Commission to be able to refer to and attribute comments submitted in response to this consultation paper. Any request to treat all, or part, of a response in confidence will, of course, be respected, but if no such request is made the Law Commission will assume that the response is not intended to be confidential. The text of this consultation paper is also available on the Internet at:
http://www.lawcom.gov.uk

COMPOUND INTEREST

CONTENTS

PART I: INTRODUCTION	PART I
PART II: THE PRESENT LAW	PART II
Introduction	2.1
History	2.3
The current position	2.9
Interest on debts	2.9
Contract or trade usage	2.10
Interest as damages	2.15
Interest under the Supreme Court Act 1981	2.18
Interest under other statutes	2.20
Interest on damages	2.32
Interest in trust and other equity cases	2.35
Interest in restitution cases	2.42
Arbitration	2.43
Money in court	2.46
Interest rates	2.49
Summary	2.54
PART III: FOREIGN SYSTEMS OF LAW	PART III
Commonwealth and common law systems	3.1
Codified systems	3.5
International and supranational law	3.9
Proposals for law reform in other jurisdictions	3.11
Canada and its provinces	3.11
New Zealand	3.13
International initiatives	3.14
Principles of European Contract Law	3.14
UNIDROIT Principles of International Commercial Contracts	3.16
PART IV: ARGUMENTS FOR AND AGAINST REFORM	PART IV
Arguments for compound interest	4.1
Arguments against compound interest	4.9
Arguments for and against a limited power	4.21
On debts but not on damages?	4.22
To measure gains but not losses?	4.24
Exclusion of consumer debt?	4.25
Compound interest: rule, presumption or simple discretion?	4.28
Rates of interest	4.37
Should there be a prescribed rate?	4.37
How should the prescribed rate be set?	4.45
How would interest be calculated in practice?	4.51
Effect on other types of interest	4.55
Interest under various statutes	4.55
Interest under rule 36.21 of the Civil Procedure Rules	4.61
Interest in equity cases	4.64
The impact of our proposals	4.66
PART V: PROVISIONAL PROPOSALS	PART V
APPENDIX A: TABLES	APPENDIX A
Court interest rates: judgment debts Court interest rates: money in court	images
Economic rates: bank base rate Economic rates: 3-month LIBOR	images
Economic rates: inflation	image
Growth of £100 Interest growth table	images
APPENDIX B: VARIATION IN DISPOSAL TIMES	APPENDIX B