The Law Commission



APPENDIX C

COUNTY COURT DATA COLLECTION EXERCISE

C1.     The county court judges who responded to our consultation paper told us that it was normal practice for county court claimants to request interest at 8%. This, they said, was usually granted as a matter of routine. They also suggested that the Late Payment of Commercial Debts (Interest) Act 1998 was rarely if ever used. In order to verify this information, we decided to carry out a small data collection exercise in a county court.

METHODOLOGY

C2.     In September 2003 we visited Central London County Court to gather data from around 200 case files. We wished to see how many claimants had requested interest – and if interest had been requested, at what rate. Central London County Court has a reputation for dealing with large quantities of business-to-business litigation, and we were particularly interested to see what rates of interest were claimed in business debts.
C3.     We collected information from a total of 239 cases. Of these, 99 cases had been issued in January 2002 and 140 had been issued in February 2003. We hoped that the 2002 cases would have had sufficient time to reach a conclusion. Meanwhile, cases issued in 2003 may be able to take advantage of the amendments to the Late Payment of Commercial Debts (Interest) Act introduced for contracts made after 6 August 2002.
C4.     We drew cases sequentially, in the order in which they had been issued. There was no attempt to search for particular categories of case, or to select cases that had ended in a particular way. As can be seen from Table 1, our sample consisted of 83 personal injury claims, 81 business claims, 53 consumer claims and 22 other claims.
C5.     Unfortunately, it was often not possible to find out how a case had ended, and we did not succeed in gaining useable data on the interest actually awarded. We did, however, find it relatively easy to find out what rate was asked for. In those cases where details of a judgment were available, it would appear that the interest rate asked for is usually granted, at least in default judgments.

THE OVERALL FINDINGS

C6.     Table 1 shows that overall, 43% of claimants claimed interest at 8%. Out of the 184 cases in which interest was claimed, over half (55%) claimed interest at 8%, just over a fifth did not specify a rate and just over one in ten claimed interest at the contractual rate. The remaining cases used a wide variety of different approaches.

TABLE 1: INTEREST CLAIMED BY TYPE OF CASE

Business

Personal   injury

Consumer

Other

All

	No	%	No	%	No	%	No	%	No	%
8% claimed	49	60	20	24	24	45	9	41	102	43
No interest claimed	11	14	18	22	19	36	7	32	55	23
Interest – no rate specified	2	2	31	37	6	11	2	9	41	17
Contractual interest	17	21	0	0	3	6	1	5	21	9
Special investment rate	0	0	8	10	0	0	0	0	8	3
7% claimed	0	0	3	4	1	2	0	0	4	2
6% claimed	0	0	3	4	0	0	0	0	3	1
Taxes Management Act	0	0	0	0	0	0	3	14	3	1
Late Payment Act	2	2	0	0	0	0	0	0	2	1
All	81	100	83	100	53	100	22	100	239	100

C7.     Approaches to interest differed according to subject matter, and it is worth looking at the four main categories separately.

BUSINESS CLAIMS

C8.     The business cases in our sample were mainly claims in which one business sued another for unpaid goods and services: 69 (85%) were clearly in this category. In eight cases, landlords were suing for business rent, and at least two claims were for breach of contract.
C9.     In most cases (60%) the claimant claimed interest at 8% from the date of the payment. In just over a fifth of cases (21%), the claimant claimed at a contract rate. Most other claims either did not claim interest at all (14%) or did not specify a rate (2%). Only two cases in our sample used the Late Payment of Commercial Debts (Interest) Act 1998.
C10.     A wide range of contractual rates was used. The most popular rate (used in 9 cases) was 24% a year (or 2% a month), compound. The other rates were all lower than this. In six cases, the contractual rate was directly linked to base rate: in two cases it was 2% above; in two 3% above; and in two 4% above.
C11.     Many claims that could have used the 1998 Act failed to do so. It was not always possible to tell whether a case was eligible because we did not know the total number of employees, and not all claims gave the date on which the contract was made (as opposed to the date on which the invoice was submitted). However, it appeared to us that at least 25 cases could have used the 1998 Act. They were all claims for unpaid goods and services and either the contract had been made after 6 August 2002 or the claimant appeared to be a small local firm. Out of these 25 cases, four asked for interest at the contract rate, and two cited the Act. Of the rest, one did not ask for interest. However, most (18) asked for interest at 8%. Late Payment Act interest would have been substantially higher: in January 2002 it was 14% interest, and in February 2003 it was 12%.
C12.     It is difficult to understand why claimants should deliberately forgo interest in this way. It would seem either that claimants and their lawyers did not know of the Act, or that did not consider it an appropriate rate to ask for. The Late Payment Act is not yet an established part of legal culture.

PERSONAL INJURY CLAIMS

C13.     The most common approach in personal injury claims was for the particulars of claim simply to request "interest pursuant to section 69 of the County Courts Act 1984". Over a third of claims copied words of this type, without specifying what the rate should be. In eight cases, the claimant's solicitor was more specific, and recited the rules set out in Part VII – asking for half the special investment account rate on past pecuniary losses and 2% on non-pecuniary losses from the date of the claim.
C14.     However, it appeared that some lawyers were confused or ignorant about interest in personal injury claims. In 18 cases, the particulars of claim failed to ask for interest at all, while in 20 cases they asked for interest at 8% (using the same formula commonly used in business and consumer claims). Table 1 shows that three claims asked for 6% interest and three asked for 7% interest. But there was not always much logic behind these requests: in January 2002, when the special investment account rate was 7%, one claim asked for 6%; while in February 2003, when the special investment rate was 6%, two claims asked for 7%.
C15.     These figures suggest that when drafting particulars of claim, lawyers do not always pay great attention to interest. The 8% figure is still commonly asked for in personal injury claims, despite the specific rules laid down by the courts.

CONSUMER CASES

C16.     As with business cases, the majority of claims concerned unpaid goods or services. In all 41 out of 53 (77%) were in this category. The most common scenario was for a provider to sue a consumer for an unpaid service – such as car repairs, building work or unpaid legal bills. Very few cases in our sample were for outstanding loans, which accounts for the low use of contractual interest. In five cases the consumer was suing the business for defective work and three cases concerned disputes over the service charges in long leases.
C17.     Again, 8% was the most commonly requested interest rate, used in 24 out of the 53 cases. In three cases, the claimant was a solicitor suing for fees who cited the Solicitors' Remuneration Order 1994.^[1] Section 14(3) states that "subject to any agreement made between a solicitor and his client, the rate of interest must not exceed the rate for the time being payable on judgment debts". This was taken as authority for charging the judgment debt rate – namely 8%.
C18.     It was also fairly common not to claim interest against consumers. In a third of cases (19) no interest was claimed. The use of contractual interest was rare – in only 3 cases (one of which was a loan case). It would seem that suppliers are more reluctant to insert interest clauses in their contracts with consumers than with businesses.

OTHER CASES

C19.     The "other" category included eight housing claims, five actions against public authorities and three debt actions brought by the Inland Revenue. The three inland revenue cases all cited the rate under the Taxes Management Act 1970.

CONCLUSION

C20.     This exercise can be no more than a toe in the water. It deals with only a limited number of cases, in one county court at two points in time. However, it does bear out what we were told during consultation. In particular:

(1) Litigants and their lawyers commonly use the 8% rate across a broad range of cases – including some (such as personal injury claims) where it is not necessarily appropriate.

(2) The Late Payment of Commercial Debts (Interest) Act 1998 is not used as often as it could be. It has not yet become an established part of legal culture.

(3) Interest is often fairly far down lawyers' lists of priority. It is common for there to be anomalies and confusions in the way that interest is asked for.

Note 1   Solicitors’ (Non- Contentious Business) Remuneration Order 1994, SI 1994 No 2616.    [Back]