Scottish Law Commission (Discussion Papers)

 


Part 2      The Present Law

Interest on debt

Historical background

2.1      The origins of the rules of Scots law relating to interest lie in the Canon law prohibition of usury. Prior to the Reformation the taking of interest for the use of money was at best unenforceable and at worst a criminal offence.^[1] By the 14^th century, however, methods had been found of obtaining interest on money lent. The most common was a bond of annualrent,^[2] whereby a right to the whole or part of the income from a debtor's lands was granted to a creditor as a means of repaying a loan or of paying interest upon it.^[3] After the Reformation, attitudes to the charging of interest relaxed and instead attention became focused upon the demanding of exorbitant rates of interest. The Usury Act 1587^[4] stated that any person taking interest at more than 10% would be punished as a usurer "according to the existing laws". Further Acts of 1594 and 1597^[5] clarified this to mean that the penalties for demanding interest at a rate in excess of 10%^[6] would be (i) unenforceability of the claim for interest, (ii) discharge of any loan or security, and (iii) confiscation of the lender's moveable goods and gear. By the time Stair wrote in 1681, contracts were described as "usurary" only where the interest charged was unlawful or exorbitant.^[7]
2.2      The Usury Acts were concerned with interest payable in pursuance of an agreement between debtor and creditor. Before the end of the 16^th century there had also appeared the first example of interest being made payable as a matter of law without having been specified in the parties' agreement. An Act of Sederunt of 1590 directed that annualrent would be payable to a cautioner by the principal debtor from the date when the cautioner made payment to the creditor.^[8] Another Act of Sederunt to the same effect was made in 1610.^[9] During the 17^th century there were further legislative interventions to impose a charge of interest in certain circumstances: on foreign bills of exchange which were dishonoured^[10] and subsequently on inland bills;^[11] on debts in respect of which the debtor had been denounced by horning;^[12] and on factors on sequestrated estates who received rents but had not distributed the estate within one year.^[13]
2.3      As attitudes to usury changed, the courts began to hold that interest was due in a variety of circumstances where there was neither contractual stipulation nor express statutory entitlement. A series of cases established the principle that where a purchaser of land took possession without paying the price, interest was due from the date of entry.^[14] In three other cases^[15] the purchaser took entry but refused to pay the price because the seller could not deliver the whole titles to him. It was held in each case that the purchaser must pay either interest on the price or the profit of the lands, at his option. This principle was extended to apply more generally in circumstances where a person received monies belonging to another, interest being held to run from the time when the monies were received.^[16] At the same time a parallel principle developed, analogous to the statutory right accorded to cautioners, that a person who paid a sum of money on behalf of another was entitled not only to reimbursement of the sum paid but also to interest from the date of payment.^[17]
2.4      With regard to loans of money, it took some time for any presumption to emerge that interest was due though not stipulated for by the lender. Early cases found that payment of interest over a period of years constituted sufficient reason for the obligation to pay to continue so long as the principal remained outstanding,^[18] but in other cases interest was refused in absence of express agreement.^[19] Writing in the middle of the 18^th century, Erskine makes no reference to a legal implication that interest was payable on loans. Bell, however, was able to state^[20] that "the doctrine is gradually extending, so as to recognise a claim of interest in all cases of loan and debt in which one enjoys the use of money belonging to another". The case cited by Bell in support of this proposition is Garthland's Trs v McDowell.^[21] Sums of money had been remitted over a period of years by an individual in India to his brother in Scotland who was in financial difficulty. In an action raised after the death of both brothers, it was held that the sums had been paid by way of loan and not donation, and that they carried interest from the respective dates of payment.^[22] The report of the arguments presented for and against the allowance of interest affords a useful illustration of the stage of development of the law at that time. The debtor's representatives argued:

"That, by the rules of law, and principles of justice, it was impossible to give effect to the claim for interest. No doubt the ancient rules of law, with regard to interest, are somewhat relaxed in modern practice, but still interest does not follow as a matter of course because a debt is due. …However equitable the claim for interest may be, it will be awarded only, if due, by paction, express or implied, or by law or usage."

The creditor's representatives argued:

"The ancient notions relative to interest have yielded to more improved and rational views, as money now produces its fruits as well and certainly as lands and houses. …Our courts have gradually more and more recognised the doctrine, that the person who has the use of another man's money must pay for it. Whether the party is a borrower, or, though not strictly a debtor, enjoys the use of money belonging to another, justice requires that a fair remuneration should be made."

The report unfortunately does not record the court's reasons for deciding that interest was due. The creditor's argument seems to have been more widely stated than was necessary for the circumstances of the case.

2.5      Although there were subsequent decisions finding interest due on sums advanced,^[23] there was no explicit judicial statement of Bell's "doctrine", as regards loans, until 1861 when Lord Justice Clerk Inglis stated:^[24]

"It admits of no doubt, that an acknowledgement of money generally presumes that the money was advanced in loan, and it follows that there is, first, an obligation on the party granting it instantly to repay the sum; and secondly, another obligation that, so long as the sum remains unpaid, the party shall pay legal interest. The acknowledgement itself does not express these obligations; but these are obligations which result in law from the loan. This is the general case."

In Blair's Trs v Payne^[25] it was regarded as settled law that loans of money as a matter of legal implication, where the contrary is not stipulated, bore interest as if there had been an express provision to this effect.^[26] The legal implication was still capable of being overcome by proof of circumstances indicating absence of an intention to charge interest.^[27]

2.6      Another line of judicial development which has had enduring consequences concerned entitlement to interest on a trade or professional account. There are references in three 18^th century cases^[28] to a custom that tradesmen operating an open account were entitled to interest after expiry of one year from the date of the last article of the account. This entitlement was extended to professional accounts,^[29] although by 1837 there was no "general and inflexible rule" that interest was due on a trade or professional account from any particular date.^[30] This remained the position in 1884 when the court decided Blair's Trs v Payne,^[31] the case in which the law regarding interest received its most detailed judicial examination to date and in which the principles which remain applicable today were enunciated. The "one year" rule was referred to by Lord Fraser^[32] as "the old rule".
2.7      Against this background of fragmented development, it is not surprising that the Institutional writers found it difficult to achieve a satisfactory categorisation of entitlement to interest. Stair^[33] deals in turn with the statutory provisions restricting contractual entitlement to interest and with circumstances in which interest falls due by law or otherwise "without paction", but attempts no categorisation. Erskine begins with the general statement^[34] that "interest is the profit due by the debtor of a sum of money to the creditor for the use of it", but his treatment of the subject betrays its piecemeal development. Having asserted that Scots law, unlike Roman law, does not recognise an entitlement to interest ex mora, but only ex lege or ex pacto, he divides entitlement ex lege into (i) entitlement by statute or act of sederunt and (ii) entitlement "from the nature of the transaction". This latter category encompasses many of the judicial developments discussed above, including, in particular, the right to reimbursement, with interest, of one who pays a sum of money on behalf of another. In this latter context, Erskine states^[35] that "by analogy, interest has been found due nomine damni, on a debt payable on demand, from the citation against the debtor in an action for payment, which is equivalent to a demand": one of the earliest references to interest running from the date of citation.^[36] Interest ex pacto may arise from either express or implied agreement, although the only example of implied agreement given by Erskine is that a promise to pay interest accrued to date implies a general promise to continue to pay so long as the debt remains outstanding.
2.8      Bell took a different approach, classifying interest as falling due nomine damni, from statute, or from contract, express or implied.^[37] His category of implied contract includes most of the case law dealt with by Erskine as examples of entitlement to interest arising ex lege "from the nature of the transaction". Although Bell's implied term analysis may be a convenient way to view these examples, there is little support for it in the reports of the cases themselves.
2.9      It is therefore easy to agree with the observations made by the court in Blair's Trs v Payne^[38] that "nothing can be conceived as less amenable to a settled general principle than our law upon a creditor's right to interest";^[39] and that "claims for interest cannot be brought under any general rule".^[40]

Foundations of the modern law

2.10      The modern law of interest, except in so far as it has been altered by statutory intervention, is founded largely upon dicta pronounced in two cases: Carmichael v Caledonian Railway Co^[41] and Blair's Trs v Payne.^[42] Carmichael concerned the amount of compensation payable to a landowner by a railway company, which had acquired land by compulsory purchase, for being prevented from quarrying stone within the railway boundary. The relevant special Act of Parliament specified a method for determining compensation by reference to the value of stone opposite a face of rock worked up to the boundary. The conditions for entitlement to compensation were fulfilled in 1852, but it was not until 1864 that the parties applied to the sheriff, in accordance with the specified procedure, to summon a jury and fix the amount of compensation. The proprietor of the land obtained decree from the Court of Session for the sum fixed by the jury, together with interest since 1852, and the railway company appealed on the question of entitlement to interest. The House of Lords held by a majority that the court had had no jurisdiction to award interest. In the course of his speech, Lord Westbury made the following observation which, given the ratio of the decision, was clearly obiter:^[43]

"Interest can be demanded only in virtue of a contract, express or implied, or by virtue of the principal sum of money having been wrongfully withheld, and not paid on the day when it ought to have been paid."

In a dissenting speech the only Scottish judge sitting, Lord Colonsay,^[44] took the opposite view, agreeing with the course adopted in the courts below:

"It does not require a special contract for it in order to make interest due, nor does it require that there be any clear culpa or blame on the part of the person who has not paid the price at the proper date; as, for instance, the vendor may not be in condition to give a clear title, but the purchaser may have been put in possession of the property purchased."

Lord Westbury's view has however prevailed and his reference to a principal sum of money having been "wrongfully withheld" has formed the foundation of much of the subsequent law on entitlement to interest.

2.11      The main point at issue in Blair's Trs v Payne^[45] was whether interest was chargeable on the professional fees of a law agent who had died without rendering an account for work carried out over a period of years. It is important to note that in this case no account at all was presented by the law agent's representatives until after commencement of judicial proceedings in the form of a multiplepoinding. Lord Craighill, with whom Lord Rutherfurd Clark concurred, decided the case on the basis that interest could not run on an open account until the account had been rendered because, until then, it could not be said that payment had been asked or could be expected.^[46] The majority of the court^[47] thus found it unnecessary to consider the question whether, prior to commencement of legal proceedings, interest would run from the date of rendering an account. Lord Fraser went further, however, and considered the effect of rendering an account, expressing the following view:^[48]

"In my opinion no interest ought to be allowed on such claims on open account, except when there is a judicial demand, or some such intimation given in writing as is required by the English statute, viz., that interest will be claimed from the date of the demand. In such a case the Court would in its discretion allow interest prior to the period of citation."

Earlier in his opinion, Lord Fraser had cited Lord Westbury's dictum in Carmichael v Caledonian Railway Co, with apparent approval, as support for the proposition that the mere fact of delay in payment after payment could have been made or had been demanded would not necessarily ground a claim for interest.

2.12      Lord Fraser's opinion received no express support from any other member of the court and was, moreover, stated in the specific context of an open or current account. It is debatable whether it was an accurate statement of the law as it stood at the time when Blair's Trs v Payne was decided, at least as regards debts other than on open accounts. Nine years later Lord Shand, sitting in an English House of Lords appeal, observed:^[49]

"…In [Scotland] it is the common and ordinary practice, in bringing an action for money which is due, to conclude not only for the payment of that money but for the payment of interest upon it from the date of citation or service of the summons, and interest is decreed as a matter of course on whatever balance is found to be due. I may even say that it is a rule which has received general effect, that where money is shewn to have been due and to have been demanded, interest runs if the demand or request of payment is not acceded to. That is the case, even although too large a sum may have been demanded. If it be found that a sum short of what was demanded is due, still the law gives interest unless the amount really due has been tendered. It is not necessary that an intimation must be made that interest will be demanded in order that interest shall run…"

Lord Shand's view finds some support in the earlier case of Forrest & Barr v Henderson,^[50] in which the Court declined to interfere with the verdict of a jury awarding interest from a date four years prior to the raising of a court action. Nevertheless, it is Lord Fraser's formulation which has regularly received judicial approval.

2.13      Lord Westbury's criterion of wrongful withholding came to be regarded as a statement of the general principle according to Scots law.^[51] It was reconciled with Lord Fraser's opinion in Blair's Trs v Payne on the basis that as a general rule money is not wrongfully withheld unless and until a judicial demand for payment has been made: ie an action has been raised, at which time wrongful withholding begins.^[52] This general rule was subject to the exception stated by Lord Fraser, namely where intimation was given in writing that interest would be payable from the date of demand.^[53] Much of the 20^th century case law was concerned to define with some particularity the circumstances in which money may or may not be said to be wrongfully withheld.^[54]
2.14      The case law referred to above developed without recourse to the notion of an implied contractual term that interest would begin to run from a particular time. Even in the case of interest on loans and cash advances the language used is that of legal presumption rather than implication of a contractual term.^[55] Similarly, the allowance of interest to a seller who has granted possession to the purchaser without receipt of the purchase price is justified by application of equitable principles rather than by an implied term.^[56] There is, however, one instance of implication of a term being used as justification for an award of interest in circumstances where the court clearly regarded it as equitable to make an award. In Haddon's Exx v Scottish Milk Marketing Board,^[57] a levy was paid to the Board under protest (in order to avoid legal action being taken against Colonel Haddon), pending the outcome of a litigation between the Board and another party. The levy was subsequently found not to have been due and was repaid. It was held that the agreement whereby the sum was paid was subject to an implied term that not only the principal sum but also interest would be paid if it turned out to have been paid in error. The court expressly distinguished this situation from that of wrongful withholding. Entitlement to interest by implied term thus survived as an alternative to entitlement by virtue of wrongful withholding. In a different context, implication of a contractual term has more recently been used as the basis for entitlement to statutory interest under the Late Payment of Commercial Debts (Interest) Act 1998.^[58]

Summary of the present law

2.15      As discussed above, the law of Scotland in relation to interest on debt has evolved in a piecemeal fashion and without any general underlying principle. The best that can presently be done is to state the various categories of circumstances in which a sum owed by one person to another will carry interest. These are reasonably clear and are as follows: interest may be due on a debt

(a) by agreement between the parties;

(b) by express statutory provision;

(c) by implication at common law; or

(d) by virtue of a principal sum being wrongfully withheld.

Where no rate has been specified by the parties or by a relevant statutory provision, interest will run at the judicial rate.

(a) Interest due by agreement

2.16      In general it is open to the parties to a contract expressly to agree that interest will be payable in particular circumstances, at a particular rate and during a particular period.^[59] The parties may agree that interest will be at a fluctuating rate and that it be compounded at specified intervals. The law will intervene if the rate demanded is exorbitant^[60] or is unenforceable at common law as being in the nature of a penalty clause.^[61] An obligation to pay interest may be implied as a term of a contract (subject to meeting the usual common law tests for implication of contractual terms), but there have been few cases in which such an implied term has been held to exist.^[62]

(b) Interest due by statute

2.17      A large number of statutory provisions impose an obligation to pay interest on debts. Some of these debts arise out of contract or breach of contract, others do not.^[63] Some affect relationships between private persons; others are concerned rather with payments due to an individual by local or central government, or vice versa. Those concerned with payments due by one private person to another include the following:

•    Where a bill is dishonoured, a person paying who has a right of recovery may recover "as damages" the amount of the bill plus interest from the time of presentment for payment, if payable on demand, or, in any other case, from maturity.^[64] No rate of interest is specified. Interest may be withheld "if justice require it";^[65]

•    A partner who makes an advance to the firm beyond the capital which he has agreed to subscribe is entitled to interest at 5% per annum from the date of the advance.^[66] An outgoing partner is entitled at his option to a share of profits attributable to the continuing partners' use of his share of the assets, or to interest on his share of the assets at 5% per annum.^[67]

•    Where a trustee advances a sum improperly on inadequate security, he is liable to make good the sum advanced in excess of what would have been a proper investment, with interest.^[68] No rate of interest is specified.

•    Under the standard conditions of a standard security, a creditor who performs a debtor's obligation is entitled to recover expenses and charges (including interest) reasonably incurred. Interest is due at the rate at which advances are secured under the standard security, or at the "bank rate" if none is specified.^[69]

•    A liability to pay interest may be incurred in various circumstances in relation to the allotment of shares in a company.^[70]

•    Where there are sufficient funds, interest is payable on a bankrupt's debts from the date of sequestration, at the higher of the judicial rate or the rate which would have been applicable to the debt but for the sequestration.^[71]

•    Where an officer or liquidator of a company has misused company funds and requires to make a payment to the company, interest is payable at such rate as the court thinks just.^[72]

•    Interest is due on sums paid or repaid under earnings arrestments and current maintenance arrestments at the rate applicable to sheriff court decrees.^[73]

•    Where funds of an incapable adult held under a fiduciary duty are misused, interest is payable at the rate applicable to sheriff court decrees.^[74]

Examples of interest due by local or central government include the following:

•    Interest is payable on compensation payable under various statutes for compulsory purchase or lesser interferences with property rights, from specified dates until payment;^[75]

•    Compound interest is payable on a variety of payments due under public sector pension schemes.

Examples of interest due to local or central government include the following:

•    Interest is due on unpaid taxes and duties;^[76]

•    A large number of statutory instruments provide for overpayments of agricultural and other grants and subsidies to be repaid, with interest at a rate 1% above the LIBOR (London Inter-Bank Offer Rate) in force during the period in question.

2.18      More recently, the Late Payment of Commercial Debts (Interest) Act 1998^[77] has provided a general entitlement to interest in the event of late payment of certain commercial debts. The Act applies to contracts for the supply of goods and services where the purchaser and the supplier are each acting in the course of a business.^[78] All contracts to which the Act applies include an implied term that debts created by the contract will carry "statutory interest",^[79] ie simple interest at a specified rate which is set high to act as a deterrent to late payment of debts.^[80] Interest begins to run on the date agreed by the parties for payment of the debt or, failing agreement, 30 days after

(a) the date when the obligation to which the debt relates is performed; or

(b) the day on which the purchaser has notice of the amount claimed,

whichever is the later.^[81] Special provision is made for advance payments.^[82] Entitlement to "statutory interest" under the 1998 Act is overridden by an entitlement to interest under any other enactment or rule of law,^[83] or by an alternative contractual term affording the supplier a "substantial contractual remedy" for late payment.^[84] The court has power to remit statutory interest for the whole or part of the period for which it would otherwise run or to order it to run at a reduced rate, if "the interests of justice" so require.^[85]

(c) Interest due by implication at common law

2.19      Three broad sets of circumstances may be identified where entitlement to interest is implied at common law, ie it is said to be due ex lege but without any express statutory provision. These are:

(i) loans of money;

(ii) possession of heritable property by a purchaser without payment of the purchase price; and

(iii) use of funds belonging to another person.

2.20      Loans. There is a presumption that where money is advanced on loan, interest is payable from the time when the loan was made until the date of repayment.^[86] The presumption may be rebutted by circumstances demonstrating that the parties did not intend interest to be payable although, even in cases concerning loans between close relatives, the court has sometimes been reluctant to find the general rule displaced.^[87] As regards the rate of interest, it was formerly the case that interest would run at the "legal rate",^[88] but that expression is no longer recognised as having any meaning.^[89] In Neilson v Stewart,^[90] Lord President Hope stated in the Inner House that where no rate of interest is stipulated on a loan, the court will normally award interest at the judicial rate for the time being.^[91] The presumption does not apply to an IOU because it cannot be said that the granting of an IOU necessarily implies a loan of money; it may vouch a different type of debt. Accordingly, unless the IOU can be proved to vouch a loan, interest does not run until the date of judicial demand.^[92]
2.21      Possession of heritable property without payment. It has long been established that where the purchaser of heritable property takes possession without paying the price, interest is due by legal implication from the date when possession is taken until payment.^[93] The fact that the purchaser has good reason for withholding payment, for example because the seller is unable to produce a marketable title, does not prevent interest from running.^[94] The case law does not make clear whether the entitlement to interest is properly to be regarded as a return by the purchaser (equivalent to rental) for having the use of the property,^[95] or as compensation to the seller for not having received the price.^[96] Although Bell^[97] treated this principle as applying to heritable and moveable property alike, there is no direct authority for applying the principle to moveable property.^[98]
2.22      Use of funds belonging to another. Where a person holds funds in respect of which he has an obligation to account to another person, he will normally be liable to account also for interest which has accrued on the principal during the period for which the funds were held. In older cases, interest was held to be due by a wife who intromitted with her late husband's estate,^[99] on arrears of a child's aliment,^[100] on sums held by the factor of a landed estate who placed funds in his own bank account,^[101] and, more generally, where a person has in his hands another person's money which is recoverable by repetition.^[102] Trustees are bound to invest trust funds in their hands and, if they fail to do so, will be held liable for the interest which the funds would have earned if properly invested.^[103] A more recent example of the principle is to be found in the case of Drummond v Law Society of Scotland^[104] in which it was held that where counsel's legal aid fees were acknowledged to be due and payable but for administrative convenience were not paid immediately, interest was due ex lege from the date when they were acknowledged to be due.

(d) Interest due on money wrongfully withheld

2.23      In addition to all of the above categories, interest can be demanded "…by virtue of the principal sum of money having been wrongfully withheld and not paid on the day when it ought to have been paid".^[105] Contrary to first impression, this dictum does not confer upon the courts a broad discretion to assess whether or not a sum of money has been wrongfully withheld. The general rule is that money is not wrongfully withheld unless and until a judicial demand for payment has been made^[106] and, accordingly, interest will normally run from the date of citation.^[107] The rule has not always been regarded as invariable. In many cases, the task faced by the court has been to attempt to identify a time from which money could be said to have been wrongfully withheld. The results have not been consistent. In some cases, it has been accepted by the court that interest could not begin to run until the amount due has been agreed by the parties, or certified by an architect, or ascertained by a third party such as an arbiter;^[108] in others, that even when the amount claimed was thus ascertained, interest could not begin to run until the date of citation.^[109] On the other hand, it has sometimes been accepted that interest might, depending upon the whole circumstances of the case, begin to run before the date of citation.^[110] The latter decisions are difficult to reconcile with the opinion of the court in Dean Warwick Ltd v Borthwick,^[111] in which it was stated in forthright terms that

"There is here a rule of law, a rule that interest runs from citation, and one which does not admit of modification by the exercise of judicial discretion. The pursuer, ex hypothesi of the court's decree, has been deprived of the use and fruit of the sum for which decree has been granted during the period of non-payment, ie since the formal judicial demand was made, while conversely the defender wrongfully has enjoyed that use and fruit."

There is a further exception in relation to open, ie running or current, accounts, noted by Lord Fraser in Blair's Trs v Payne, namely where intimation has been given in writing that interest shall henceforth be payable.^[112]

Interest on damages

Historical background

2.24      The law regarding entitlement to interest on damages developed in parallel with interest on debt until interest on damages was subject to statutory interventions in 1958 and 1971. At first no reference was made in the case law to wrongful withholding as a criterion, but the underlying rationale behind the decisions seems to have been the same: interest did not begin to run until the claim had been liquidated, usually by application of the verdict of a jury. The earliest clear statement of the general rule was in Flensburg Steam Shipping Co v Seligmann:^[113]

"The rule that interest does not run on damages is well fixed. The damages are not liquidated till after the verdict. It certainly is not usual that interest should run on damages even from the date of the verdict, because, until the verdict is applied it is not final; therefore it is only from the date of the application of the verdict that interest properly runs."

In this case, however, the application of the verdict was delayed by the defender's dilatory tactics and interest was allowed from the date when the verdict ought to have been applied.^[114] By 1955, the general rule could be stated as being that interest did not run on a jury award until the verdict was applied unless the delay was attributable to improper proceedings on the part of the defender.^[115] It was not improper merely to seek a new trial, or, where damages were awarded by a judge sitting without a jury, to reclaim. So where an interlocutor applying a jury award was reclaimed unsuccessfully, interest would not run until the verdict was applied following refusal of the reclaiming motion.^[116] There were occasional dicta to the effect that the general rule was not absolute and inflexible.^[117] Indeed, the courts sometimes seem to have exercised ingenuity in order to avoid the rule.^[118] There was a specific exception in admiralty practice that interest ran from the date of a collision until the date when a limitation fund was paid into court.^[119]

2.25      Eventually the language of "wrongful withholding" began to find its way into decisions on claims for interest on damages. In A S Kolbin & Sons v Kinnear & Co,^[120] a firm of shipping agents had handed over a cargo of flax and tow to a third party without obtaining a bill of lading or a guarantee in favour of the owner of the goods. The flax and tow was requisitioned by the War Office and the price paid to the third party who afterwards became bankrupt. The owner successfully sued the shipping agents for loss caused by their negligence in handing over the goods without security. In the Court of Session interest was awarded from the date when the third party received the balance of the price from the War Office in exchange for a delivery order for the goods. This was reversed by the House of Lords because the shipping agents had neither received the money nor become entitled to receive it. Lord Atkin stated:^[121]

"It seems to be established that, by Scots law, a pursuer may recover interest by way of damages where he is deprived of an interest-bearing security or a profit-producing chattel, but otherwise, speaking generally, he will only recover interest, apart from contract, by virtue of a principal sum having been wrongfully withheld and not paid on the day when it ought to be paid – Carmichael v Caledonian Railway Co."

It is difficult to find support in previous authorities for any part of this statement in so far as interest on damages is concerned. There is none in the authorities to which reference was made in argument before the House of Lords.^[122] As noted above, the circumstances in which interest on damages would be awarded at any time prior to the date of decree were exceptional. In a later case,^[123] Lord Atkin dealt with an argument regarding interest on damages without any reference to wrongful withholding. However, the test of wrongful withholding was applied in an action for damages for breach of contract by the House of Lords in FW Green & Co Ltd v Brown & Gracie Ltd.^[124] Lord Keith of Avonholm considered that quantification of damages would generally fix the earliest date from which interest could reasonably be taken to run and that that would usually coincide with the date of decree. Where, however, there was a frivolous defence or an unjustified appeal or other obstructive procedure designed to hold up payment, that might constitute wrongful withholding. Interest from the date of citation was refused.

Statutory interventions

2.26      By the time of the decision in F W Green & Co Ltd v Brown & Gracie Ltd, the law regarding interest on damages had been amended by statute. Section 1 of the Interest on Damages (Scotland) Act 1958 (following a recommendation of the Law Reform Committee for Scotland^[125]) gave the court a discretion, in any action for damages, to award interest from a date not earlier than the date of citation "if the circumstances warrant such a course". Existing rules of law permitting the running of interest were unaffected and the Act was not to be interpreted as authorising "the granting of interest upon interest".^[126]
2.27      Judicial reaction to the 1958 Act was conservative. In Macrae v Reed and Mallik Ltd,^[127] the first reported decision in which the Act was given detailed consideration, it was observed that section 1 of the Act required to be applied to each head of damage in a selective manner. The majority of the court held that the purpose of the Act was limited to allowing interest to be awarded on readily quantifiable elements of the pursuer's claim, such as past wage loss, for the period during which he was being deprived of it by the progress of the litigation. Perhaps influenced by the views of the Law Reform Committee, Lord Strachan considered^[128] that the Act was primarily passed to deal with the wrongful withholding of money by a frivolous defence or unjustifiable appeal, as described by Lord Keith of Avonholm in F W Green & Co Ltd v Brown & Gracie Ltd. Only Lord Justice Clerk Thomson was prepared to interpret the Act as permitting interest to be awarded also on illiquid claims, notably solatium, for a period prior to the date of decree. The continuing influence of Carmichael v Caledonian Railway Co is plain from the terms of the opinions delivered. Macrae v Reed and Mallik set the ground rules for the cases which followed. Provided the quantum of a head of loss was capable of ascertainment prior to the raising of the action, interest would be awarded from the date of citation,^[129] but no interest was awarded on solatium prior to the date of decree.^[130]
2.28      In 1971 Parliament intervened again. Section 1 of the 1958 Act was repealed by the Interest on Damages (Scotland) Act 1971, and replaced by:

•    a new subsection 1(1) which granted a discretion to the court to award interest on damages, or any part thereof, for any period from "the date when the right of action arose"; and

•    a new subsection 1(1A) which, as regards damages and solatium for personal injury, directed the court to exercise the discretion in subsection 1(1) by awarding interest on the damages or solatium unless there were reasons special to the case why no interest should be awarded;

•    a new subsection 1(1B) which declared for the avoidance of doubt that a tender was to be taken to be in full satisfaction of interest awarded under the Act unless it stated otherwise.^[131]

2.29      The reaction of the court to the amended provisions in personal injury actions was, to say the least, unfavourable.^[132] A particular problem identified was the application of the Act to a jury award which, according to the practice at that time, was in the form of a lump sum. One Lord Ordinary went so far as to refuse to send any personal injury cases for jury trial on the ground that the court could not carry out the duties imposed upon it by the Act when applying the verdict of a jury.^[133] With the benefit of hindsight this problem does not appear quite so intractable. In Macdonald v Glasgow Corporation^[134] the court approved an amended form of issue^[135] in which the various heads of damages claimed would be itemised so that interest could be added to them, or not, as the Act required. This practice continues today. Another difficulty which was addressed was the starting date for the running of interest on solatium for personal injury or damages in fatal cases. A practice emerged of awarding interest on past loss of earnings and, subsequently, past solatium for the whole period since the date of the accident or death but at a reduced rate to take account of the fact that not all of the loss had accrued immediately following the occurrence of the injury.^[136] Thus the "selective and discriminating approach"^[137] advocated in Macrae v Reed and Mallik Ltd continued.
2.30      Interest on damages for breach of contract or negligence resulting in loss other than personal injury has been considered in two post-1971 cases.^[138] In both cases it was held that the pre-1958 criteria, and in particular that of wrongful withholding, continued to apply. In James Buchanan & Co v Stewart Cameron (Drymen) Ltd, the pursuers engaged the defenders to carry a load of whisky and advertising material by road. The lorry was stolen and the goods lost. In terms of the contract, the defenders were liable for any loss of goods occasioned during transit. The pursuers sued for the value of the goods with interest from a date agreed to represent the latest date when the "right of action arose" (in order to avoid an argument as to whether the right arose on the date of the theft or on the due delivery date in terms of the contract). The defenders did not dispute liability for the principal sum sued for but contended that interest ran only from the date of citation. Lord Maxwell did not regard it as self-evident that it was just to award interest from the date when the right of action arose and sought guidance from the pre-1958 case law dealing with interest on principal sums other than damages. Applying the dicta in Carmichael v Caledonian Railway Co and FW Green & Co v Brown & Gracie Ltd discussed above,^[139] he held that where, as here, there was no suggestion that the defenders were enjoying an advantage from the pursuers' loss, the principal sum could not be said to be wrongfully withheld from any date prior to the date of citation. He noted also that he had no grounds for assuming that the whisky and advertising material would, if not destroyed, have earned profit for the pursuers from any particular date.
2.31      Before 1958, damages had been in a less favourable position than debt with regard to the awarding of interest. After 1971 they had appeared to be in a more favourable position. It is ironic that the first post-1971 decision on breach of contract should nevertheless be to the effect that interest on damages should run from the same date as that which was generally applicable to interest on debt. The position changed again, however, with the decision of the Second Division in Boots the Chemist Ltd v GA Estates Ltd.^[140] The pursuers were tenants of shop premises who suffered loss when their premises were flooded as a consequence of a blocked culvert. An action raised against the landlord of the premises was settled but a dispute remained as to the pursuers' entitlement to interest on various heads of loss. Seven of the eight heads claimed consisted of out-of-pocket expenses, such as shopfitting costs, which had been incurred during the two months following the flooding incident. The eighth was a claim for loss of stock. The defenders contended that the pursuers had delayed in intimating claims to them and in producing adequate vouching of the losses claimed. It was argued that interest should begin to run only on the dates when the defenders were provided with proper intimation and vouching of the claims or, in any event, not earlier than the date of citation. The court held that interest on the seven heads of out-of-pocket expenses ran from the dates when these expenses were respectively incurred. As regards the loss of stock, there was no evidence before the court as to when that stock could have been turned to profit and, accordingly, following James Buchanan & Co v Stewart Cameron (Drymen) Ltd, interest was allowed only from the date of citation. This seems straightforward enough, but analysis of the case is complicated by the statement by the court^[141] of the applicable principle as being that

"…even if damages have not been quantified, interest may reasonably be held to run from a date when the damages may reasonably be regarded as quantifiable or capable of ascertainment."

In the Boots case, the date when the damages were quantifiable was regarded as being the date when the expenditure was incurred. From that date, the pursuers were standing out the money and it followed that the defenders were wrongfully withholding payment. Nor was this principle affected by any delay by the pursuers in intimating the claim and vouching it to the defenders' satisfaction.

2.32      The Boots case was important in establishing, 21 years after the passing of the 1971 Act, that interest might run prior to the date of citation in a claim for damages for breach of contract. Nevertheless, it raises questions of its own. It will not always be the case that the date when a loss is reasonably capable of quantification is the same as the date when an item of expenditure is incurred. There is also an awkwardness about the notion that payment is wrongfully withheld at a time when the wrongdoer has no notice of the amount claimed. The decision on the facts of the case seems reasonable but the court's justification of it against Lord Westbury's test appears somewhat contrived. It illustrates a continuing tension between the 19^th century principles for the award of interest and more recent statutory interventions.
2.33      The 1971 Act also inserted a new subsection^[142] dealing with tenders into section 1 of the 1958 Act. Unless otherwise stated, a tender is treated as inclusive of interest due to the claimant to whom the tender is made. In considering whether a tender has been beaten the court must take account of interest awarded under the Act, or such part thereof as the court considers appropriate.^[143]

Summary of the present law

2.34      Damages other than for personal injury. Where a court grants decree for payment of damages other than for personal injury, the interlocutor may include decree for payment of interest, at such rate or rates as may be specified, on the whole or any part of the sum awarded for the whole or any part of the period since the date when the right of action arose.^[144] The terms of the section thus give the court a wide discretion in relation to all aspects of the award. However, the court has declined to treat the discretion as unqualified, preferring instead to apply the principles of the pre-1958 case law, and notably seeking to establish the date from which the sum in respect of which damages are being awarded may be said to have been wrongfully withheld.^[145] In practice, this means that interest may be held to run on out-of-pocket expenses from the date when these were incurred, or perhaps from the date (if different) when they were capable of being quantified.^[146] Similarly, readily quantifiable pecuniary losses, such as loss of past profits, will attract interest from the date when they would have been earned but for the event giving rise to the claim. Other losses, which do not involve out-of-pocket expenditure, may attract interest only from the date of judicial demand. The rate of interest will normally be the full judicial rate from time to time specified by the relevant rules of court.^[147]
2.35      Damages for personal injury. Where a court grants decree for payment of damages or solatium for personal injury, it is required to include an award of interest in terms of section 1(1) unless the court is satisfied that there are reasons special to the case why no interest should be given.^[148] This provision applies to claims for loss of support and loss of society in fatal cases as well as to claims by the person who has sustained the injury.^[149] In practice, the court distinguishes between awards in respect of past and future solatium and lost earnings. Only those elements of the award intended to compensate past losses carry entitlement to interest.^[150] Account is also taken of the fact that past awards are for a cumulative loss over the period of time since the injury occurred so that it would afford excessive compensation to the pursuer if interest on the whole sum were to be awarded from the date when the right of action arose. Thus, for example, it is common practice for interest to be awarded on the whole past sum at half the judicial rate or rates for the time being in force.^[151] Judicial practice has not been entirely consistent, but as a general rule where the loss is continuing at the date of decree, interest at half rate will be awarded on past solatium for the whole period since the date of the injury. On the other hand, where the effects of the injury have ceased at some date prior to the date of decree, interest at the full judicial rate may be awarded (as regards solatium) from the date when the effects of the injury ceased or (as regards loss of earnings) from the date of the pursuer's return to work.^[152] Adjustments to the amount of interest awarded are made where the pursuer has received an interim payment or an award of interim damages.^[153] Where the sum sued for in a personal injury action includes damages for something other than personal injury (such as the cost of repairs to a vehicle), this element of the claim is not subject to the special rule in section 1(1A).^[154]

Interest on sums other than debts or damages

2.36      Certain sums which cannot be categorised either as contract debts or damages have also been held to bear interest. These include sums due by way of repetition or recompense^[155] and sums payable to a salvor for salvage services.^[156]
2.37      Interest on sums due in order to reverse unjustified enrichment. Such authorities as there are on the running of interest on sums due in order to reverse unjustified enrichment suggest that interest will be due from the date when the event giving rise to the claim occurred and not merely from the date of citation. In Parkhill v Batchelor,^[157] a claim for repetition, the court observed:

"In the question whether annualrent be due, there is a material difference, whether the money be due as a debt, or if it be due as the pursuer's property in the hands of the defender. Where it is due as a debt, then regularly no annualrent is due upon it sine pacto. But where one has got into his hands another person's money, then annualrent, as the profits of the money, is no less due than the money itself."

In Glasgow Gas-Light Co v Barony Parish of Glasgow,^[158] money was paid under protest pending resolution of the dispute by litigation. Interest was held to be due on sums overpaid from the respective dates of payment. In another case,^[159] teinds were paid for many years to the Crown in error. When the mistake was discovered, an action was brought by both the payer and the rightful recipient for repetition, with interest. The Crown consented to decree for repayment but disputed the liability to pay interest. The majority of the court held that no interest was due to the rightful recipient because she had been negligent in failing for many years to demand payment nor to the payer because he would thereby be enriched. The opinions of the majority suggest that the result might have been otherwise in the absence of negligence.^[160] In Duncan, Galloway & Co Ltd v Duncan, Falconer & Co,^[161] the pursuers sought repetition of part of the purchase price of a quarry business when it was discovered that some of the buildings included in the valuation of the business belonged to the landlord without any right of allowance to the tenant for their value at the termination of the lease. The Lord Ordinary's award of interest from the date when the price was paid in error was upheld on appeal.^[162]

2.38      Ship collisions and salvage. Special rules regarding entitlement to interest have been applied in admiralty actions concerning both ship collisions and salvage. In both circumstances, English case law has been applied with a view to ensuring a uniform practice as between Scotland and England. So far as ship collisions are concerned, interest has been held to run on the amount of the limitation fund from the date when the collision occurred until the date when the fund is paid into court.^[163] Hence a tender of the amount of the limitation fund was held to have been beaten when the court granted decree for the amount of the fund plus interest.^[164] The rule regarding salvage has evolved more recently, and is to the effect that interest runs from the date of termination of the salvage services.^[165]
2.39      Legal rights in a deceased's estate. Entitlement to interest on legal rights is subject to principles similar to those applicable to entitlement to interest in other circumstances in which funds capable of earning profit are held by one person but are ultimately due to be paid over to another. The general rule under Scots law has been that legal rights carry interest from the date of death. However, the question of entitlement to interest must be distinguished from the question of the appropriate rate of interest. Where there has been delay in payment which is not attributable to any fault on the part of the executors, it has been held that interest should not run at a rate higher than that which the funds have in fact earned.^[166] On the other hand, where a claim has been made, or where there is no doubt that legal rights will be claimed because the claimant has been disinherited, the courts have awarded interest at the "legal rate" (ie 5 per cent), apparently on the basis of wrongful withholding.
2.40      Aliment and financial provision on divorce. Under the Family Law (Scotland) Act 1985,^[167] obligations of aliment are owed by certain persons to others. This provision does not of itself create a debt due by one person to another^[168] because the obligation is defined as being one to provide such support as is reasonable in the circumstances, having regard to the matters to which a court is required to have regard in determining what to award in an action for aliment. Thus a decree of the court is required in order to determine whether any sum is in fact due by one person to another by way of aliment. Once a decree has been granted it can be enforced by a variety of means, including a current maintenance arrestment.^[169] The court has power to backdate an award of aliment to the date of the bringing of the action, or to such later date as the court sees fit, or, on special cause shown, to a date prior to the bringing of the action.^[170] There is no power to award interest on the sum (consisting of the aggregate of past instalments) which falls due by reason of the backdating of the award.
2.41      Apart from aliment payable as a result of the backdating of an award, arrears of aliment are not generally recoverable unless the aliment was due under a court decree.^[171] A creditor in an alimentary obligation suing to recover arrears of aliment due under a decree was found to be entitled to interest on the arrears.^[172]
2.42      In an action for divorce either party may apply to the court for an order for the payment of a capital sum by the other party, and may also apply for an incidental order.^[173] Among the incidental orders which may be made is an order as to the date from which interest (at the judicial rate) shall run on any amount awarded.^[174] If interest is to be awarded for a period prior to the date of decree this must be justified by reference to the principles set out in section 9 of the 1985 Act (fair sharing of the net value of matrimonial property etc), and must be reasonable having regard to the resources of the parties. These provisions have been interpreted as permitting the court to award interest on a share of the value of matrimonial property from the date of separation, thereby, for example, compensating a spouse who has been excluded from use of the matrimonial home during the period prior to the date of decree.^[175]

Awards by tribunals

2.43      The commencement of proceedings before a tribunal does not constitute a judicial demand equivalent to the raising of court proceedings. Express statutory provision is necessary before interest will be payable on a sum awarded by a tribunal. Such provision has been made, for example, in respect of awards by Employment Tribunals,^[176] the Lands Tribunal for Scotland,^[177] the Competition Appeals Tribunal^[178] and the Copyright Tribunal.^[179]

Arbitration and adjudication

2.44     Scots law has no special statutory provisions to regulate the power of an arbiter or adjudicator to award interest and the early case law afforded no guidance. The matter is normally dealt with in the deed of submission and an arbiter may be granted power to award interest from such date as he thinks fit. In the absence of such a discretion, the arbiter has power only to award interest if the claimant would be entitled to it under the general law: in other words, the principles discussed above in relation to interest on debt and interest on damages would apply.^[180] A demand for submission to arbitration is not a "judicial demand". Where no express power to award interest is conferred, an arbiter has an implied power to award interest only from the date of final decree.^[181]
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Note 1   Walker:A Legal History of Scotland, Vol II, p 546-7.    [Back]

Note 2   The word "annualrent" came to mean what would now be referred to as interest. See eg the title "Annualrent" in Morison's Dictionary 473ff.    [Back]

Note 3   Walker, op cit, p 680-83.    [Back]

Note 4   APS iii, 1587 c 35.    [Back]

Note 5   Usury Act 1594 (APS iv, 1594 c 32); Usury Act 1597 (APS iv at p119-121).    [Back]

Note 6   This appears to be the origin of the notion of a "legal rate" of interest, although it began life as a statutory maximum. Erskine observes (Institute III.iii.76), under reference to the Act of 1587, that "interest has been, since the aforesaid Act, gradually reduced, till at last, by 12 Ann. stat.2 c 16, it is brought down to the rate of five per cent". The rate of 10 per cent had been reduced to eight per cent in 1633 (APS v, 1633 c 21) and to six per cent in 1649 (APS vi, 1649 c 29; revived APS vii, 1661 c 49). The Act 12 Ann. stat.2 c 16 – the Usury Act 1713 - was itself repealed, along with the Scots Acts mentioned above, by the Usury Laws Repeal Act 1854 (17 & 18 Vict C 90), but the idea of a legal rate of interest persisted.    [Back]

Note 7   Stair, Institutions I.15.7.    [Back]

Note 8   See Waughton v Innerweek (1627) M 519; Black of Largo v Dick (1627) M 520.    [Back]

Note 9   See Cranston v Crichton (1627) M 519. A further Act of Sederunt of 1613 is referred to in Lockerbie v Applegirth (1662) M 524.    [Back]

Note 10   1681 (APS viii,c 20).    [Back]

Note 11   1696 (APS x, c 36), extended to promissory notes by the Bills of Exchange (Scotland) Act 1772 (12 Geo. III c 72), s 36.    [Back]

Note 12   1621 c 20. "Horning" was a procedure whereby the debtor was denounced as an outlaw at the market cross by an officer of the court.    [Back]

Note 13   Act of Sederunt, 31 July 1690.    [Back]

Note 14   Durie v Ramsay (1624) M 542, followed in Home v Renton (1628) M 545, and later in Cadzow v Wilson (1830) 5 Mur 98. For the present law see para 2.21 below.    [Back]

Note 15   Stirling v Paunter (1627) M 544; Balnagoun v McKenzie (1663) M 545; Baillie v Walker (1707) M 546.    [Back]

Note 16   Vallange's Tutor v Forrester (1630) M 490; Parkhill v Batchelor (1748) M 550; Erskine, Institute III.iii.79, and cases cited there; Bell, Commentaries, Vol I, 5th edn, 647-8.    [Back]

Note 17   Erskine, Institute III.iii.80. cf Laird of Stanhope v Heritors of Tweedsmuir (1676) M 525, criticised by Dirleton in Stenhouse v The Heritors of Tweedsmuir (1676) M 526.    [Back]

Note 18   Forrester v Clerk (1628) M 482; Hepburn v Congleton (1671) M 483; Cathcart v Row (1671) M 483; Carnegie v Durham (1676) M 484; Earl of Wintoun v Seatoun (1669) M 484 and 486.    [Back]

Note 19   Loggie v Loggie (1662) M 489; Houston v Schaw (1702) M 487; Garden v Rigg (1748) 1 Pat 409.    [Back]

Note 20   Bell, Commentaries Vol I, 5th edn, 648.    [Back]

Note 21   26 May 1820, FC, 140. The decision is criticised in More's Notes on Stair, Lxxix, but does seem to have been influential on the subsequent development of the law as regards interest on loans.    [Back]

Note 22   It is not stated explicitly in the report that interest was awarded from the dates of payment, but this seems to follow from the fact that of the sum of £16,233 claimed, only £10,065 was principal, and this is how the decision was interpreted by More (above) and by Lord Justice Clerk Inglis in Cuninghame v Boswell (1868) 6M 890.    [Back]

Note 23   Eg Young v Baillie (1830) 8S 624.    [Back]

Note 24   Thomson v Geekie (1861) 23D 693 at 701. Lord Inglis' observations wereobiter, made in the course of a dissenting opinion. They were referred to with approval by Lord Justice Clerk Patton in Cuninghame v Boswell (1868) 6M 890 at 894.    [Back]

Note 25   (1884) 12R 104, discussed further at para 2.11 below.    [Back]

Note 26   Ibid per Lord Craighill at 108, referring to Bell, Principles, s 32(4).    [Back]

Note 27   Eg Christie v Matheson (1871) 10M 9; for the present law see para 2.20 below.    [Back]

Note 28   Muirhead v Town of Haddington (1750) M 532; Creditors of Dick of Frackafield (1756) M 498; Angus & Co's Assignee v HM Advocate (1758) M 499. Each was decided, on its facts, on different grounds. In Aubray & Co v Ross's Exrs (1737) M 528, however, the report of which includes a lengthy narrative of the arguments, there was no mention of a one-year credit period.    [Back]

Note 29   Henry v Sutherland (1801) M Appendix Part 1, sv Annual-Rent, No 1; Young v Baillie (1830) 8S 624; Walls v Speirs (1865) 3M 536.     [Back]

Note 30   Bremner v Mabon (1837) 16S 213; see also Cardno & Darling v Steuart (1869) 7M 1026.    [Back]

Note 31   (1884) 12R 104, discussed below at para 2.11.    [Back]

Note 32   At 112, having noted the absence of statement of any such rule by Bell or in Brodie's Notes on Stair.    [Back]

Note 33   Stair, Institutions I.15.7-8.    [Back]

Note 34   Erskine, Institute III.iii.75.    [Back]

Note 35   Ibid III.iii.80.    [Back]

Note 36   For other early instances of interest being held due from the date of citation, see Moncrieff v Moncrieff (1751) M 478 (bill payable on demand held to bear interest from date of citation; similarly a promissory note payable on demand was held to do soex bono et aequo, "though in this last, the Lords were far from unanimous" – see Kilkerran's report at 481); Drummond & Co v Croom (1823) 2S 608 (cautioner suing for relief) and Lord Dundas v Scott Moncrieff 24 November 1835, FC at 42 (arrears of rent). In Jolly v McNeill (1829) 7S 666 it was stated that on an ordinary contract debt, if interest has not been stipulated, it runs from the date of citation.    [Back]

Note 37   Bell, Commentaries, Vol I, 5th edn, 645ff.    [Back]

Note 38   (1884) 12R 104.    [Back]

Note 39   Ibid, Lord Craighill at 108.    [Back]

Note 40   Ibid, Lord Fraser at 109.    [Back]

Note 41   (1870) 8M (HL) 119.    [Back]

Note 42   (1884) 12R 104.    [Back]

Note 43   At 131.    [Back]

Note 44   Ibid at 133; For further discussion see Prof J Murray, "Interest on Debt" 1991 SLT (News) 305.    [Back]

Note 45   (1884) 12R 104.    [Back]

Note 46   This was consistent with Stirling and Dunfermline Railway Co v Edinburgh and Glasgow Railway Co (1857) 19D 598, in which interest was held not to run in circumstances where an amount payable termly was unknown and could not be ascertained.    [Back]

Note 47   Only three judges were present.    [Back]

Note 48   At 112.    [Back]

Note 49   London, Chatham and Dover Railway Co v South Eastern Railway Co [1893] AC 429 at 443-4.    [Back]

Note 50   (1869) 8M 187.    [Back]

Note 51   Durie's Trs v Ayton (1894) 22R 34 at 38; Greenock Harbour Trs v Glasgow & South Western Railway Co 1909 SC (HL) 49, per Lord Shaw of Dunfermline at 51; Kolbin v Kinnear 1931 SC (HL) 128 (a claim for damages) per Lord Atkin at 137; United Collieries v Lord Advocate 1950 SC 458 at 475; Elliott v Combustion Engineering Ltd 1997 SC 126; Wisely v John Fulton (Plumbers) Ltd 2000 SC (HL) 95 per Lord Hope of Craighead at 98.    [Back]

Note 52   Winestone v Wolifson 1954 SC 77; Dean Warwick Ltd v Borthwick 1983 SLT 533 at 535, rejecting an argument that a distinction should be drawn between the two.    [Back]

Note 53   This exception was applied in Linlithgow Oil Co Ltd v North British Railway Co (1904) 12 SLT 421, and referred to with approval, though not applied, in Bunten v Hart (1901) 9 SLT 476, Somervell's Tr v Edinburgh Life Assurance Co 1911 SC 1069, and British Railways Board v Ross & Cromarty County Council 1974 SC 27. In the British Railways Board case intimation of an intention to charge interest was given, but it was held that interest did not run as the amount of the principal had not been agreed or ascertained by an arbiter or judge, and in any event because the debtor was exercising a right of retention.    [Back]

Note 54   See para 2.23.    [Back]

Note 55   See eg Smellie's Exx v Smellie 1933 SC 725; Neilson v Stewart 1991 SC (HL) 22.    [Back]

Note 56   Eg Grandison's Trs v Jardine (1895) 22R 925; Tiffney v Bachurzewski 1984 SC 108 per Lord Hunter at 113, echoing the early cases referred to at para 2.3 above.    [Back]

Note 57   1938 SC 168, applying Glasgow Gas-Light Co v Barony Parish of Glasgow (1868) 6M 406, in which, however, there had been no mention of implication of a contractual term.    [Back]

Note 58   See para 2.18.     [Back]

Note 59   Contractual entitlement will override the principle of "wrongful withholding" discussed at para 2.23 below: see eg Charles Brand Ltd v Orkney Islands Council 2001 SC 545.    [Back]

Note 60   Eg Consumer Credit Act 1974, s 137-140.    [Back]

Note 61   In Eurofi Ltd v CMB Packaging (6 July 2001, QBD, unreported; affd [2002] EWCA Civ 1109), a term agreed in 1994 that sums unpaid after 21 days would carry interest at 5% over bank base rate was held not be unconscionable nor a penalty clause.    [Back]

Note 62   For an example see Haddon's Exx v Scottish Milk Marketing Board 1938 SC 168. Another may be where a commercial usage specifies a period of credit at the end of which interest starts to run: Findlay, Bannatyne & Co's Assignee v Donaldson (1864) 2M (HL) 86. This is not the same as interest due by implication at common law (see para 2.19 below) which does not depend on implication of a term into a contract.    [Back]

Note 63   For a non-exhaustive list of statutory provisions imposing an obligation to pay interest, see Appendix B.    [Back]

Note 64   Bills of Exchange Act 1882, s 57(1). The Act distinguishes between "interest proper", ie due as a debt as a consequence of the terms of the bill, and interest as damages under s 57 following dishonour.    [Back]

Note 65   Ibid s 57(3).    [Back]

Note 66   Partnership Act 1890, s 24(3).    [Back]

Note 67   Ibid s 42(1).    [Back]

Note 68   Trusts (Scotland) Act 1921, s 29.    [Back]

Note 69   Conveyancing and Feudal Reform (Scotland) Act 1970, Sch 3, para 7.    [Back]

Note 70   Companies Act 1985, ss 99-105.    [Back]

Note 71   Bankruptcy (Scotland) Act 1985, s 51(1)(g); s 51(7); SI 1985/1925 as amended by SI 1993/439.    [Back]

Note 72   Insolvency Act 1986, s 212(3).    [Back]

Note 73   Debtors (Scotland) Act 1987, s 50(5), s 55(7); s 73(1).    [Back]

Note 74   Adults with Incapacity (Scotland) Act 2000, s 81.    [Back]

Note 75   Eg Land Compensation (Scotland) Act 1973, s 16; Roads (Scotland) Act 1984, s 149; Housing (Scotland) Act 1987, Sch 7, para 13; Planning and Compensation Act 1991, ss 78, 80; Town and Country Planning (Scotland) Act 1997, Sch 15, para 30. Most of these provide for compensation to be paid at the rate prescribed by regulations made under the Land Compensation (Scotland) Act 1963, s 40. The current regulations are the Acquisition of Land (Rate of Interest after Entry) (Scotland) Regulations 1995 (SI 1995/2791), specifying a rate of 0.5% below the base rate quoted by the reference banks.    [Back]

Note 76   Eg Taxes Management Act 1970, s 86 as regards income tax and capital gains tax. The full list is contained in the Finance Act 1989, s 178(2) as amended from time to time.    [Back]

Note 77   As amended by the Late Payment of Commercial Debts (Scotland) Regulations 2002 (SSI 2002/335). The Act as amended is reproduced in Appendix A. It gives effect to the UK Government's obligation to implement Directive 2000/35/EC of the European Parliament and Council of 29 June 2000 on combating late payment in commercial transactions. The 1998 Act pre-dated the entry into force of the Directive, although it had plainly been influenced by the draft Directive. The amendments to the Act by the 2002 Regulations were made to render it fully compliant with the requirements of the Directive.    [Back]

Note 78   S 2(1).    [Back]

Note 79   S 1(1) and (2).    [Back]

Note 80   S 6.    [Back]

Note 81   S 4.    [Back]

Note 82   S 11.    [Back]

Note 83   Ss 3(2) and (3).    [Back]

Note 84   S 8.    [Back]

Note 85   S 5.    [Back]

Note 86   Thomson v Geekie (1861) 23D 693, Lord Justice Clerk Inglis at 701; Blair's Trs v Payne (1884) 12R 104, Lord Craighill at 108; Neilson v Stewart 1991 SC (HL) 22, Lord Jauncey of Tulliechettle at 40.    [Back]

Note 87   Eg Cuninghame v Boswell (1868) 6M 890. Cf Christie v Matheson (1871) 10M 9 and Smellie's Exx v Smellie 1933 SC 725, in both of which the presumption was displaced.    [Back]

Note 88   Thomson v Geekie supra.    [Back]

Note 89   Kearon v Thomson's Trs 1949 SC 287, Lord President Cooper at 293-4.    [Back]

Note 90   1991 SC (HL) 22.    [Back]

Note 91   Ibid at 35.    [Back]

Note 92   Winestone v Wolifson 1954 SC 77, applying Thiem's Trs v Collie (1899) 1F 764.    [Back]

Note 93   Durie v Ramsay (1624) M 542: "It is against reason and conscience both to retain the money, without paying annual therefor, and to bruik also the whole profits of the land."; Prestwick Cinema Co Ltd v Gardiner 1949 SC 645 (affd 1951 SC 98). The principle was applied to compulsory purchase in West Highland Railway Co v Place (1894) 21R 576 and to a contract of excambion in Greenock Harbour Trs v Glasgow & South-Western Railway Co 1909 SC (HL) 49. Cf. also Tiffney v Bachurzewski 1984 SC 108.    [Back]

Note 94   Stirling v Paunter (1627) M 544 and other cases cited at para 2.3 above, fn 15; Erskine, Institute III.iii.79; Grandison's Trs v Jardine (1895) 22R 925.    [Back]

Note 95   See Greenock Harbour Trs v Glasgow & South-Western Railway Co 1909 SC 1438, Lord McLaren at 1441 for this view.    [Back]

Note 96   Stirling & Dunfermline Railway Co v Edinburgh & Glasgow Railway Co (1857) 19D 598, Lord Cowan at 621; Greenock Harbour Trs v Glasgow & South-Western Railway Co 1909 SC (HL) 49, Lord Shaw of Dunfermline at 51-2; Prestwick Cinema Co Ltd v Gardiner 1951 SC 98; Geddes v Geddes 1993 SLT 494, Lord President Hope at 500.    [Back]

Note 97   Bell, Commentaries, Vol I, 5th edn, 648. Erskine, on the contrary, appears to treat it as applying to heritage only: Institute III.iii.79.    [Back]

Note 98   In Forrest & Barr v Henderson (1869) 8M 187, the purchasers of a crane began to use it but did not formally accept it for four years. A jury verdict that interest was payable from a date four months after the crane began to be used was regarded by the court as fair and not disturbed, but there is no discussion of the principle upon which interest could run prior to the date of judicial demand. In Morton v Cameron & Co 1987 SLT (Sh Ct) 44, Sheriff Principal FWF O'Brien refused to apply the principle to moveable property (in this case hay and silage) on the ground that there was no authority for it applying to anything other than heritage.    [Back]

Note 99   Vallange's Tutor v Forrester (1630) M 490.    [Back]

Note 100   Hill v Gilroy (1821) 1S 33.    [Back]

Note 101   Wellwood's Trs v Hill (1856) 19D 187. The factor also made cash advances to the estate, on which he was held entitled to charge bank interest, but he himself has to pay interest on the estate funds which he held at "the highest legal rate".    [Back]

Note 102   Parkhill v Batchelor (1748) M 550. On repetition, see para 2.37 below.    [Back]

Note 103   Melville v Noble's Trs (1896) 24R 243. As regards interest on legal rights in succession, see para 2.39.    [Back]

Note 104   1980 SC 175.    [Back]

Note 105   Carmichael v Caledonian Railway Co (1870) 8M (HL) 119 per Lord Westbury at 131. For a fuller discussion of the context of this dictum in the Carmichael case, see para 2.10.    [Back]

Note 106   Blair's Trs v Payne (1884) 12R 104, Lord Fraser at 112 (for a fuller discussion of this case, see paras 2.11-2.12); Dean Warwick Ltd v Borthwick 1983 SLT 533, Lord Cameron at 535, cited below.     [Back]

Note 107   Or, where a claim is added by amendment in the course of proceedings, from the date when the amendment is made and incorporated into the record: HMV Fields Properties Ltd v Skirt 'n' Slack Centre of London Ltd 1987 SLT 2, Lord Ordinary (Clyde) at 6.    [Back]

Note 108   British Railways Board v Ross & Cromarty County Council 1974 SC 27; Farrans (Construction) Ltd v Dunfermline District Council 1988 SC 120; Robertson Construction Co (Denny) Ltd v Taylor 1990 SLT 698; John G McGregor (Contractors) Ltd v Grampian Regional Council 1991 SLT 136. Per contra in Keir Ltd v East of Scotland Water Board 1976 SLT (Notes) 72 in a claim for paymentquantum meruit, no contract price having been agreed, interest was awarded from the date of citation.    [Back]

Note 109   Hunter v Livingston Development Corporation 1984 SLT 10.    [Back]

Note 110   Shetland Islands Council v BP Petroleum Development Ltd 1990 SLT 82; Trans Barwil Agencies (UK) Ltd v John S Braid & Co Ltd (No 2) 1990 SLT 182, in which the matter was treated by the Lord Ordinary (McCluskey) as one to be decided on equitable principles.    [Back]

Note 111   1983 SLT 533, at 535 followed with some reluctance by an Extra Division in Elliott v Combustion Engineering Ltd 1997 SC 126, in which the context of the expression "wrongfully withheld" in Carmichael v Caledonian Railway Co supra is analysed.    [Back]

Note 112   See the cases referred to at para 2.13, fn 53.    [Back]

Note 113   (1871) 9M 1011, Lord President Inglis at 1014. In an earlier case, Lenaghan and Callaghan v Monkland Iron and Steel Co (1858) 20D 848, Lord Justice Clerk Hope had expressed regret that interest could not be awarded from the date of the accident.    [Back]

Note 114   For an earlier decision to similar effect, see Blacks v Cadell 9 July 1812, FC, 749. In Hurlet & Campsie Alum Co v Earl of Glasgow (1850) 13D 370, the court regarded itself as entitled, in exercise of a discretion, to award interest from the date of affirmation by the House of Lords of the court's decision.    [Back]

Note 115   Clancy v Dixon's Ironworks 1955 SC 17, Lord Carmont at 18; also McCormack v National Coal Board 1957 SC 277, Lord Wheatley at 281.    [Back]

Note 116   Roger v J & P Cochrane & Co 1910 SC 1; McGovern v James Nimmo 1938 SC (HL) 18; McCormack v National Coal Board 1957 SC 277.    [Back]

Note 117   Hurlet and Campsie Alum Co v Earl of Glasgow (1850) 13D 370; Denholm v London & Edinburgh Shipping Co (1865) 3M 815, Lord Cowan, dissenting; Martin & Sons v Robertson, Ferguson & Co (1872) 10M 949, Lords Deas and Kinloch; Vitruvia Steamship Co v Ropner Shipping Co 1923 SC 574, Lord Skerrington at 587.    [Back]

Note 118   Eg Dunn & Co v Anderston Foundry Co Ltd (1894) 21R 880;Vitruvia Steamship Co v Ropner Shipping Co supra.    [Back]

Note 119   See para 2.38.    [Back]

Note 120   1931 SC (HL) 128.    [Back]

Note 121   At 137.    [Back]

Note 122   Listed at p 130 of the report. One of the cases cited, Vitruvia Steamship Co v Ropner Shipping Co supra is directly contrary to Lord Atkin's statement as regards profit-producing chattels.    [Back]

Note 123   McGovern v James Nimmo & Co Ltd 1938 SC (HL) 18.    [Back]

Note 124   1960 SLT (Notes) 43 (HL). The action was raised before the passing of the Interest on Damages (Scotland) Act 1958.    [Back]

Note 125   Third Report of the Law Reform Committee for Scotland on "The rules governing the date from which interest on an award of damages is, or may be, ordered by the Court to run" (April 1957, Cmnd 141). The Committee's enquiries had indicated that the discretionary power contained in the English legislation was "seldom used". They observed (para 5): "We are aware that a few members of the legal profession think that some actions would be settled sooner if defenders knew that interest on damages might be awarded from a date earlier than the award, but we have not found any evidence that an opinion to that effect is strongly or widely held. In the event of a discretionary power such as is suggested being given to the Courts, we assume that the normal practice of awarding interest only from the date of final decree would continue except where the defender has caused unreasonable delay. We do not anticipate that the Court would award interest from the date of citation to a claimant who himself had caused delay after that date."    [Back]

Note 126   S 1(2).    [Back]

Note 127   1961 SC 68.    [Back]

Note 128   Ibid at 85.    [Back]

Note 129   Eg Fraser v J Morton Wilson Ltd 1966 SLT 22; Bell's Sports Centre (Perth) Ltd v William Briggs & Sons Ltd 1971 SLT (Notes) 48.    [Back]

Note 130   Eg Killah v Aberdeen & District Milk Marketing Board 1961 SLT 232.    [Back]

Note 131   The 1958 Act, as amended in 1971, is reproduced in Appendix A.    [Back]

Note 132   "As the debate before me disclosed, the problems created by the language of s 1 of the Interest on Damages (Scotland) Act 1971 are considerable…": Smith v Middleton 1972 SLT (Notes) 3, Lord Emslie at 5. "...The Act …gives every sign of being botched legislation. It is quite unnecessarily complicated and obscure and appears to have been framed with little if any regard to its practical consequences.": Ross v British Railways Board 1972 SLT (Notes) 10, Lord Stott at 10. "This is just another of the many problems which have been created by this Act which has already been the subject of much judicial criticism, all, in my opinion, fully deserved.": Orr v Metcalfe 1973 SC 57, Lord President Emslie at 59. "It would be difficult to find a section of any Act of Parliament of recent years which presents, from the obscurity of its language, so many problems of construction or operation.":ibid, Lord Cameron at 61.    [Back]

Note 133   McFadyen v Crudens Ltd 1972 SLT (Notes) 11, Lord Avonside; reversed 1972 SLT 62.    [Back]

Note 134   1973 SC 52.    [Back]

Note 135   An "issue" is the question put to the jury for answer in a civil jury trial.    [Back]

Note 136   Smith v Middleton 1972 SLT (Notes) 3 (following the Court of Appeal's approach in Jefford v Gee [1970] 2 QB 130); McCuaig v Redpath Dorman Long 1972 SLT (Notes) 42; Prentice v Chalmers 1985 SLT 168. Cf Ross v British Railways Board 1972 SC 154, in which in order to do "rough justice" interest was awarded at the full judicial rate from the date of citation.    [Back]

Note 137   Smith v Middleton supra per Lord Emslie at 5. See further para 2.35 below.    [Back]

Note 138   James Buchanan & Co v Stewart Cameron (Drymen) Ltd 1973 SC 285 and Boots the Chemist Ltd v GA Estates Ltd 1992 SC 485.    [Back]

Note 139   See para 2.25.    [Back]

Note 140   1992 SC 485.    [Back]

Note 141   Lord Justice Clerk Ross at 496, the other members of the court concurring.    [Back]

Note 142   S 1(1B).    [Back]

Note 143   The effect of the latter part of this provision was considered in Manson v Skinner 2002 SLT 448, an action for damages for personal injuries in which the defender had lodged a tender of £3,000. The sum awarded by the sheriff together with interest to the date of decree amounted to £3,047. As at the date of the tender however the principal sum plus interest amounted to £2,992. The court held that the general rule that a pursuer who beats a tender is entitled to the whole expenses of process was abridged by s 1(1B), and that the concluding words of the subsection were directed to cases such as the present one. Since the action was unnecessarily prolonged by failure to accept the tender, the defender was found entitled to expenses from the date of the tender.    [Back]

Note 144   Interest on Damages (Scotland) Act 1958, s1(1), as substituted by Interest on Damages (Scotland) Act 1971, s 1.    [Back]

Note 145   Macrae v Reed & Mallik Ltd 1961 SC 68; James Buchanan & Co v Stewart Cameron (Drymen) Ltd 1973 SC 285; Boots the Chemist Ltd v GA Estates Ltd 1992 SC 485.    [Back]

Note 146   See the discussion of Boots the Chemist Ltd v GA Estates Ltd at para 2.31 above.    [Back]

Note 147   Rules of the Court of Session, rule 7.7; Sheriff Courts (Scotland) Extracts Act 1892, s 9.    [Back]

Note 148   Interest on Damages (Scotland) Act 1958, s 1(1A), as inserted by Interest on Damages (Scotland) Act 1971, s 1.    [Back]

Note 149   Plaxton v Aaron Construction (Dundee) Ltd 1980 SLT (Notes) 6; Prentice v Chalmers 1985 SLT 168.    [Back]

Note 150   Smith v Middleton 1972 SC 30.    [Back]

Note 151   Smith v Middleton above, in which Lord Emslie awarded interest on past wage loss at half the judicial rate, following the approach of the Court of Appeal in Jefford v Gee [1970] 2 QB 130. However Lord Emslie awarded interest at the full rate on past solatium and this approach was initially followed in McCuaig v Redpath Dorman Long Ltd 1972 SLT (Notes) 42. Subsequently, however, it became the practice to award interest on past solatium at a lesser rate.    [Back]

Note 152   Eg McCabe v British Domestic Appliances Ltd 1978 SLT (Notes) 31. Cf the approach taken in eg McGeachie v James Buchanan & Co Ltd 1979 SLT (Notes) 9 and Glen v Cork 1979 SLT (Notes) 43, where interest was awarded at less than the full rate but for the whole period since the date of the accident.    [Back]

Note 153   Eg Jarvie v Sharp 1992 SLT 350.    [Back]

Note 154   Words in parenthesis in s 1(1A). See Orr v Metcalfe 1973 SC 57 per Lord President Emslie at 60.    [Back]

Note 155   See para 2.37.    [Back]

Note 156   See para 2.38.    [Back]

Note 157   (1748) M 550.    [Back]

Note 158   (1868) 6M 406. No express mention is made of repetition but this does appear to have been the basis of the claim for repayment. For two early decisions which might also now be characterised as claims for repetition, see Gray v Cuthbert (1677) M 552 and Blair v Gilmour (1678) M 552: in each interest was refused but "pro damno et interesse" the principal sum was doubled.    [Back]

Note 159   Countess of Cromertie and Mackenzie v Lord Advocate (1871) 9M 988.    [Back]

Note 160   The case was distinguished on this basis in Gwydyr v Lord Advocate (1894) 2 SLT 280, another case concerning teinds paid in error. The short report of this case discloses that interest was awarded at the rate of 3 per cent but unfortunately does not expressly confirm the date from which interest was held to run.    [Back]

Note 161   1913 SC 265.    [Back]

Note 162   See also Tibbert v McColl, 1994 SC 178, a case concerning breach of trust, in which the court left open the possibility that the claim was correctly characterised as one for recompense. Interest was awarded from the date of citation but the court accepted a submission that it had a discretion to award interest from an earlier date.    [Back]

Note 163   The "Olga" v The "Anglia" (1905) 7F 739, following The "Crathie" [1897] Prob Div 178.    [Back]

Note 164   The "Devotion II" 1979 SC 80.    [Back]

Note 165   The "Ben Gairn" 1979 SC 98, following The "Aldora" [1975] QB 748.    [Back]

Note 166   Ross v Ross (1896) 23R 802.    [Back]

Note 167   S 1.    [Back]

Note 168   Some obligations are owed mutually: by a husband to his wife and by a wife to her husband.    [Back]

Note 169   Under the Debtors (Scotland) Act 1987, s 53.    [Back]

Note 170   Family Law (Scotland) Act 1985, s 3(1)(c). The power to backdate has been used sparingly; for an example see Walker v Walker 1991 SLT 649.    [Back]

Note 171   Clive, Husband & Wife (4th edn, 1997), para 12.022 and authorities cited.    [Back]

Note 172   Fletcher v Young 1936 SLT 572 (Outer House). The date from which interest was agreed to run is not clear from the report.    [Back]

Note 173   Family Law (Scotland) Act 1985, s 8(1).    [Back]

Note 174   Ibid s 14(2)(j).    [Back]

Note 175   Geddes v Geddes 1993 SLT 494. Lord President Hope at 500 drew an analogy with the entitlement to interest of an unpaid seller of heritable property where the purchaser has been granted possession of the subjects. See also Tahir v Tahir (No 2) 1995 SLT 451, Lord Clyde at 453, and Welsh v Welsh 1994 SLT 828, Lord Osborne at 835-6.    [Back]

Note 176   Employment Tribunals (Interest) Order 1990 (SI 1990/479); Employment Tribunals (Interest on Awards in Discrimination Cases) Regulations 1996 (SI 1996/2803).    [Back]

Note 177   Law Reform (Miscellaneous Provisions) (Scotland) Act 1980, s 18.    [Back]

Note 178   Competition Appeal Tribunal Rules 2003 (SI 2003/1372), rule 56(1).    [Back]

Note 179   Copyright, Designs and Patents Act 1988, s 151A.    [Back]

Note 180   See Farrans (Construction) Ltd v Dunfermline District Council 1988 SLT 466, and Elliott v Combustion Engineering Ltd 1997 SC 126, in which it was held that an arbiter, who had been appointed following the raising of an action for payment, had no power to award interest on sums due for a period prior to the date of citation in the action.    [Back]

Note 181   John G McGregor (Contractors) Ltd v Grampian Regional Council 1991 SLT 136.    [Back]