‘Awards of Statutory Interest: A Broad Brush’ by Michelle Caney

In the recent case of Carrasco v. Johnson [2018] EWCA Civ 87, the Court of Appeal took the opportunity to provide useful guidance in relation to awards of statutory interest.  At first instance, a District Judge awarded statutory interest at 3% in respect of a loan agreement between two private individuals.  The defendant sought to appeal the rate of interest awarded.

In giving the leading judgment, Hamblen LJ referred to various earlier authorities and provided a concise summary of the guidance which can be derived from those cases at paragraph 17:

(1)   Interest is awarded to compensate claimants for being kept out of money which ought to have been paid to them rather than as compensation for damage done or to deprive defendants of profit they may have made from the use of the money.

(2)   This is a question to be approached broadly.  The court will consider the position of persons with the claimants’ general attributes, but will not have regard to claimants’ particular attributes or any special position in which they may have been.

(3)   In relation to commercial claimants the general presumption will be that they would have borrowed less and so the court will have regard to the rate at which persons with the general attributes of the claimant could have borrowed.  This is likely to be a percentage over base rate and may be higher for small businesses than for first class borrowers.

(4)   In relation to personal injury claimants the general presumption will be that the appropriate rate of interest is the investment rate.

(5)   Many claimants will not fall clearly into a category of those who would have borrowed or those who would have put money on deposit and a fair rate for them may often fall somewhere between those two rates.

In respect of the specific arguments that were put forward on behalf of the defendant in an attempt to challenge the rate of interest, Hamblen LJ said at paragraph 27: “The Appellant’s arguments in this case highlight the importance of the principle that the court does not inquire into the detailed financial position of the claimant, but looks only at general or class attributes.  To examine properly, for example, the claimant’s financial position throughout the relevant period; the borrowing carried out by her, when and on what terms; whether and how she needed so to borrow; the uses to which she might otherwise have put the money and the financial consequences of so doing; the extent to which any of these matters were known or in the reasonable contemplation of the Respondent etc. would have required a mini or indeed major trial, consumed significant time and expense and may well not have resulted in definitive answers.  The broad approach which the court adopts is fair, practical and proportionate.”

Perhaps unsurprisingly, the Court of Appeal found no error of law in the decision below and held that the conclusion of District Judge in relation to the rate of interest to be awarded fell well within the generous ambit of her discretion.  The appeal was therefore dismissed.

The headline point to take from the appeal is that the court will not delve deeply into the specific financial circumstances of a party in order to determine what rate should be awarded; instead the court will apply general principles in a fair, practical and proportionate way.

Michelle Caney