Scottish Law Commission (Discussion Papers)

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SCOTTISH LAW COMMISSION

Discussion Paper No 127

Discussion Paper on Interest on Debt and Damages

January 2005

This Discussion Paper is published for comment and criticism and does not represent the final views of the Scottish Law Commission

EDINBURGH: The Stationery Office

£xx.xx

This publication (excluding the Scottish Law Commission logo) may be re-used free of charge in any format or medium for research for non-commercial purposes, private study or for internal circulation within an organisation. This is subject to it being re-used accurately and not used in a misleading context. The material must be acknowledged as Crown copyright and the title of the publication specified.

For any other use of this material please apply for a Click-Use Licence for core material at www.hmso.gov.uk/copyright/licences/core/core_licence.htm or by writing to: OQPS Licensing Division, St Clements House, 2-16 Colegate, Norwich, NR3 1BQ; Fax: 01603 723000; Email: licensing@oqps.gov.uk.

The Scottish Law Commission was set up by section 2 of the Law Commissions Act 1965^[1] for the purpose of promoting the reform of the law of Scotland. The Commissioners are:

The Honourable Lord Eassie, Chairman

Professor Gerard Maher, QC

Professor Kenneth G C Reid

Professor Joseph M Thomson

Mr Colin J Tyre, QC.

The Chief Executive of the Commission is Miss Jane L McLeod. Its offices are at 140 Causewayside, Edinburgh EH9 1PR.

The Commission would be grateful if comments on this Discussion Paper were submitted by 29 April 2005. Comments may be made on all or any of the matters raised in the paper. All correspondence should be addressed to:

Mr Alastair Clyde

Scottish Law Commission

140 Causewayside

Edinburgh EH9 1PR

Tel: 0131 668 2131

Fax: 0131 662 4900

Email: info@scotlawcom.gov.uk

NOTES

Where possible, we would prefer electronic submission of comments, either by email to info@scotlawcom.gov.uk or through the Contact page on our website. We should make it clear that the comments we receive from you may be (i) referred to in any later report on this subject and (ii) made available to any interested party, unless you indicate that all or part of your response is confidential.

The Discussion Paper is available on our website at www.scotlawcom.gov.uk or can be purchased from TSO Scotland Bookshop.

If you have any difficulty in reading this document, please contact us and we will do our best to assist. You may wish to note that an accessible electronic version of this document is available on our website.

Note 1 Amended by the Scotland Act 1998 (Consequential Modifications) (No 2) Order 1999 (SI 1999/1820). [Back]

Contents

	Paragraph
PART 1 Introduction
Terms of reference	1.1
Background to the reference	1.2
Scope of the Discussion Paper	1.3
Research: rates of interest claimed	1.6
Structure of the Discussion Paper and outline of our proposals	1.7
Legislative competence	1.15
PART 2 The Present Law
Interest on debt	2.1
Historical background	2.1
Foundations of the modern law	2.10
Summary of the present law	2.15
(a) Interest due by agreement	2.16
(b) Interest due by statute	2.17
(c) Interest due by implication at common law	2.19
Loans	2.20
Possession of heritable property without payment	2.21
Use of funds belonging to another	2.22
(d) Interest due on money wrongfully withheld	2.23
Interest on damages	2.24
Historical background	2.24
Statutory interventions	2.26
Summary of the present law	2.34
Damages other than for personal injury	2.34
Damages for personal injury	2.35
Interest on sums other than debts or damages	2.36
Interest on sums due in order to reverse unjustified enrichment	2.37
Ship collisions and salvage	2.38
Legal rights in a deceased's estate	2.39
Aliment and financial provision on divorce	2.40
Awards by tribunals	2.43
Arbitration and adjudication	2.44
PART 3 The Case for Reform
The purpose of an award of interest: our guiding principles	3.1
Criticisms of the present law	3.7
Inconsistent treatment of debt and damages	3.8
The wrongful withholding concept	3.10
Interest on damages	3.15
Interest in other circumstances	3.18
Rate of interest	3.19
PART 4 Interest on Contractual Debt
Introduction	4.1
A statutory entitlement to interest?	4.3
Date from which interest runs	4.10
Supply of goods and services	4.15
Sale or lease of heritable property	4.18
Contractual debt where entitlement or quantification requires determination by a third party	4.23
Contracts of employment	4.24
Cautionary obligations: cautioner's right of relief	4.26
Insurance and other claims for indemnity	4.27
Interaction with the Late Payment of Commercial Debts (Interest) Act 1998	4.30
Exception for interest due under other statutory provisions	4.32
Contracting out of the new scheme	4.34
Judicial discretion to remit interest	4.39
Interaction with claims for interest as a head of damages	4.47
Money held with the consent of the persons entitled to it	4.50
Loans	4.51
Obligations to account for money belonging to another	4.53
PART 5 Interest on Damages
Introduction	5.1
Date for commencement of running of interest	5.3
Application of the general rule to particular types of loss	5.9
Pecuniary losses (including out-of-pocket expenses)	5.9
Solatium	5.12
Property lost or destroyed	5.13
Date for termination of running of interest	5.19
Judicial discretion to remit interest	5.21
PART 6 Interest in Other Circumstances
Introduction	6.1
Unjustified enrichment	6.4
Repetition	6.5
Recompense	6.6
Salvage	6.12
Limitation funds	6.14
Obligations to account for money to which another person is entitled	6.15
Legal rights in a deceased's estate	6.23
Aliment and financial provision on divorce	6.25
PART 7 Rate of Interest
Introduction	7.1
The judicial rate of interest	7.5
What does "interest" represent?	7.12
Fluctuation and base rate	7.14
Selection of base rate	7.18
Prescribed rate in other legal systems	7.23
Judicial discretion	7.29
Foreign currency awards	7.33
Changes to the prescribed rate	7.36
Method of calculation	7.39
Interest at half the prescribed rate	7.40
Post-decree interest	7.43
Interest under the Late Payment of Commercial Debts (Interest) Act 1998	7.53
Rates of interest under other existing statutory provisions	7.55
Judicial rate specified	7.56
No rate specified	7.59
Rate other than the judicial rate specified	7.60
PART 8 Compounding of Interest
Compound interest in Scots law	8.1
Law Commission proposals	8.12
Other jurisdictions	8.19
Should Scottish courts have the power to award compound interest?	8.22
The case against compound interest	8.25
The case for compound interest	8.29
Judicial discretion	8.32
Compounding of risk	8.36
Claiming simple interest	8.37
Proposals	8.38
How should compound interest be calculated and what should be the frequency of compounding?	8.40
PART 9 Tenders	Part 9
PART 10 Tribunals	Part 10
PART 11 Arbitration, Adjudication and other forms of Dispute Resolution
Introduction	11.1
Arbitration	11.2
Adjudication	11.10
Other forms of dispute resolution	11.11
PART 12 Transition
Introduction	12.1
Contractual debts	12.2
Non-contractual debts	12.7
Damages	12.8
Conclusion	12.10
PART 13 List of Proposals and Questions	Part 13
Appendix A Current Statutory Provisions	Appendix A
Appendix B Statutory Provisions Creating Entitlement to Interest	Appendix B
Appendix C Research Project	Appendix C
Appendix D Comparison of Interest Rates	Appendix D
Appendix E Comparison of Simple and Compound Interest	Appendix E
Appendix F Law Reform Projects in Other Jurisdictions	Appendix F

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