The Law Commission



PART V

WHEN SHOULD COMPOUND INTEREST

BE GRANTED?

5.1     In this Part we consider when a power to award compound interest should be used. This may be divided into three questions:

(1) Should the power be limited to (or exclude) any particular categories of claim?

(2) Assuming a general discretionary power to award compound interest, should that discretion be open, or be guided by a presumption in favour of (or against) compound interest?

(3) How should the power be implemented? Should it be confined to section 35A of the Supreme Court Act 1981 and section 69 of the County Courts Act 1984, or should it also apply to other powers to award interest?

A GENERAL OR LIMITED POWER?

5.2     The majority of respondents agreed with the proposal in our Consultation Paper that compound interest should be available in the generality of cases. Most thought it would be unduly confusing to create a two-tier system with an arbitrary cut-off point. The Bar Council's views were typical:

the power to award compound interest should be available in all cases. The alternative, of having two separate interest regimes for two separate categories of cases, would inevitably led to unjustifiable anomalies and possibly also to a waste of time and effort spent in resolving disputes as to whether a particular case fell into one category or another.

5.3     Only six respondents thought that compound interest should be limited by subject matter, and there was little agreement between them about what those limits should be.
5.4     The main limitations we explored were to limit compound interest to large and long running cases; to limit it to debts rather than to damages; and to exclude consumer claims. Below we explain our reasons for rejecting these limitations.

Only large or long-running cases?

5.5     Most respondents saw no reason to limit the power to award compound interest to large or long-running cases. The Law Society argued that "there is no reason why compounding should only be done on longer, complex cases and the Society is of the view that it would be difficult to define such cases". The British Maritime Law Association made the same point:

"compound interest is required to do justice in all cases – not just long running cases – and the amount involved in the litigation should be irrelevant in this context".

5.6     That said, the proposal in our Consultation Paper for compounding with annual rests meant that only claims for a year or more would be affected by our proposals. If we were to introduce monthly rests, there is a case for excluding all claims of a year or less, where the benefit of compound interest may be insufficient to justify the costs of calculations.
5.7     A few respondents highlighted the particular difficulties of small claims. It was pointed out that where losses arose at different times or (as with business rent) continuously over a long period, interest calculations could be complex. Court time was already wasted in doing last minute calculations, and respondents did not wish to exacerbate the problem.
5.8     We accept that there will be many cases where the amount of money at stake is simply not worth the time and trouble of the calculations. These cases, however, could be dealt with through the appropriate use of the court's discretion, rather than through a statutory limitation on the court's powers.

Debts rather than damages?

5.9     The Consultation Paper pointed out that several foreign jurisdictions award compound interest more readily on debts rather than damages. ^[1] The argument was that compound interest should only run on fixed sums. Where the court has not yet determined the amount to be paid, the defendant could not be said to be wrongfully withholding the money and should not have to pay compound interest. We thought that this misunderstood the nature of the interest award, which is to compensate the claimant for the delay, rather than to penalise the defendant. We therefore provisionally proposed not to make a distinction between debts and damages.
5.10     With the exception of clinical negligence defendants, most respondents agreed with us. Those who responded on this issue pointed out that the greatest demand for compound interest often arose in commercial damages claims, especially in cases for misuse of intellectual property. Furthermore, a distinction between debts and damages would prove arbitrary and difficult to apply. The Westdeutsche case, ^[2] a claim for restitution, was a case that straddled this divide.
5.11     We agree that the power to award compound interest should not be confined to debts, but should also cover damages. The objective of compound interest is to compensate claimants for the costs they incurred in being kept from their money, and this applies equally to damages as to debts. In practice, our recommendations will have a greater impact on damages claims than on debt claims because damages claims are not covered by the Late Payment of Commercial Debts (Interest) Act 1998.
5.12     On the other hand, some respondents suggested that we should distinguish between pecuniary and non-pecuniary loss. Non-pecuniary damages are awarded in a variety of different actions, including defamation, fraud and some breaches of contract. They may compensate for disappointment, injuries to feeling, physical discomfort or disappointment. They are assessed as global sums to provide a rough approximation for losses than cannot be fully quantified in monetary terms. In defamation and fraud claims it has been held that they should not carry interest. ^[3] Non-pecuniary damages are assessed to be broadly correct at the time they are made, to cover both past and future loss. They are not necessarily the same as the sum that should have been paid at the time the cause of action arose.
5.13     In personal injury cases, the statutory provisions require the courts to award interest, unless there are special reasons not to. ^[4] This has led to the development of a special rule for the treatment of non-pecuniary awards in personal injury claims, which states that non-pecuniary damages should carry interest at 2% from the date of service of the claim form.
5.14     We agree that in most forms of action, damages for non-pecuniary losses should not carry interest. It therefore follows that they should not carry compound interest. In Part VII we consider whether compound interest should be awarded on non-pecuniary damages in personal injury claims. We conclude that it should not. There is no clear principled case for any form of interest. In practice, the interest payments are so small (only 2%) and for such short periods (since service) that the amounts at stake hardly justify the calculation.

Excluding consumer debts?

5.15     The Consultation Paper asked whether compound interest might bear unduly harshly on consumer debtors, who are unable rather than unwilling to pay. Generally, there was little support for making special provision for consumer debt, which was thought to introduce arbitrary and unnecessarily complex distinctions. However, the Department for Constitutional Affairs urged us to ensure that any recommendations in favour of compound interest do not exacerbate social exclusion.
5.16     We can understand that compound interest evokes deep-seated fears. Where people are too poor even to service a loan, interest can become "a slippery slope to a situation of hopeless debt". ^[5] Where interest is compound, interest increases in an exponential rather than a linear way, which can make the calculation appear frightening and unpredictable.
5.17     To allay these fears, it is important to understand how interest payments affect poor debtors at present. As described in Part II, in most loan claims, consumers already pay compound interest (often at high rates). Contracts for mortgages, bank loans, credit cards and store cards already routinely charge compound interest. Unless the rates are extortionate, the courts will not interfere with the operation of the market. In other poverty debts, on fuel or rent for example, interest is seldom charged at all. Following our recommendations, interest awards will remain discretionary. It will always be open to a court not to award any interest, or only to award it at a low rate.
5.18     Interest on fuel debts is subject to multiple layers of law and regulation. It is up to utility companies to decide whether to require interest on debts within their contractual terms. Any such terms must comply with Ofgem regulation, and may (subject to the views of the regulator) be at either simple or compound rates. The court is bound to honour an acceptable contractual term, and to order interest at the rate specified. If a utility fails to specify interest as a contractual term, the court has a discretion whether to allow statutory interest under section 35A. In practice, fuel debt is often an indicator of extreme poverty, as families struggle to pay for the necessities of life. ^[6] In these circumstances, courts will usually exercise their discretion against ordering interest, especially where the creditor could but failed to specify interest as a contractual term.
5.19     For example, British Gas told us that, under the terms set by Ofgem, gas and electricity companies are allowed to charge customers interest at the rate of 3% above base if they fail to respond to a reminder. The interest is payable from the date that payment was due to the date on which payment is received. In practice, British Gas charges interest to commercial customers, but does not charge domestic customers on the grounds that it may provoke an "adverse customer reaction". We understand that in the absence of any contractual term it would be rare for a court to award interest.
5.20     As far as rent arrears are concerned, we gleaned some indication of existing practice from a 1996 research report into rent arrears. This suggested that most rent arrears were of relatively short duration: eight out of ten tenants owed less than six months' rent and only one in twenty tenants owed more than 12 months' rent. ^[7] Judges exercised considerable discretion in deciding whether (and on what terms) to grant suspended possession actions, with little evidence that they ever imposed interest on rent arrears. ^[8]
5.21     Thus we do not believe that granting the courts the power to award compound interest would exacerbate the problems of poor debtors. In loan cases they already pay interest at compound rates. In other "poverty debt" cases, for rent or fuel arrears for example, the courts will generally exercise their discretion not to charge interest at all. Most other claims will be too small or dealt with too quickly to be worth calculating compound interest. ^[9] In those few cases in which it is imposed, the amounts would be small.
5.22     In conclusion, we wish to avoid fixed and arbitrary distinctions and see no reason to exclude consumer debts from the general power to award compound interest. However, as discussed above, the power will only be invoked against consumers in rare circumstances. The overall effect of our main recommendations (to set a specified rate and to allow compounding) will be to reduce the interest paid in debt actions brought against individuals.

DISCRETION: OPEN OR SUBJECT TO PRESUMPTIONS?

5.23     Assuming a general power to award compound interest, the Consultation Paper explored four possible ways in which that power could be framed. The options were

(1) a presumption in favour of simple interest, with a power to award compound interest where there were good reasons for it;

(2) a power for the courts to award either simple or compound interest as they saw fit, without any statutory indications that one was to be preferred over the other;

(3) a presumption in favour of compound interest, with a power to award simple interest where there was little difference between the two;

(4) a fixed rule that where interest is awarded at all it must be compound

5.24     We rejected Option 4, on the grounds that it would import excessive complications into small cases. We expressed concerns about Option 2, as its effect would be uncertain. It might provide parties with another cause of dispute. In particular, defendants might find it more difficult to calculate an appropriate Part 36 offer (and claimants may find it more difficult to decide when to accept).
5.25     We concluded that the main choice was between Option 1 (a presumption in favour of simple interest) or Option 3 (a presumption in favour of compound interest). Our provisional proposal favoured Option 3, on the grounds that computer programmes would allow compound calculations in most cases.

(1) Many barristers and solicitors involved in high-value litigation supported a presumption in favour of compound interest.

(2) Circuit judges, district judges and masters expressed concern about routine cases, especially where litigants were unrepresented, or where the representatives had not prepared the relevant calculations. They saw advantages in a presumption in favour of simple interest, especially in low value cases.

(3) Finally, several members of the higher judiciary wrote to recommend that the legislation should only give a general unfettered power. They though that appropriate guidance could be established through practice directions or appellate court decisions. Lord Woolf, for example, suggested that the court should have a general discretion, with further guidance "best left to be dealt with by a practice direction or the decisions of the court".

5.27     Respondents highlighted three reasons for preferring simple interest to compound interest in any given case. These were

(1) to protect poor consumers

(2) to discourage claimants from deliberately delaying claims; and

(3) to avoid the cost of calculating compound interest where the difference between simple and compound interest did not justify it.

5.28     In most cases, however, the main way of protecting poor consumers is not to award interest at all (or only at a very low rate). The main way to discourage delay is for courts to exercise their existing discretion to award interest for only part of the period from cause of action to judgment or payment. The essential reason for preferring simple to compound interest lies in the cost of calculation. It therefore follows that there should be a presumption in favour of compound interest where the difference between the two is significant, and in favour of simple interest where the difference is insignificant.

A dual system

5.29     Several respondents suggested a dual system, in which the nature of the presumption would depend on the size of the award. For example, the Council of Circuit Judges suggested that simple interest should always be used in small claims (of £5,000 or less) where many litigants were unrepresented. They thought that simple interest should also be used in fast track claims of £15,000 or less. They gave three reasons: fast-track claims were usually fairly quick (concluded within a year of issue); trial time was strictly limited to one day, including judgment and summary costs; and saving litigation costs was a clear priority. The Council pointed out that many multi-track claims were also of small value, and would have been tried in the fast track if they could have been scheduled within a day.
5.30     A few people therefore suggested a presumption in favour of simple interest on awards of £15,000 or less, with a presumption for compound interest on awards of more than £15,000. ^[10] The distinction can be justified on the grounds that the award is too small to justify the cost of calculation; that cases below £15,000 are generally dealt with quickly; and that costs should be proportionate to the amount at stake.
5.31     Of course, it is difficult to lay down hard and fast rules, based only on the size of the award. The difference between simple and compound interest depends partly on the overall amount, partly on the length of time, and partly on the rate of interest. In most small to medium cases, the difference between simple and compound interest will be relatively small. As an indication, on a three-year case worth £15,000, at 6% interest, the difference between simple and compound interest (with monthly rests) would be £250. We are keen to introduce a system that is simple and easy to operate and (at least at first) confines compound interest to cases where the amount of money at stake is clearly worth the cost of calculation.
5.32     The Consultation Paper recommended compounding with annual rests. We thought that one of the main advantages of annual rests is that they would effectively remove any debt or damages outstanding for less than one year from the effects of compound interest. Most consultees agreed that this would be desirable. In Part VI, we recommend using monthly rests, which means that any practice direction would need specifically to exclude debts or damages of one year or less in order to achieve the same effect.

Our favoured approach

5.33     We have been persuaded by the arguments put by senior judges that any guidance on how the power to award compound interest should be exercised would be best set out in the form of a Civil Procedure Rules and practice directions rather than in legislation. This would be much more flexible. One could learn from experience, and adapt to changing circumstances. A substantial rise in base rates, for example, would alter the balance in favour of compound interest.
5.34     We recommend that the Civil Procedure Rules should draw a distinction between awards or settlements of less than £15,000 and those of £15,000 or more. For those of less than £15,000, there should be a presumption that interest should be simple. This could be rebutted if the claim has been particularly long-running, or the claimant can show special reasons for compound interest, such as having to borrow money at compound rates. In claims of £15,000 or more, there should be a presumption in favour of compound interest, unless the claimant asks for simple interest, or there are other special reasons why simple interest would be more appropriate.
5.35     The £15,000 figure may need to be changed at some stage in the future, either because it has been eroded by inflation, or because the fast-track limit has been altered. The fact that the limit is contained within rules of court will allow the guidance to be kept up-to-date.
5.36     We do not think that it is normally worth calculating compound interest on payments outstanding for less than a year, however large. If annual rests were used, such payments would be excluded automatically. With monthly rests, the Civil Procedure Rules should exclude compound interest on any debts or damages that have been outstanding for less than a year, unless the claimant can show exceptional reasons why interest should be compounded. This would remove from the scheme many claims where the difference between simple and compound interest would be too small justify the additional complexity. For claims of a year or more, compound interest would be paid on the full life of the debt.
5.37     We envisage that a practice direction would also set out details of the evidence that claimants should file. For example, Lord Justice Dyson suggested that it might require the claimant to file an interest calculation with every schedule of loss, together with an up-to-date calculation at trial. The Association of District Judges suggested that in claims below £15,000, claimants should only receive compound interest if they specifically plead it in their particulars of claim. Whilst we would not wish to be overly formalistic, we think that a practice direction should include appropriate rules about pleading and filing evidence, based on judges' and lawyers' experiences.

5.38 The Civil Procedure Rule Committee should have power to provide the courts with guidance on when to award compound interest.

5.39 The rules should draw a distinction between awards or settlements of less than £15,000 and those of £15,000 or more. For the former, there should be a rebuttable presumption that interest will be simple; for the latter there should be a rebuttable presumption that it will be compound.

5.40 The rules should exclude compound interest on any debts or damages that have been outstanding for less than a year, unless the claimant can show exceptional reasons why interest should be compounded.

THE SCOPE OF OUR RECOMMENDATIONS: WHEN SHOULD THE POWER TO AWARD COMPOUND INTEREST APPLY?

5.41     The simplest way of introducing a power to award compound interest would be to amend section 35A of the Supreme Court Act 1981 and section 69 of the County Courts Act 1984. Here we consider how this would interact with other forms of interest.

The scope of section 35A and section 69

5.42     As discussed in Part II, these sections provide the High Court and county courts with a general discretion to award interest on debts and damages. However, they do not apply when another form of interest "already runs". Under section 35A(4) interest in respect of a debt shall not be awarded under this section for a period during which, for whatever reason, interest on the debt already runs. ^[11]
5.43     This means that if the debt already attracts interest under some other contractual or statutory provision, sections 35A and section 69 are excluded. In particular, they do not apply where interest is already available:

(1) under a contract

(2) as special damages

(3) under a range of other statutes, including the Taxes Management Act 1970 and the Partnership Act 1890.

The interaction with the Late Payment of Commercial Debts (Interest) Act 1998

raises difficult issues and is dealt with below. ^[12]

5.44     However, sections 35A and 69 exist concurrently with the courts' inherent powers under the Admiralty and equitable jurisdictions. This is because the inherent powers are discretionary: interest does not run until it is awarded by a judge. ^[13] The court therefore has a choice between making an award under statute or under the inherent jurisdiction.
5.45     It is also important to note that the sections apply only to debts and damages. They do not apply, for example, to unpaid legacies, which are neither debts nor damages. In actions for accounts of legacies, interest is payable under the equitable jurisdiction and has for many years has been governed by rules of court. ^[14]

Policy considerations

5.46     We have no wish to interfere with contractual agreements. As occurs at present, if a contract provides for pre-judgment interest at a specified compound rate, that rate should be awarded. Similarly, if the contract specifies that only simple interest should be paid, the courts should have no power to award compound interest.
5.47     The Consultation Paper recommended that tax and other comparable schemes should be omitted from the suggested reforms as they had their own dedicated enforcement machinery and there was no reason why it should be changed. Those respondents who addressed this issue agreed. There is a careful balance to be struck between taxpayers and the Revenue over penalties for the late payment of tax and we do not think it appropriate to alter that balance here.
5.48     Similar reasoning applies to other specific statutory provisions on interest. As noted in Part III, claimants differ considerably in how they are affected by late payment. If there are specific provisions that provide the correct compensation in defined circumstances, they should be left alone. If they do not provide the correct compensation, they should be reformed within the context of a review of that particular subject matter. ^[15]
5.49     During consultation, it was also suggested that we should refrain from interfering with interest on wills and unpaid legacies. One particularly difficult area concerns the rules on how trustees should apportion assets and liabilities between life tenants and remaindermen. ^[16] The Trust Law Committee has commented that the rules "are complex, calling for detailed calculations" yet often "yielding small amounts". ^[17] Fears were expressed that the introduction of compound interest could cause further, unwarranted complications. ^[18] The Law Commission has been asked to considering simplifications to these rules as part of its project on apportionment and we do not deal with these issues here.
5.50     As far as the Admiralty and equitable jurisdictions are concerned, we are content for the inherent and statutory jurisdictions to continue to operate alongside each other. We expect that the great majority of interest awards will continue to be made under section 35A. For Admiralty cases, this would be the only way in which compound interest could be awarded. In some equity cases, however, the inherent equitable jurisdiction may offer a more flexible way of awarding compound interest. For example, where a trustee has misapplied trust income, the court can order repayment of the interest actually gained, using whatever rests interest had been compounded at. ^[19] Similarly, courts would continue to be able to award interest as special damages, without being subject to any of the restrictions imposed by statute. ^[20]
5.51     Thus an amendment to section 35A and section 69 would have the desired effect. It would allow compound interest to be awarded on a wide variety of debts and damages, without interfering with contractual interest, specific statutory regimes or legacies. As far as the equitable jurisdiction is concerned, the statutory and inherent jurisdictions would continue to exist alongside each other.
5.52     This leaves only two remaining issues about the scope of our recommended power to award compound interest. First, how would it interact with the Late Payment of Commercial Debts (Interest) Act 1998? Second, is there a need to reform section 3 of the Law Reform (Miscellaneous Provisions) Act 1934? Below we consider each question in turn.

Late Payment of Commercial Debts (Interest) Act 1998

5.53     As described in Part II, ^[21] the 1998 Act covers business to business debts for the supply of goods and services. Originally the Act only protected small businesses, but since August 2002 it has been available to all commercial creditors. It provides a particularly high rate of interest (8% above base). The rate is simple rather than compound.
5.54     The interest rate is set to reflect the type of rate that may be charged on shortterm distress lending to highly vulnerable businesses. Where both parties are large, successful businesses, the rate cannot be said to purely compensatory. It would appear to have some penal element in that it is designed to discourage delay rather than compensate claimants for their loss. It is likely to prove particularly advantageous to creditors in large long-term disputes, where the sums involved could prove substantial. ^[22] As the payment is not intended to compensate claimants for an actual loss, we see no reason for it to be compound. In short cases, compound interest would add undue complexity, and in prolonged disputes the rate of interest would be too high.
5.55     Technically, where the 1998 Act applies, the courts' general powers to award interest under section 35A and section 69 are ousted. This is because, under the 1998 Act, the right to simple interest is treated as an implied term of the contract. ^[23] Interest "starts to run" from the relevant date, ^[24] without requiring any specific action by the creditor. Where interest "already runs", section 35A(4) states that "interest in respect of a debt shall not be awarded under this section". ^[25]
5.56     Despite these technical problems, it appears that the courts continue to award interest at 8% under section 35A and section 69, rather than the 8% over base (currently 11.75%) permitted by the 1998 Act. In our visit to Central London County Court we found many cases which seemed to be eligible for late payment interest under the Act, but where the claimant had instead asked for interest at 8%. The courts routinely grant the claimant's request, even though they appear to have no power to do so.
5.57     We think this practice should be regularised. Claimants should have the choice to forego late payment interest if they wish and instead claim interest under the court's general statutory powers. Under the reformed scheme, section 35A and section 69 will permit compound interest while the 1998 Act will grant only simple interest. It will therefore be possible for a claim under the general statutory powers to be higher than a claim under the 1998 Act. Clearly, this will be unusual, but it may occur where the claimant has been forced to borrow at particularly high rates over an extended period.

5.58 We recommend claimants should be entitled to forego interest under the Late Payment of Commercial Debts (Interest) Act and instead claim interest under the courts' general statutory powers. Law Reform (Miscellaneous Provisions) Act 1934, section 3

5.59     In tracing the history of pre-judgment interest, we described section 3 of the Law Reform (Miscellaneous Provisions) Act 1934. ^[26] This provision has not been repealed entirely. It has been replaced for the High Court by section 35A, and for county courts by section 69. However, section 3 continues to apply to any other "court of record" ^[27] that hears cases for the recovery of debts or damages and that does not possess its own specific interest granting powers. The section only covers cases that are tried (rather than settled) and any interest awarded under it must be simple. ^[28]
5.60     We have found it difficult to identify courts that use section 3. Most courts that hear cases for debts have their own provisions. For example, the Court of Appeal does not rely on it. Instead, Civil Procedure Rule 52.10(1) provides that "in relation to an appeal the appeal court has all the powers of the lower court". Under rule 52.10(2)(d) this specifically includes "the power to make orders for the payment of interest".
5.61     The main courts to which section 3 applies would appear to be the Employment Appeal Tribunal and the House of Lords.
5.62     The Employment Appeal Tribunal (EAT) is declared to be a "superior court of record" by statute. ^[29] It may exercise any of the powers of the employment tribunal from which the appeal is brought. ^[30] Employment tribunals are not courts of record and their powers to award interest are limited to those set out in regulations. There are two main provisions on interest. Under the Industrial Tribunals (Interest) Order 1990, ^[31] employment tribunal awards attract simple interest automatically at the judgment rate if they remain unpaid 42 days after the tribunal's decision. Under the Employment Tribunals (Interest on Awards in Discrimination Cases) Regulations 1996, ^[32] employment tribunals also have discretion to award simple interest on awards in discrimination cases from the time the discrimination took place, at the special investment account rate. When the EAT exercises this discretion, it would appear to run alongside its general discretion under section 3.
5.63     It is difficult to say how far the various awards made by the EAT can be said to be debts or damages within the meaning of section 3. There is case law to suggest that the phrase should be interpreted widely. ^[33] It would appear that section 3 applies to the EAT's contractual jurisdiction, and it is at least arguable that it applies to unfair dismissal awards (and possibly statutory redundancy payments).
5.64     Despite its potential importance, we could find no evidence that the EAT had used section 3. ^[34] It appears anomalous that the EAT should possess a general discretion to award interest that employment tribunals do not share. It is an issue that the Department of Trade and Industry may wish to review, either by repealing section 3 in so far as it affects the EAT, or by granting employment tribunals a similar power to award interest on debts and damages.
5.65     The House of Lords is not declared to be a court of record by statute, but there is judicial authority to suggest that it is. ^[35] The House of Lords' powers and procedures are set out in the Appellate Jurisdiction Acts of 1876 and 1887 and in the House's own standing orders, known as the "Blue Book". ^[36] However, these make no mention of interest. If the House of Lords were to impose its own judgment (as distinct from re-instating the judgment of a lower court), its only power to award interest would be under section 3.
5.66     The only other courts we have identified to which section 3 might apply are minor ones: the Barmote Courts of the High Peak and Wirksworth (which have jurisdiction to deal with some mining disputes) and, possibly, the Admiralty Court of the Cinque Ports. ^[37] Once the House of Lords has been replaced by the Supreme Court and the EAT's powers have been reviewed, it may be that section 3 has no further uses and can be repealed. For the moment, however, we think that it is worth preserving a reserve power to grant interest that applies to courts other than the High Court and county courts. We see no reason why such a power should apply only to cases that are tried, or should grant only simple interest. We think such courts, including the House of Lords and its successor, should be able to exercise the same powers as the High Court. ^[38]
5.67     We recommend that courts of record other than the High Court and County Court which do not have their own interest regime should possess the same powers to award interest as the High Court.

SUMMARY OF RECOMMENDATIONS

5.68     We recommend that the courts should have a general power to award interest on debts or damages. The power should be implemented as an amendment to section 35A of the Supreme Court Act 1981, and section 69 of the County Court Act 1984. Guidance on how to exercise that power would be set out in rules of court.
5.69     We recommend that, at least initially, the Civil Procedure Rules should draw a distinction between awards and settlements of less than £15,000 and those of £15,000 or more. For the former, there would be a rebuttable presumption that interest should be simple. For the latter, there would be a rebuttable presumption that it should be compound. A practice direction could provide further guidance on what evidence a claimant would need to file, at what stage, to show that they had calculated compound interest correctly.
5.70     We do not think that it is normally worth calculating compound interest on payments outstanding for less than a year, however large. If monthly or quarterly rests are used, rules of court should exclude compound interest on any debts or damages that have been outstanding for less than a year, unless the claimant can show exceptional reasons why interest should be compounded.
5.71     Technically, the courts have no power to award interest under their general statutory powers where the Late Payment of Commercial Debts (Interest) Act 1998 applies. Nevertheless, the courts frequently award interest under section 69 of the County Courts Act 1984, even where a strict application of the 1998 Act would prevent them from doing so. We recommend that claimants should have the choice, it they wished, to forgo interest under the Late Payment of Commercial Debts (Interest) Act and instead claim interest under the courts' general statutory powers.
5.72     Courts of record other than the High Court and County Court which do not have their own interest regime should possess the same powers to award interest as the High Court.