The Law Commission

The Law Commission

(LAW COM No 287)

PRE-JUDGMENT INTEREST ON DEBTS AND DAMAGES

Item 4 of the Eighth Programme of Law Reform: Compound Interest

Laid before Parliament by the Lord High Chancellor pursuant to section 3(2) of the

Law Commissions Act 1965

Ordered by The House of Commons to be printed

23 February 2004

HC 295 London: TSO £xx.xx

The Law Commission was set up by 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 Chief Executive of the Law Commission is Mr Steve Humphreys and its

offices are at Conquest House, 37-38 John Street, Theobalds Road, London

WC1N 2BQ.

The terms of this report were agreed on 12 December 2003.

The text of this report is available on the Internet at:

http://www.lawcom.gov.uk

CONTENTS

	Paragraph
Summary	Summary
PART I: INTRODUCTION
Policy considerations	1.9
Interest should not be seen as a penalty on debtors	1.10
Interest should provide fair compensation for claimants	1.14
Interest should be seen to be fair	1.15
The law on interest should minimise the scope for disputes	1.16
Summary of recommendations	1.18
The effect of our recommendations	1.20
Structure of this Report	1.24
PART II: AN OUTLINE OF THE PRESENT LAW
History	2.3
The 1934 Act	2.4
Personal injury claims and the 1969 amendment	2.7
Law Commission's 1978 Report	2.10
The Administration of Justice Act 1982	2.13
The Arbitration Act 1996	2.16
The current law	2.18
Interest under a contract or trade usage	2.19
Interest as special damages	2.20
Interest under the equitable or Admiralty jurisdiction	2.23
The equitable jurisdiction	2.23
The Admiralty jurisdiction	2.28
Interest under section 35A of the Supreme Court Act 1981	2.29
Interest under other statutes	2.34
The Late Payment of Commercial Debts (Interest) Act 1998	2.37
The Arbitration Act 1996	2.44
Interest under Part 36 of the Civil Procedure Rules	2.46
Conclusion	2.48
PART III: SETTING THE INTEREST RATE
Interest rates: three approaches	3.4
Using the judgment interest figure	3.6
The special investment account rate	3.10
Commercial rates	3.12
Interest rates in practice	3.15
The problems with the current system	3.17
It is uncertain	3.18
It is often arbitrary	3.19
Many rates are too high	3.21
Interest rates: the way forward	3.24
Setting a specified rate	3.24
What should the rate be?	3.34
The likely impact of setting a rate at base +1%	3.45
The effect on consumer debtors	3.46
Commercial claims	3.50
Personal injury claims	3.54
Summary of recommendations	3.56
PART IV: SHOULD THE COURTS HAVE A POWER TO AWARD COMPOUND INTEREST?
The argument for a power to award compound interest	4.2
The arguments against a power to award compound interest	4.7
Undue complexity	4.9
Calculations by judges	4.13
Court officials	4.16
The parties	4.19
The cost to defendants	4.24
The effect on delay	4.27
Our conclusions	4.33
PART V: WHEN SHOULD COMPOUND INTEREST BE GRANTED?
A general or limited power?	5.2
Only large or long running cases	5.5
Debts rather than damages	5.9
Excluding consumer debts?	5.15
Discretion: open or subject to presumptions?	5.23
A dual system	5.29
Our favoured approach	5.33
The scope of our recommendations: when should the power to award compound interest apply?	5.41
The scope of section 35A and section 69	5.42
Policy considerations	5.46
Late Payment of Commercial Debts (Interest) Act 1998	5.53
Law Reform (Miscellaneous Provisions) Act 1934, section 3	5.59
Summary of recommendations	5.68
PART VI: CALCULATING COMPOUND INTEREST
Computer programme or tables	6.2
A prescribed computer programme	6.7
Prescribed tables	6.12
Annual, quarterly or monthly rests?	6.18
A discretion to vary the compounding intervals?	6.25
"Mixed" awards	6.30
Summary of recommendations	6.33
PART VII: COMPOUND INTEREST IN PERSONAL INJURY CLAIMS
Interest on damages for non-pecuniary loss	7.2
Interest on past pecuniary loss	7.14
The cost to the taxpayer	7.30
The exponential effect of compounding	7.32
Clinical negligence claims	7.37
Is compound interest for clinical negligence claims a priority?	7.44
Summary	7.47
PART VIII: OFFERS TO SETTLE
Claimant offers and additional interest payments	8.3
The current law	8.3
Should the maximum rate be expressed as a compound rate?	8.9
Expressing claimant and defendant offers	8.17
Summary of recommendations	8.25
PART IX: TRANSITIONAL ARRANGEMENTS
The policy issues	9.1
A single system	9.2
Respect for existing arrangements	9.5
The options	9.9
Our views	9.12
PART X: LIST OF RECOMMENDATIONS
APPENDIX A: DRAFT INTEREST ON DEBTS AND DAMAGES BILL	APPENDIX A
APPENDIX B: THE CURRENT LEGISLATION	APPENDIX B
APPENDIX C: COUNTY COURT DATA COLLECTION EXERCISE	APPENDIX C
Methodology	C2
The overall findings	C6
Business claims	C8
Personal injury claims	C13
Consumer cases	C16
Other cases	C19
Conclusion	C20
APPENDIX D: CONSIDERING THE LIKELY IMPACT OF OUR PROPOSALS	APPENDIX D
The effect on consumer debtors	D5
County court default actions: small, quick and routine	D9
Consumer actions in the High Court	D12
Cases that proceed to a small claims hearing	D14
The effect of interest proposals on consumer debtors: conclusion	D17
Commercial debt recovery	D22
The effect of the Late Payment of Commercial Debts (Interest) Act 1998	D26
Commercial debts: conclusion	D28
Personal injury litigation	D31
Standard cases	D33
Long cases	D36
Professional negligence	D39
Professional negligence cases: conclusion	D46
Other disputes	D48
Actions against the police	D49
Judicial review	D51
Defamation	D52
Housing disrepair	D53
Conclusion	D57
APPENDIX E: THE IMPACT ON CLINICAL NEGLIGENCE CLAIMS	APPENDIX E
Assumptions	E3
Tables	E10
National Health Service Litigation Authority (NHSLA)	E10
Medical Defence Union and Medical Protection Society	E12
Overall costs	E15
General methodology	E17
Example	E18
APPENDIX F: CALCULATING COMPOUND INTEREST FROM TABLES	APPENDIX F
Using the table	F5
Continuous loss	F12
APPENDIX G: RESPONDENTS TO CONSULTATION PAPER NO 167	APPENDIX G