The Law Commission



PART III

SETTING THE INTEREST RATE

3.1     The main criticism that can be made of the current system is that it operates in a way that is uncertain and arbitrary. As we shall see, there is considerable confusion over what rate of interest should be awarded. In practice, there is a strong tendency for litigants to claim and receive the judgment interest rate of 8%. This no longer bears any relationship to commercial interest rates and usually overcompensates the claimant. It can lead to unfairness, especially where struggling debtors pay large businesses who are able to borrow at much lower rates. At the same time, the limitation to simple interest may lead to undercompensation. This occurs in some long-running cases, when claimants either have been forced to borrow money at compound rates, or have been deprived of an investment opportunity, also at compound rates.
3.2     The result is that defendants in short cases often pay too much, while claimants in long cases may receive too little. To illustrate the effect, a simple interest rate of 8% would be the equivalent of a compound rate of 7% after five years, and the equivalent of a 6% compound rate after 11 years. After 19 years, a simple rate of 8% becomes the equivalent of only 5% compound.^[1] 3.3 In this part we start with an account of current practice. We then discuss two questions. First, is there a need to set a "normal" interest rate, to be used unless there is a good reason to depart from it? Second, what should that rate be? We leave aside, for the moment, whether the interest rate should be simple or compound, and return to that question in Part IV.

INTEREST RATES: THREE APPROACHES

3.4     As we have seen, the main statutory provisions grant the courts considerable discretion to choose which interest rates apply.^[2] An important question is how courts select the appropriate rate.
3.5     There are three basic approaches. The first is to use the judgment interest rate, which has been set at 8% since 1993. The second is to use the special investment account rate (currently 6%). The third is to use a commercial rate, usually set with reference to the bank base rate or LIBOR.^[3] It is common for the Commercial Court to set a figure of 1% over base, which would currently amount to 4.75%.

Using the judgment interest figure

3.6     The appropriate simple interest rate for judgment debts is prescribed under section 17 of the Judgements Act 1838. Section 35A(5) grants a specific power to prescribe a rate for pre-judgment interest that is linked to post-judgment interest, but this has only been used in relation to default judgments. The Civil Procedure Rules state that interest may be awarded on default judgments provided that it is claimed in the correct way and that "the rate is no higher than the rate of interest payable on judgment debts".^[4] At first sight the Civil Procedure Rules do not appear to require interest to be granted at 8%; they merely state that it should be no higher than 8%. However, default judgments are made without judicial intervention, as a routine administrative procedure. The court will not exercise a discretion over the rate: if a claimant claims interest at 8% in the correct way, it will be granted.
3.7     Although the link between pre- and post-judgment rates in default judgments is quite limited, it has an important influence on court practice. When a claimant first completes a claim form they will not necessarily know whether the claim will be defended. As far as interest is concerned, it would be sensible for claimants to assume that the case will be dealt with as a default judgment and to claim interest at the highest rate available. Thus the Court Service's information leaflet, How to Make a Claim, gives advice on interest in the following terms: If you want to claim interest, you must include it in your 'particulars of claim'. Write your claim in the following way: 'The claimant claims interest under section 69 of the County Courts Act 1984 at the rate of 8% a year, from [date when the money became owed to you] to [date you are issuing the claim] of £ [put in the amount] and also interest at the same rate up to the date of judgment or earlier payment at a daily rate of [enter the daily rate of interest].^[5]
3.8     It is an easy step from this simple advice to a general assumption that 8% is always the appropriate rate. Staff in one county court told us that they always advised claimants to claim interest at 8% simply because it was "the rate". Another judge remarked that "everyone has been working on 8% for so long that it's in the mind".
3.9     The judgment rate is inflexible. It was set at 8% in 1993 and has not been altered since, although base rates have fluctuated between 7.5% and 3.5% over this period. It has, therefore, been much more generous at some times than at others. The rate now appears to be high because base rates are particularly low. In February 2003, the Bank of England reduced its base rate to 3.75%; in July 2003 it was reduced further to 3.5%; and in November 2003 it was returned to 3.75%.

The special investment account rate

3.10     The traditional approach in personal injury cases has been to set interest on past pecuniary losses at the special investment account rate, which is the rate of interest granted on money paid into court.^[6] From 1993 to 1999, this rate also remained at 8%, leading a generation of law students to believe that 8% was always the appropriate figure.^[7]
3.11     The special investment account rate has since been reduced twice: to 7% from August 1999 and to 6% in February 2002. The greater flexibility of the special investment account rate has encouraged judges to apply it in some contract cases as well.^[8]

Commercial rates

3.12     An alternative approach is to link court interest rates to the bank base rate (or occasionally to LIBOR^[9]). This is the usual approach in the Commercial Court, where case law suggests a rate of 1% over base, which is thought to reflect the actual cost of borrowing among commercial parties.^[10] Other courts have also adopted this approach in cases of economic loss.^[11]
3.13     The 1% over base figure has been described as "no more than a presumption" which could be displaced by evidence of the rates applying to borrowers with the general attributes of the claimant.^[12] For example, in Jaura v Ahmed,^[13] Rix LJ applied a rate of 3% above base, which he thought reflected a more realistic assessment of the rates at which small businesses borrowed. He said: It is right that defendants who have kept small businessmen out of money to which a court ultimately judges them to have been entitled should pay a rate which properly reflects the real cost of borrowing incurred by such a class of businessmen. The law should be prepared to recognise, as I suspect evidence might well reveal, that the borrowing costs generally incurred by them are well removed from the conventional rate of 1% above base (and sometimes even less) available to first class borrowers.^[14]
3.14     Over the period of the debt (August 1995 to March 2001) base had fluctuated from a low of 5% to a high of 7.5%, which meant that 3% above base represented a substantial increase over the 8% judgment rate. However, the court did not award as much as the claimant had paid on the money borrowed (4.5% over base). Rix LJ commented that the court did not have "enough evidence to support the case that the rate charged… was typical of small businessmen in his position".^[15] Nor was it suggested that the court should award a higher rate of simple interest to compensate for the fact that commercial rates are compound ones.

INTEREST RATES IN PRACTICE

3.15     Judges and court staff suggested that county courts routinely award pre-judgement interest at 8%. In order to confirm this information, we visited Central London County Court to examine 239 court files. The results are set out in Appendix C.
3.16     The court files confirmed that 8% is the rate most commonly requested. Overall, 43% of claims included a request for interest at 8%. Its use was highest in business-to-business debt cases, where 60% of claims included a request for such interest. Although it was also common for claimants in business debt cases to ask for contractual interest, very little use was made of the Late Payment of Commercial Debts (Interest) Act 1998. We thought at least 25 cases could have used the 1998 Act, but only two did so. In consumer cases, around a third of claims did not ask for interest at all. When interest was specified, it was usually at 8%. We were surprised that interest at 8% was also asked for in around a quarter of personal injury claims – despite the case law on the issue.

THE PROBLEMS WITH THE CURRENT SYSTEM

3.17     The current system for selecting interest rates has three main problems. It is uncertain; it is often arbitrary; and many of the rates are too high.

It is uncertain

3.18     A major criticism of the present position is that there is considerable uncertainty over which rate should be applied. As Harvey McGregor QC told us, "one does not know where one is". He commented:

The use of one [rate] as against another is largely historical but it would surely be better to rationalise the position and have a single rate; there is no good reason for having different rates for personal injury, professional negligence and shipping collisions.

He explained that even in commercial cases, "a variety of rates abound". Cases can be found to justify using 1% over base, or 1% over LIBOR, or judgment rate, or the special investment account rate.

It is often arbitrary

3.19     There is little logic to the present system of interest rates. Litigants perceive it as arbitrary, which in turn perpetuates the view that the legal system is out-of-date and irrational. The Personal Injuries Bar Association explained that the current hit and miss approach is difficult to justify to clients: The deficiencies in the present system for the calculation of interest have been obvious for many years. In the past the difficulty in the accurate calculation of interest led to the introduction of what can only be described as a rough and ready approach. The approach of the Bar to litigation has changed in recent years and a system with these characteristics does not lie easily with the greater degree of professionalism present in the modern approach to the calculation of damages. It is difficult to explain to clients why one may be able to calculate damages very accurately but then proceed to adopt principles for the calculation of interest which are distinctly hit and miss.
3.20     One of the Government's priorities is to increase litigants' levels of satisfaction with the civil justice system. Rationalising the system of interest payments would be a small step in this direction.

Many rates are too high

3.21     It is common for creditors to receive simple interest at 8%. This reflects the judgment interest rate set in 1993. When it was first set it was 2% over the then base rate of 6%. In December 2003, it was 4.25% over base rate. This is higher than either the return most investors would receive on their savings or the borrowing rates paid by those able to offer security.
3.22     Pre-judgment interest on debts and damages is intended to be compensatory, not penal. However, at present many debtors are being required to over-compensate creditors for the delay in payment. This can cause hardship to those debtors who are genuinely unable to pay. In some cases, poor and socially excluded debtors are being asked to over-compensate large and successful creditors. High rates are also an inappropriate penalty on those who defend cases in court.
3.23     We accept that not all interest rates are too high. The Law Reform Committee of the Bar Council told us that, in large claims, there was an increasing tendency to follow commercial practice and use a rate of base +1% simple. This can cause problems where claimants have been forced to borrow to make good their loss, as only the largest and most successful businesses are able to borrow money at this rate. The approach used in Jaura v Ahmed (to look at the class of borrower into which the claimant falls) is relatively rare, and even then does not necessarily reflect the actual rates at which many people are forced to borrow.

INTEREST RATES: THE WAY FORWARD

Setting a specified rate

3.24     There is a strong case for bringing greater certainty and rationality into the selection of appropriate pre-judgment interest rates. The Consultation Paper provisionally proposed that there should be a prescribed standard rate of interest, with discretion to depart from it where there are good reasons to do so. We suggested an amendment to section 35A of the Supreme Court Act 1981 (and its county court equivalent). This would apply to the general statutory discretion to grant interest but would not affect other statutory regimes (such as tax or the Late Payment of Commercial Debts (Interest) Act 1998). Our proposal drew widespread support.^[16] Most respondents agreed that there should be a specified rate, that the rate should be linked to bank base rate, and that there should be discretion to depart from it where appropriate.
3.25     There is a need to balance two objectives. On the one hand, the rate should reflect the commercial reality of borrowing and investing. On the other hand, litigants want a single clear rate, which they can discover easily and which does not change too often. It is important that the rate should be more flexible than the judgment rate (which has not changed for a decade). However, the rate should be less flexible that the bank rate itself, which changes at unpredictable times, so that parties and their representatives may not be alerted to what the current rate is.
3.26     This suggests a rate that changes on a set date each year. The rate should be clearly publicised on the Court Service website, on posters in court offices and in the legal press so that lawyers and litigants are aware of what it is.
3.27     Our first thought was that the rate should change on 1 January each year. However, the Court Service pointed out that it would be difficult for them to organise publicity over the Christmas and New Year holidays. As discussed in Part VI, the Court Service would also need to update computer programmes and produce interest tables to allow compound interest to be calculated easily. Given how important it is that the rate should be properly publicised and calculation tools made available, we think it would be better for the rate to change on 1 April. Many businesses and organisations start a new financial year on 1 April, and people are used to annual changes taking place on that date.
3.28     We wish to avoid the need for new secondary legislation each year. We therefore recommend that the rate should be specified by a formula that automatically introduces annual changes. The formula should specify that the April rate should be set with reference to the bank rate for the preceding February. If the reference date were 15 February each year, the rate could take into account any changes made by the February meeting of the Bank of England Monetary Policy Committee.^[17] The Court Service would then have six weeks to organise publicity and changes to computer programmes and tables. This would suggest a formula along the following lines:

For so much of the relevant period as falls in a period of 12 months

ending with 31 March (a year), the specified rate consists of a

percentage rate equivalent to x per cent above the base rate of the

Bank of England in force at the beginning of 15 February in the

preceding year.

3.29     This system should work well in times of economic stability. At times of economic volatility, when interest rates fluctuate markedly, an interest rate set with reference to a base rate in February may be inappropriate a year later. We recommend that the Secretary of State for Constitutional Affairs should have power to set and change the formula by secondary legislation. In order to allow prompt changes at times of rapidly fluctuating rates, the draft Bill provides that this may be done through the negative resolution procedure.^[18]
3.30     We recommend that section 35A of the Supreme Court Act 1981 and section 69 of the County Courts Act 1984 should be amended to allow a specified interest rate to be set through a formula.
3.31     The formula should provide that the rate be set with reference to the Bank of England base rate. It should run from a fixed date each year (such as 1 April), and be set with reference to the base rate prevailing on a date falling within the previous two months (such as 15 February).
3.32     The Secretary of State for Constitutional Affairs should have power to set and change the formula by secondary legislation
3.33     The courts should have discretion to depart from the rate where there is good reason to do so.

What should the rate be?

3.34     There is less agreement on what the rate should be. At present the courts use rates set at (at least) four different points:

(1) 1% above base: used in the Commercial Court to reflect borrowing by large "blue chip" borrowers;

(2) 3% above base: used in Jaura v Ahmed,^[19] to reflect the rate at which small businesses borrowed;^[20]

(3) 8% above base: set under the Late Payment of Commercial Debts (Interest) Act 1998, to reflect the interest rate paid by the smallest and most vulnerable businesses on their overdrafts;

(4) 10% above base, which is the maximum rate at which interest can be set where a defendant fails to accept a claimant's Part 36 offer.^[21] This is intended as a sanction, to force defendants to take claimants' offers seriously.

3.35     The principle is clear: interest is intended to compensate the claimant for the delay in payment. The difficulty is that claimants' circumstances differ: some lose the opportunity to invest, while others need to borrow. Some borrow at favourable rates, others at higher rates. Our Consultation Paper suggested that we should attempt to strike the right balance between investment and borrowing rates. In reply, respondents fell into three broad camps:

(1) Some people argued that the rate should be set with reference to investment rates rather than borrowing rates, with discretion to increase if the claimant could show that they needed to borrow. The insurance company, Aviva, for example, suggested that the rate should reflect that "readily achievable by an investment readily available in the market place". The investment rates available to individuals currently range from below base rate (on some instant access building society and current accounts) to 1% above base (on cash ISAs and their equivalents).

(2) Both the Personal Injuries Bar Association and the Association of Personal Injury Lawyers suggested that the mortgage borrowing rate would be a suitable indicator. The logic is that many households have a mortgage, which they would repay if presented with an unexpected cash sum. The mortgage rate also represents a middle ground between investment and borrowing rates.

While we understand the reasoning behind this suggestion, it is not easy to identify the prevailing mortgage rate. A recent review of the mortgage market showed that lenders faced intense competition for new business, and were under pressure to offer deals that minimised the level of initial monthly payments.^[22] The result was a wide variety of different deals and rates. In October 2003 the average price of a so-called "variable-rate for term" mortgage was around 4.5% - that is only 0.75% over base.^[23] However, these low rates were generally only available to new borrowers. Most existing borrowers were paying the lender's Standard Variable Rate, which averaged 5.42% (or 1.67% over base).^[24]

(3) Finally, several respondents argued that the rate should be linked specifically to the cost of borrowing. They pointed out that many claimants are forced to borrow, and suggested rates of 3% or 4% above base, to reflect the cost of borrowing to individuals in the High Street. The Bar Council agreed that any individual who had been obliged to borrow should be able to recover interest at a rate that reflected the cost of borrowing. They favoured a flexible system, with interest rates gauged to the personal circumstances of the claimant.

3.36     We considered whether there should be two set rates, one for claimants who borrowed and one for claimants who lost the opportunity to invest. However, this would be unduly complicated, especially where claimants had borrowed for only part of the time.
3.37     After weighing the different arguments, we have concluded that the standard specified rate should be base +1%. This represents the rate paid by well-placed and well-informed borrowers. It is the rate most frequently used in the commercial courts, on the grounds that is reflects borrowing by the largest and most secure businesses. Our 1978 report on interest described this "as a very useful and fair model", and recommended that the rate should be applied generally to unpaid debts.^[25] It also represents the rate paid by active, knowledgeable and reasonably affluent individuals borrowing on a mortgage.
3.38     We think this would be a suitable starting point across a range of different cases.

(1) For commercial claims, a rate of base +1% is already accepted practice.

(2) In standard debt-collection cases brought against individuals, it would adequately compensate large or successful business without penalising debtors.

(3) A rate of base +1% also approximates to the rate that has been used in personal injury cases since 1980. As discussed above,^[26] the courts have held that interest on past pecuniary loss should be paid at the special investment account rate^[27] (with continuous loss carrying interest at half that rate). Since 1980, the special investment account rate has fluctuated against base, from a maximum of 4.25% above base to a minimum of 3.5% below base. However, between January 1980 and November 2003, the special investment rate has been, on average, 1.18% higher than the base rate. The base +1% formula therefore reflects the level of interest traditionally awarded on past pecuniary loss in personal injury claims.

3.39     Where money is owed in a business context, Parliament has already provided for higher rates under the Late Payment of Commercial Debts (Interest) Act 1998, which would continue.
3.40     Clearly, many small businesses and individuals who are deprived of their money will be forced to borrow at much higher rates. It is important that the court has discretion to vary the interest rate so as to compensate claimants who have incurred greater losses. This would cover the Jaura v Ahmed type case^[28] identified as a problem by the Bar Council. We are also mindful of research into the experiences of personal injury victims, conducted for us by Hazel Genn in 1994. This found that a minority of accident victims had run up debts as a result of the accident, with levels of indebtedness greatest among those with the most severe injuries. Among those receiving compensation of £100,000 or more, one fifth (21%) had borrowed over £5,000 and 7% had borrowed £10,000 or more.^[29] They had often borrowed at high rates, using bank loans, overdrafts and credit cards.^[30] We think in these circumstances, claimants should be able to ask for a higher rate to compensate them for the interest they have necessarily incurred.
3.41     We recommend that the courts should have discretion to vary the specified rate, by both increasing and decreasing it. However, in practice applications are much more likely to be made to increase the rate than to reduce it. We envisage that most applications will be based on the difficulties faced by needy claimants. We would not wish to create a situation in which deprived defendants were routinely required to ask the court to reduce the rate because the claimant was wellresourced. We therefore think that it is more appropriate to recommend a relatively low rate, to be increased where necessary, than to recommend a high rate that would often need to be reduced.
3.42     We do not wish to increase the possibilities for dispute. Given the current level of uncertainty over interest rates, we believe that the introduction of a specified rate should decrease the amount of litigation on this issue rather than increase it. The courts will probably develop easy-to-apply guidelines on the circumstances in which they will entertain an application to increase the interest rate. However, in case problems do occur, we recommend that the Civil Procedure Rule Committee should be given a power to provide guidelines to the courts about how to deal with such applications.
3.43     We recommend that the specified rate should be set at one percentage point over Bank of England base rate.
3.44     The Civil Procedure Rule Committee should be given power to provide guidance to the courts on how to exercise their discretion on whether to depart from the specified rate.

THE LIKELY IMPACT OF SETTING A SPECIFIED RATE AT BASE +1%

3.45     We are conscious of the need to consider the impact of our proposals on litigants. Appendix D gathers together available data on how our proposals are likely to affect different classes of litigation. Here we summarise our conclusions, looking specifically at the effect of setting a specified rate. In Part V we discuss the effect of granting a power to award compound interest on general litigation, while in Part VII we consider the effect on personal injury claims in more detail.

The effect on consumer debtors

3.46     The main effect of setting a specified rate will be in debt-collection cases brought against individuals where the contract does not already include provisions for interest. Our county court data collection exercise, described in Appendix C, confirmed respondents' views that interest is routinely awarded at 8% in an unthinking way. When we looked specifically at actions for unpaid goods and services brought against consumers, the data suggest that interest was claimed at 8% in almost half of claims. In a third of claims, interest was not claimed at all, while contractual interest was invoked only rarely. On the basis of the base rate applicable in December 2003, the main effect of our proposals would be to substitute an interest rate of 4.75% for the currently used rate of 8%.
3.47     Appendix D suggests that there will be a small effect on a large number of cases. The change may affect around 117,000 cases a year, but in most cases the reduction will be small. Over half of claims are for less than £500. On the assumption that claims last for less than six months, in most cases the reduction will be £8.12 or less. Where the defendant is particularly poor, however, even a small reduction may be significant to them.
3.48     The greatest effect will be in longer cases, which are typically those cases where the defendant contests the payment and enters a defence. We estimate that in around 14,570 such cases a year, the consumer defendant loses. Assuming that a claim for £3,000 lasted a year, the reduction in interest payments would be £97.50.
3.49     These figures are calculated at a time when the base rate is only 3.75%. This means that the change to a specified rate will be perceived as a "defendantfriendly" move. However, as interest rates increase the change will become progressively more "claimant-friendly". There have been times since 1993 when the base rate has been 7.5% while the judgment rate (at 8%) has been only 0.5% more.

Commercial claims

3.50     Since August 2002, businesses recovering debts against other business are usually entitled to claim the higher rates available under the Late Payment of Commercial Debts (Interest) Act 1998. Alternatively, they may make contractual provision for interest rates.
3.51     The available evidence suggests that many businesses do not take advantage of the 1998 Act, and continue to ask for interest at 8%.^[31] It is not clear why the Act should be used so rarely. It may be that lawyers are unaware of its provisions; or that it has not yet had time to become embedded; or that creditors are reluctant to ask for interest at what is perceived to be a penal rate. In practical terms, our proposals may encourage use of the 1998 Act, partly because they will make creditors think about interest (rather than automatically reaching for the 8% rate). It will also increase the differential between ordinary court rates and those available under the 1998 Act.
3.52     The main effect of our recommendations will be in claims for damages rather than debts, because damages claims are not covered by the 1998 Act. In damages claims, there tends to be a variation between the practice of the High Court (which often awards interest at base +1%) and the county courts, which routinely apply an 8% rate. Our recommendations will bring county court practice nearer to current High Court practice. The courts will start from the presumption that interest should be awarded at base +1%, but could award more where claimants show that they have been forced to borrow at higher rates.
3.53     The aim and overall effect of our proposals will be to provide more accurate interest payments on damages claims, particularly in commercial claims within the county court.

Personal injury claims

3.54     The effect on personal injury claims is discussed in detail in Part VII. For longer claims, we estimate that the effect of setting a specified rate will be broadly neutral. As we have seen,^[32] since 1980 the special investment rate has averaged 1.18% above the bank base rate. For shorter cases, the move to a specified rate will lead to a reduction in interest rates. For example, as of December 2003 the special investment account rate was 6% while a rate of base +1% would be only 4.75%.
3.55     These reductions will be partially offset by the fact that some claimants may apply for higher rates on the grounds that they have been forced to borrow. Compound interest will also lead to increased payments in longer claims, which in practice tend to be claims for clinical negligence. In so far as interest represents a real loss, we think that personal injury claimants should be accurately compensated for the loss they have suffered. However, any additional costs in this area are clearly a cause for concern, and we return to this issue in paragraph 4.26 and Part VII.

SUMMARY OF RECOMMENDATIONS

3.56     We recommend that section 35A of the Supreme Court Act 1981 and section 69 of the County Courts Act 1984 should be amended to allow the Secretary of State for Constitutional Affairs to set a specified rate. This would affect the way the courts awarded interest under these sections, but would not affect other statutory interest regimes, such as the Late Payment of Commercial Debts (Interest) Act 1998 or provisions applying to tax, compulsory purchase or partnership dissolution.
3.57     The specified rate should be set at 1% above the Bank of England's base rate. The rate should change annually. It should run from a fixed date each year (such as 1 April), and should be set with reference to the bank rate prevailing on a date in the previous two months (such as 15 February).
3.58     The formula specifying the rate will be set out in an order, so that it can be changed in times of rapid changes to interest rates. For the present, we would recommend a formula along the following lines:

For so much of the relevant period as falls in a period of 12 months ending with 31 March (a year), the specified rate consists of a percentage rate equivalent to one per cent above the base rate of the Bank of England in force at the beginning of 15 February in the preceding year.

3.59     The courts should have discretion to vary the specified rate. The Rule Committee should have the power to use Civil Procedure Rules to provide guidance on how this discretion should be exercised.

Note 1   See Consultation Paper No 167, p 59    [Back]

Note 2   Supreme Court Act 1981, s 35A and County Courts Act 1984, s 69.    [Back]

Note 3   London Inter Bank Offer Rate. For further discussion, see note 9, below.    [Back]

Note 4   CPR r 12.6(1).    [Back]

Note 5   Leaflet EX302, December 2002.    [Back]

Note 6   Jefford v Gee [1970] 2 QB 130.    [Back]

Note 7   Harvey McGregor QC commented that even in personal injury cases the judgment rate has tended to “creep in”: He wrote: “The former Supreme Court Practice used to have a footnote, admittedly unsupported by authority, stating that it was becoming common to award the judgment rate in personal injury and wrongful death cases. The other day a member of my Chambers told me that he had been arguing for special account rate at 6 per cent and his opponent for judgment rate at 8 per cent, and the judge dealt with the impasse by splitting the difference.” 8 Harrison v Bloom Camillin (No 2) [2000] Lloyd’s Rep PN 404.    [Back]

Note 8   Harrison v Bloom Camillin (No 2) [2000] Lloyd’s Rep PN 404.    [Back]

Note 9   9 Usually awarded by agreement of the parties rather than judgment, the London Inter Bank Offer Rate is the rate at which banks offer to lend money to one another. Daily LIBOR rates are set at 11am every morning by five major London banks, but the standard LIBOR figure is the three-month LIBOR. It is a better reflection of up-to-date commercial rates than the base rate, though long term figures suggest the two are linked.    [Back]

Note 10   FMC Meat v Fairfield Cold Stores [1971] 2 Lloyd’s Rep 221; Miliangos v George Frank (Textiles) (No 2) [1975] QB 487. See McGregor on Damages (17th ed 2003) para 15-093.    [Back]

Note 11   Metal Box Co Ltd v Currys Ltd [1988] 1 WLR 175.    [Back]

Note 12   Shearson Lehman Hutton v Maclaine Watson & Co (No 2) [1990] 3 All ER 723, per Webster J at 733.    [Back]

Note 13    [2002] EWCA Civ 210.    [Back]

Note 14   Ibid, para 26.    [Back]

Note 15   Ibid, para 25.    [Back]

Note 16   Only two respondents disagreed. One argued that the rate would need to be reviewed annually if it were not to go out-of-date, a point we have taken on board (see paras 3.26 - 3.29, below). The Canadian Supreme Court Law Branch suggested that statutory guidance may be unnecessary, and offered several examples where the Canadian courts have effectively decided the rate with no guidance.    [Back]

Note 17   Monetary Policy Committee meetings generally take place early in the month. Since 1997, 25 out of 27 changes to the base rate have taken place between the 2nd and 10th of the month. The remaining changes took place on the 13th and 18th.    [Back]

Note 18   See clause 1 of the draft Bill in Appendix A, inserting new section 35B(3).    [Back]

Note 19    [2002] EWCA Civ 210.    [Back]

Note 20   This was also the figure proposed in 1990 by the Law Reform Commission of Hong Kong, as the rate commonly charged by banks to borrowers if other credit facilities have not been previously negotiated: the Law Reform Commission of Hong Kong, Report on Interest on Debt and Damages, topic 19 (1990) para 5.45.    [Back]

Note 21   See CPR r 36.21(2) and the discussion in Part VIII.    [Back]

Note 22   D Mills, The UK Mortgage Market:Taking a Longer-Term View: Interim Report – Information, Incentives and Pricing (2003) HM Treasury, p 53.    [Back]

Note 23   Unlike discounted variable mortgages, these products did not offer explicit discounts for the first two years. Around half specifically tracked a reference rate, usually base. Mills commented that these products only made commercial sense if they were subsidised by existing customers or if there were an expectation that a substantial proportion of those taking out such mortgages would eventually switch to the Standard Variable Rates, despite the lack of redemption penalties (above, p 54).    [Back]

Note 24   Mills, above, p 53.    [Back]

Note 25   Report on Interest (1978) Law Com No 88, para 87.    [Back]

Note 26   See paras 3.10 – 3.11.    [Back]

Note 27   Formerly known as the short-term investment account rate.    [Back]

Note 28   [2002] EWCA Civ 210.    [Back]

Note 29   p 152.    [Back]

Note 30   p 175.    [Back]

Note 31   See Appendix C. Other surveys confirm the Act is not well used. For example, a recent survey conducted by Stevens and Bolton found that only a third of companies had used the Act: see “Businesses Show Reluctance to use Statutory Debt Collection Rights” (2003) 24 (9) Company Lawyer 274.    [Back]

Note 32   See para 3.38(3), above.    [Back]