EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
Lord Eassie Lord Mackay of Drumadoon Lord Marnoch	[2013] CSIH 9 CA23/07 OPINION OF THE COURT delivered by LORD EASSIE in the cause by FARSTAD SUPPLY AS Pursuers and Respondents; against ENVIROCO LTD Defenders and Reclaimers: _______________

Pursuer and Respondents: A M Clarke QC, O'Brien; HBJ Gateley

Defenders and Reclaimers: Howie QC, Delibegovic-Broome; Burness Paul & Williamsons LLP

20 February 2013

Introductory

[1] In this action the pursuers, who are a Norwegian company, sue for damages arising out of a fire which occurred on their vessel, the MV "Far Service", while the vessel was berthed in Peterhead on 7 July 2002. The action was commenced in early 2007 and following various steps of procedure, which included an appeal to the Supreme Court of the United Kingdom, the case came before the Lord Ordinary on 23 August 2011 for a proof before answer.

[2] On that date, 23 August 2011, the parties intimated that they had settled the dispute to the extent of agreeing a principal sum which was to be paid by the defenders by way of damages, namely £1,750,000. They were however at odds as to the interest to be allowed on that principal sum. The conclusion in the summons sought interest on the sum concluded for at the rate of "8 per cent a year from 7^th July, 2002, or from such other date as to the Court shall seem proper, until payment." However, the defenders averred in answer 5 of their defences that:

"...to the extent the defenders are found liable for any loss and damage suffered by the pursuers, the pursuers are not entitled to the interest at 8 per cent a year from 7 July 2002. The pursuers are only entitled to interest on losses which were quantifiable before the date of decree. The pursuers are only entitled to interest from the date they are found to have suffered the relevant losses or incurred the relevant expenditure. The pursuers are only entitled to that rate of interest which would put them into the same position in which they would have been if they had not suffered loss or damage. The rate of 8 per cent is far in excess of that rate of interest and would provide the pursuers with a bonus, rather than properly compensate them for their loss."

Those averments were met by a denial on the part of the pursuers.

[3] As respects the date or dates from which interest might run, at the date of the proof the parties had also reached agreement that interest should run from 31 December 2002. Our understanding is that this is the date agreed as that by which the pursuers had met all the expenses of the repairs consequent upon the fire and had suffered any loss of hire. The remaining area of dispute was the appropriate rate or rates of interest to be allowed on the agreed principal sum from that agreed date of 31 December 2002. The parties accordingly tendered to the Lord Ordinary a joint minute in which they requested the Lord Ordinary to pronounce a decree for the principal sum of £1,750,000 together with interest from 31 December 2002 "at such rate or rates as the court shall think fit".

[4] The Lord Ordinary therefore proceeded to hear submissions confined to the question of the rate or rates of interest which he should allow. A further joint minute was tendered agreeing the terms of two documents setting out certain historic interest rates. The first concerned minimum lending rates, being what was traditionally termed the Bank of England "bank rate" but varying in their subsequent nomenclature. The Lord Ordinary in his opinion [2011] CSOH 153 adopted the term "base rate" as encompassing those rates, however they were termed at the particular time. We are content to follow the same approach. The other document related to the Bank of England's table of interest rates of UK monetary financial institutions for sterling instant access accounts. Some details of those rates are set out by the Lord Ordinary at paragraphs 8 and 9 of his opinion:

"[8] In a Joint Minute the parties agreed for the purposes of the debate the terms of two documents setting out historic interest rates. So far as relevant, the first revealed that during 1985, shortly before the judicial rate was increased from 12 per cent to 15 per cent, the minimum band 1 dealing rate fluctuated in the range of 11.375 per cent to 13.875 per cent. By late 1992 the rate was 6.875 per cent and in 1993 it was changed to 5.875 per cent on 26 January and to 5.375 per cent in November. Thus when the judicial rate was reduced to 8 per cent, that was in excess of 2 per cent over the minimum band 1 dealing rate. Between 2003 and October 2008 the Repo rate and then, when it was again renamed, the official bank rate fluctuated between 3.5 and 5.75 per cent. On 6 November 2008 it was reduced from 4.5 per cent to 3 per cent and on 4 December to 2 per cent. The descent to the historically low rates continued in 2009 with the official bank rate falling to 1.5 per cent on 8 January, 1 per cent on 5 February and 0.5 per cent on 5 March 2009, where it has remained thereafter. I will refer to those rates, howsoever named, as "the base rate".

[9] Turning to the Bank of England's table of interest rates of UK monetary financial institutions sterling instant access deposits from households, the agreed document revealed interest rates in the range between 0.76 per cent and 2.1 per cent between 2003 and 2006, with lower rates in 2003 (ranging between 0.76 and 1.08) and higher rates between 2005 and 2006 (ranging between 1.52 and 2.08). Between early 2007 and October 2008 there was a slight rise (with a range between 2.1 and 2.83). Thereafter there was a sharp fall to 0.15 per cent by February 2009, dipping to 0.12 per cent in March 2010; and it had not risen above 0.3 per cent by April 2011."

[5] The rate of 8 % per annum stated in the conclusion of the summons reflects rule 7.7 of the Rules of the Court of Session which states:

"Where interest is included in, or payable under, a decree, it shall be at the rate of 8% a year unless otherwise stated."

Earlier versions of the Rules of Court have contained, since at least 1969, a provision in similar terms apart from differences at various periods in the percentage rate. The rate so stipulated in the Rules of Court is the rate to which the Lord Ordinary refers as the "judicial rate". We shall again adopt the same term for that rate. The judicial rate of 8% per annum has applied since 1 April 1993. It was not in dispute before the Lord Ordinary that in awarding interest on damages prior to decree the practice of the court has been to proceed upon the judicial rate, making modification where the judicial rate changed during the relevant period or where losses - such as loss of earnings - accrued over time when a median rate might be adopted to reflect that accrual.

[6] As foreshadowed in the averments already quoted, counsel for the defenders contended before the Lord Ordinary that he should depart from the practice of the court. The impetus for the contention is the fact that, as the Lord Ordinary records and as is very well known, in consequence of the general financial crisis which emerged in the autumn of 2008, the base rate reduced in a number of steps from 4.5% per annum in early November 2008 to 0.5% per annum on 5 March 2009. Since that date the base rate has remained at that historically very low rate with consequent, broadly reflective, sharp reductions in the interest rates available to depositors. While the recent and continuing disparity between the judicial rate and interest rates more generally may no doubt have been the factor prompting the defenders to question the practice of applying the judicial rate, the defenders' contention before the Lord Ordinary and before us was advanced more broadly. Condensing yet further the summary given by the Lord Ordinary in his opinion, the position adopted by counsel for the defenders was that the principle underlying the awarding of interest was that of compensating the person entitled to the principal sum for the actual loss which he had incurred from having been kept out of payment of that sum. Thus, it was submitted, the court should select a rate of interest to compensate for the loss of the income which might have been generated by way of interest on the investment of that sum. Counsel therefore invited the Lord Ordinary to allow interest at the average of the rates available on instant access savings accounts between 31 December 2002 and the date of decree (which average counsel calculated as 1.36% per annum). Alternatively, counsel invited the Lord Ordinary to follow what was submitted to be the normal practice of the commercial and admiralty courts in the High Court in England and Wales of awarding interest at one percentage point above the base rate from time to time prevailing during the relevant period. That approach, it was submitted, might be seen as being more reflective of the view that account should be taken of the cost of borrowing, rather than loss of a return on funds invested. Irrespective of whichever of those approaches was appropriate, it should be open to the pursuing party to aver and prove circumstances peculiar to that party justifying a different, higher rate.

[7] While acknowledging both the general principle that the awarding of interest was intended to be compensatory and also the existence of an element of discretion in the making of an award of interest on damages, counsel for the pursuer exhorted the Lord Ordinary to follow the established practice and allow interest at the judicial rate for the whole of the period in question. Again, by way of further condensation of the submissions for the pursuers set out by the Lord Ordinary at paragraphs [13] to [15] of his opinion, there were no circumstances peculiar to the present case calling for a particular exercise of that discretion by departing from the general practice and approach. While the broad principle underlying the awarding of interest was compensatory, courts followed a broad brush approach. They sought to avoid the complication of an inquiry into the particular financial circumstances of the individual pursuer by adopting a normal rate (adjusted from time to time) which was "likely to do rough justice in most cases"
[1]. Recommendations for a change of law and practice from the use of a prescribed or stipulated rate to employment of a rate linked to the fluctuating base rate had been advanced by the Law Commissions in both jurisdictions in Great Britain but had either been rejected by government, or at least not taken up. At its recent meetings the Rules Council of the Court of Session had been alerted to the concerns among insurers and others about the disparity between the judicial rate and the base and other rates of interest; however, the Rules Council had decided to make no change. At each point at which the judicial rate had been altered in recent decades the altered rate had been above base rate by significant percentage points.

[8] In paragraphs [18] to [21] of his opinion the Lord Ordinary set out a succinct statement of the law and practice respecting the allowance of interest, particularly with reference to pre-decree awards of interest on damages following the innovation by the Interest on Damages Act (Scotland) 1958 and subsequent amendments to it. We did not understand either party to take issue with that statement. Thereafter, at paragraphs [23] to [25], the Lord Ordinary noted:

"
[23] There is a clear difference in the assumptions which lie behind (a) an award of interest as compensation for income forgone on funds spent on repairs and (b) an award of interest measured by a cost of borrowing to replace those funds. The former assumes that the pursuer has no borrowings to fund his general expenditure and thus is to be compensated for loss of the income he might have earned from those funds. While, absent a contractual entitlement, compound interest is prohibited in judicial awards, it is legitimate for the court to consider whether a set rate of simple interest provides adequate compensation in circumstances in which a pursuer in possession of the funds would have been able to have obtained compound interest in the market. This is an important consideration if many years have passed between the date on which the pursuer or claimant incurred the loss and the date of decree. I note that the Law Commission in its 2004 report (at paragraph 3.2) pointed out that a simple interest rate of 8 per cent would be the equivalent of a compound rate of 7 per cent after five years, and the equivalent of a 6 per cent compound rate after eleven years. It seems to me that historically the judicial interest rate has generally been above the return which most people can obtain on deposited funds, even on longer term deposits, and may have contained an element of protection against inflation which market rates often do not provide. The award of interest related to the cost of borrowing assumes that the pursuer will have to borrow to make up for the withheld funds. If one assumes that the typical pursuer funds part of his lifestyle or business through borrowing, the cost of further borrowing to make up for his disbursements on repairs may be a better measure of compensatory interest. It is well known that as a general rule a private individual or a small business entity pays more to borrow money than he or it could earn by lending it.

[24] The judicial rate has at best been an approximation of compensation for the loss of the income which the expended funds could have generated and has for several years exceeded what is readily available to the unsophisticated investor in the market. But an award of interest by reference to the rate available on instant access deposits would in my view amount to serious under-compensation in a context in which a pursuer has been involuntarily standing out of his money. The reasonably prudent pursuer, if he knew that he would have to wait several years before he could draw on his funds, would not be likely to invest in such an account. It seems to me that the court can properly take account retrospectively of the period between the date of the loss and the date of decree in its consideration of an appropriate rate or rates of interest. The general practice of the Commercial Court and the Admiralty Court in England and Wales in awarding interest at 1 per cent over base rate also is an approximation as many commercial borrowers would consider themselves very fortunate to be able to obtain funds at that rate.

[25] In both jurisdictions the courts have shown no appetite to complicate legal actions by attempting to calculate the value to the individual claimant of the monies withheld. Both have resorted to broad brush approximations. The difficulty which has arisen is that the market rates on most forms of deposit and on many forms of borrowing have moved so far from the judicial rate that the latter is not an approximation of the loss which pursuers have suffered from standing out of their money."

[9] The Lord Ordinary then stated, in our view correctly, that it was not within his power to award interest on a novel basis such as the rate of 1% above base rate. However he took the view that the discretion given to him under section 1 of the Interest on Damages (Scotland) Act 1958, as amended, - " the 1958 Act" -allowed him to take into account the clear mismatch between the judicial rate and market rates in recent years. Looking at matters broadly, the Lord Ordinary identified 4 December 2008 (when the bank rate fell to 2%) as the point in the rapid descent of base rate which represented a watershed, after which he might modify the prevailing judicial rate. The Lord Ordinary accordingly allowed interest on the principal sum at the rate of 8% per annum from 31 December 2002 to 4 December 2008 and at the lower rate of 4% per annum after 4 December 2008.

[10] Against that decision the defenders have reclaimed. The pursuers have cross-appealed as respects the rate of interest awarded for the period following 4 December 2008.

The parties' contentions

[11] Before this court counsel for the defenders and reclaimers adopted a broadly similar approach to that which had been adopted before the Lord Ordinary. Put shortly, counsel stressed the underlying principle that an award of interest was intended to be compensatory and not penal; it should neither penalise a defending party nor provide a bonus to the recipient of the damages. Accordingly, simply to apply interest at the judicial rate was not to work out and give proper effect to that principle. The interest thus awarded would not be consistent with the compensatory principle except by happenstance. The 1958 Act gave the court a discretion, which was to be exercised upon a discriminating and selective basis (Smith v Middleton 1972 SC 30). The practice in assessing interest on pre-decree losses of proceeding upon the judicial rate appeared to have stemmed from the decision of the Lord Ordinary (Emslie) in Smith v Middleton. It was however apparent that the judicial rate was there selected "for want of any other guide" (Lord Emslie, p.40). But that decision should not be given too much importance. Apart from the argument advanced in the Outer House in the cases of Boots the Chemist Limited v G.A. Estates Limited 1992 SC 485 and Tait v Campbell 2004 SLT 187 the practice of proceeding on the judicial rate had never really been challenged or put in question. Counsel contended that, in principle, it was for the pursuer to establish and prove the particular loss which he had suffered by reason of his having been wrongfully deprived of the principal sum during the period in question. However, counsel for the defenders also accepted that the courts required to have available a "default" approach, in order to reach an approximation of the loss so occasioned where a particular loss was not demonstrated. While junior counsel advanced to us the primary position adopted before the Lord Ordinary, namely that the default position should be the average of the interest rates available to a depositor on an instant access savings account, we understood senior counsel to contend for the alternative position offered by his junior of base rate from time to time prevailing plus one percentage point. (The two methodologies- average rate of interest, or base rate plus a percentage point as prevailing from time to time - are plainly rather different).

[12] That latter basis for the allowance of interest was the practice which had been developed in the High Court of England and Wales in its commercial and admiralty courts since the 1970s. Reference was made by counsel to the cases which had been put before the Lord Ordinary and are noted at paragraph [11] of the Lord Ordinary's opinion. But the practice had recently been followed in the Queen's Bench Division, in the technology and construction court, in Persimmon Homes (South Coast) Limited v Hall Aggregates (South Coast) Limited [2012] EWHC 2429 (TCC). The Court of Session should now adopt and follow that English practice and apply it in the present case. The only objections offered to that approach were practical ones; but there was no difficulty in getting access to historical base rates via the website of the Bank of England; or, in modern times, of making the appropriate calculations; and the so-called problems of predictability for a defender in making a tender were without substance.

[13] Counsel for the defenders also advanced an argument, which we think was not presented to the Lord Ordinary, to the effect that rule 7.7 of the Rules of the Court of Session had no application whatever to interest on pre-decree awards of damages. The rule applied only where the rate of interest was "unless otherwise stated". Since section 1(1) of the 1958 Act, as amended, required the rate of interest to be stipulated in the interlocutor the rule could therefore not apply to any award of interest on pre-decree damages. The court awarding damages had to assess interest on those damages in its full discretion. That required adherence to the compensatory principle. And this being a commercial action, adoption of the practice of the commercial court in the High Court England and Wales of applying base rate plus one percentage point should be followed.

[14] For their part, counsel for the pursuers submitted, in summary, that while in principle the awarding of interest was compensatory and not penal, the compensatory principle had always been applied in a very broad way, both pre- and post-decree, by reference to the judicial rate. While it was accepted that in awarding pre-decree interest the court exercised an element of discretion, in the absence of special circumstances peculiar to the case, that exercise should be conducted having regard to recognised practice. The Lord Ordinary was therefore wholly correct to reject the invitation to jettison the practice of the courts in Scotland in favour of a practice followed in only some of the courts in England and Wales. As was evident from paragraph 3.17 ff of the Law Commission's report on "Pre-judgment Interest on Debts and Damages" (Law Com No. 287), the position respecting the awarding of interest in England and Wales was incoherent. Even the practice of the commercial court in England and Wales to which counsel for the defenders had referred at length was now in doubt, following the financial crisis. In that regard reference was made to paragraph J14.1 of the 9^th edition of the "Admiralty and Commercial Courts Guide", approved for publication by the Lord Chief Justice and the Master of the Rolls, which stated that in "the light of recent interest rate developments there is no presumption that base rate plus 1% is the appropriate measure of a commercial rate of interest." It was not appropriate that this court should now adopt a novel basis respecting the award of interest, particularly when government had resolved not to proceed with the proposals in the Scottish Law Commission's report on "Interest on Debt and Damages".

[15] Counsel for the pursuers further stressed the importance of bearing in mind that this was a reclaiming motion against the exercise of the Lord Ordinary's discretion in the awarding of interest. It was therefore necessary for the defenders to show that in the exercise of that discretion the Lord Ordinary had paid regard to irrelevant factors or that his decision was "plainly wrong". Counsel pointed out that the Lord Ordinary had divided the period in question into two parts, the dividing date being 4 December 2008 (when the bank rate fell to 2% per annum). No basis had been offered for saying why it was wrong during those years preceding the financial crisis of the autumn of 2008 for the Lord Ordinary, in the exercise of his discretion, to have applied the judicial rate entirely in accordance with the then prevailing general practice. During that period, insofar as the judicial rate was higher than the base rate, that divergence did not materially alter from the divergence in 1993 when the judicial rate was fixed at 8%. Insofar as it might have been open to the Lord Ordinary in the exercise of his discretion to select a lower rate of interest for the period after 4 December 2008, it could not be said that the Lord Ordinary's selection of 4% per annum - even in the altered circumstances - was plainly penal and not generally compensatory. No expert evidence had been tendered respecting interest rates and the Lord Ordinary was therefore well entitled on the basis of such information as was before him to take that rate as a reasonable one consistent with the compensatory principle.

Discussion

[16] As already indicated, neither party took any issue respecting the soundness of the Lord Ordinary's summary of the law and existing practice in Scotland respecting the awarding of interest, particularly pre-decree interest. While it was accepted on both sides that in principle the allowance of interest was intended to be compensatory and not penal, it was also accepted that in practice courts (pace defender's counsel, at least as a default position) apply that principle in a broad way. In Scotland that broad way involves proceeding on a uniform basis in all ordinary civil proceedings (since similar interest rates are prescribed in sheriff court proceedings) by employing the judicial rate but making modifications for circumstances peculiar to the particular case. While it appears from the materials put before us that in England and Wales the practice varies, depending upon the particular court, or type of action, or practice of the court in a subclass of action, what was nevertheless followed was a broad brush approach and not a particular enquiry into the particular losses and hence the particular financial circumstances of the claimant. Thus from the various English materials to which we were referred, the courts in England and Wales do not follow the primary, principled approach advocated by counsel for the defenders of assessing the particular loss, whether by loss of investment income or expense of borrowing replacement funds actually incurred by the payee of the principal sum, but also proceed upon a broad brush, or as was put by counsel, a "default position", of applying a rate, whether it be base rate plus a specified percentage point; the rate prescribed under the Judgments Act 1838 (currently 8 % per annum); or a rate allowed on monies paid into court.

[17] Counsel for both sides were also agreed that a decision on the rate of interest on pre-decree damages involved an element of judicial discretion.

[18] Counsel for the defenders invoked that element, at least in part or tangentially, as a basis for contending that rule 7.7 of the Rules of the Court of Session had no application to the award of pre- decree interest on damages, since the terms of the statute required the court to specify the rate or rates in the interlocutor. We summarise that argument in paragraph [13] above. We do not consider that the ambit of the rule is confined to the situation in which an interlocutor awards interest from a given date but neglects to mention a rate. Plainly, it has guided the rate expressly stipulated in countless interlocutors decerning for payment of interest. Given that the awarding of interest is intended in principle to be compensatory we can see no reason why the judicial rate should not be seen as the guiding rate for both pre and post-decree interest. We therefore reject that argument.

[19] However, counsel for the defenders also appeared to invoke the existence of that judicial discretion in the selection of the modalités of an award of interest as enabling this court now to depart from its previous, accepted practice in favour of a practice which it was said had been adopted in the commercial court in the High Court in England and Wales. As against that, counsel for the pursuers emphasised the value of that discretion being exercised within the ambit of the well accepted and understood practice of the court.

[20] In his decision the Lord Ordinary, in recognition of his being vested with a degree of discretion, discriminated as between the periods before and after 4 December 2008. As already mentioned, that was the date which he identified as appropriately marking the rapid fall in base rate following the commencement of the financial crisis in the autumn of 2008. No criticism was made of his selection of that date as a date representing a divide between pre- and post-crisis interest rates.

[21] We find it convenient likewise to consider discretely the two periods so identified by the Lord Ordinary. As counsel for the pursuers pointed out, while in the period up to the autumn of 2008 there were, of course, changes in the base rate these did not result in any significant divergence from the margin between the base rate and the judicial rate which had existed when the judicial rate was fixed at 8% per annum in 1993, the base rate then being 5.875% per annum. The fact that the judicial rate was fixed as a rate higher than the base rate in 1993 by some 2.125 percentage points does not, of course, mean that the former is other than compensatory in a broad sense. The reaching of a broad brush, but compensatory, rate will involve compromise between the possible measures of (a) the loss of investment interest and (b) the cost of borrowing, discussed by the Lord Ordinary in the passages in his Opinion, to which we have referred. As respects this period (prior to 4 December 2008) we therefore consider that it is not possible to say that the Lord Ordinary, in the exercise of his discretion, was plainly wrong or had regard to any extraneous or irrelevant factors. There were no circumstances special to this case which called for any modification of the general practice of the court, which was broadly consistent with the compensatory nature of the underlying principle in the period up to December 2008.

[22] Likewise we do not consider that this Division of the Inner House should similarly, for that period, retroactively depart from settled practice and adopt, with retroactive effect, a new practice, purporting to follow what is now not evidently a clear or consistent practice in the admiralty and commercial courts in the High Court in England and Wales.

[23] Even if, as a Division of the Inner House we had the power to do so, we would not favour the exercise of that power in the manner, or manners, invited by counsel for the defenders.

[24] First, it has to be emphasised that the law and practice in England and Wales on the allowance of interest has itself been subject to considerable criticism. Our attention was drawn to the passage in paragraph 15-106 in McGregor on Damages in which, having noted the variety of rates prevailing in civil proceedings in England and Wales, the author says:

"Yet there is no rational distinction to be found between the various rates. They are all intended to achieve the same purpose which is to compensate the claimant who has kept out of his money. Moreover, the uncertainty about which rate will be chosen in a particular case is unhealthy. Thus personal injury cases today have been encountered in which the defendant has argued for the special investment account rate when standing at 6%, the claimant for the higher judgment debt rate then standing at 8%, and the trial judge, unsure of the true position, simply split the difference. Such a result is most unsatisfactory; one simply does not know where one is."

Those criticisms were largely endorsed by the Law Commission in England and Wales. It hardly seems appropriate that in this reclaiming motion we should retroactively jettison settled practice in favour of a regime described by others as incoherent. While counsel for the defenders stressed the commercial nature of the current action we have to bear in mind that our practice in Scotland has not distinguished - in its broad approach to the awarding of interest - between cases of a commercial nature and any other precatory claims. To dictate a new (but also retroactive) policy for cases which might be described as "commercial", would nonetheless carry implications for cases otherwise catalogued; and we would add, for the allowance of post-decree interest as well as pre-decree interest.

[25] Secondly, the law relating to the allowance of interest was extensively reviewed by the Scottish Law Commission in its report in 2006 on "Interest on Debt and Damages" (Scot Law Com No.203). The Scottish Government undertook further consultation, including the publication of a consultative draft Bill, but thereafter proceeded no further. Reform of the law and practice of interest on debt and damages is thus a matter considered, but not taken up, by government in recent times. In these circumstances we do not consider that it would be appropriate for this court to proceed to innovate retroactively by what would be, at least arguably, in large measure a judicial and retroactive legislative implementation of measures along the lines of recommendations from the Scottish Law Commission which government is as yet unwilling to adopt.

[26] For those reasons, so far as the period to 4 December 2008 is concerned, we have come to the view that the reclaiming motion must fail.

[27] We turn now to the later period, after 4 December 2008, in respect of which the Lord Ordinary allowed interest at the rate of 4% per annum. In advancing their principal contentions the defenders and reclaimers did not distinguish this period from the earlier period to 4 December 2008. Given the nature of the reasons for which we have reached the view that we should not now adopt a change to the law and practice in this jurisdiction of proceeding upon the judicial rate by adopting instead a practice followed, at least until recently, by some courts in England and Wales, that rejection must apply also as respects this later period. Moreover, in so far as the Lord Ordinary selected the lower rate of 4% per annum we find ample force in the submission made by counsel for the pursuers and respondents that in the absence of any other detailed expert evidence it was impossible to say that the Lord Ordinary's adoption of that rate had plainly breached the compensatory principle for which the defenders contended.

[28] We have therefore come to the view that the reclaiming motion must be refused.

[29] There remains the cross- appeal respecting the Lord Ordinary's selection of 4% per annum for the period after 4 December 2008, the contention being that the Lord Ordinary ought to have stuck to the judicial rate of 8% per annum notwithstanding the obvious problem presented by the clear mismatch which the Lord Ordinary identified between that judicial rate and market rates generally after December 2008. In the event, the cross -appeal was not strongly advanced, senior counsel for the pursuer simply adopting his junior's submissions, which in turn were not advanced with any notable enthusiasm.

[30] That said, we have not found the cross -appeal to be wholly free from intellectual difficulty. In a certain sense, the logical approach would be that adherence to prevailing practice and the continued maintenance of the judicial rate at 8% indicated that the Lord Ordinary should not have made the distinction which he did. However, the Lord Ordinary was rightly concerned about the mismatch between the judicial rate and market rate which had emerged and persisted following the financial crisis in the autumn of 2008. Given that the Lord Ordinary was faced with a disputed question of the allowance of interest on a substantial principal sum, which had been outstanding for many years, we have ultimately come to the conclusion that his decision to have regard to the collapse in interest rates following the financial crisis cannot be said to be an irrelevant factor to the overall exercise of his discretion within the ambit of existing practice. In these circumstances we consider that the cross- appeal should also be refused. We therefore adhere to the decision of the Lord Ordinary.

[31] We would add that in our view it is plain that the mismatch between the judicial rate and interest rates prevailing in the financial world which has existed following the crisis of 2008 is a matter of concern. In the absence of a wider reaching reform of the law relating to the awarding of interest such as that canvassed by the Scottish Law Commission in its report, (which must be a matter for the Scottish Government and the Scottish Parliament), the responsibility for updating the current judicial rate, to meet that mismatch, falls to the Rules Council. It is for that council to consider - we would suggest urgently - the clear mismatch identified by the Lord Ordinary, which we ourselves would endorse, and which is widely recognised by all engaged in litigation before this court. For our part, having had the benefit of having had a perhaps wider examination of the law and practice in England and Wales than may have been available to the members of the council, we would, with great respect, suggest that in deciding upon a judicial rate applicable in civil proceedings in Scotland, the council should not feel inevitably thirled to the Judgments Act rate applied in some courts in England and Wales.