INTEREST ON DAMAGES AT 8% (AND THE DEFENDANT’S CONDUCT MATTERS): COURT OF APPEAL DECISION CONSIDERED
In Perry -v- Raley Solicitors  EWCA Civ 314 the Court of Appeal decided that the appropriate rate for interest on damages was 8% from the date of breach. It is not often that questions of interest on damages are considered at an appellate level. There is an important discussion of the basis on which interest is awarded, particularly in professional negligence cases. There is a clear indication that the conduct of the defendant can be a relevant factor.
“In my judgment, I consider that it is wholly appropriate to adopt the judgment debt rate in the present case. That is not just because the judgment debt rate more adequately compensates Mr Perry for the fact that he has been kept out of his money for so long, but also because the conduct of Raleys (or their insurers), in their long drawn-out defence of this claim, deserves appropriate sanction. This is a case where Raleys refused to accept that they were in negligent breach of duty until two days before trial; where the defence which they filed to Mr Perry’s claim raised every conceivable defence, including putting Mr Perry to proof that he would have succeeded in his claim under the Scheme; where Raleys effectively sidelined the findings of the jointly instructed sole expert, Mr Tennant, and attempted, contrary to clear statements in the authorities, to conduct a trial of the underlying issues in the hypothetical claim under the Scheme, based on a superficial cross-examination of an unsophisticated claimant by reference to historical medical records going back many years. If that is the manner in which Raleys, and/or their insurers, propose to conduct what Mr Quiney referred to as “many similar claims”, then they should be under no illusion that, at least in my judgment, a fair and just result justifies interest being awarded on the judgment debt basis. I note that it was not suggested in argument that Mr Perry or his advisers had been responsible for any delay in the resolution of the litigation.”
The Court overturned the judge’s finding that the defendant solicitors were not liable in damages. The claimant had made a claim under the DTI VWF scheme. The defendant solicitors acted for the claimant in that action. He later sued the solicitors arguing that they failed to make a claim for certain heads of damages that would have been recoverable. The judge at first instance found that damages were not payable. The Court of Appeal held that the claimant should succeed on the basis of loss of chance and awarded damages in the sum of £14,556.15.
THE JUDGMENT IN RELATION TO INTEREST
Lady Justice Gloster then considered the arguments in relation to interest.
“The appropriate interest rate – the arguments
It was common ground that an award of simple interest pursuant to section 69 of the County Courts Act 1984 in respect of the period pre-judgment is a matter within the court’s discretion and that in this case the discretion should be exercised in favour of the appellant. However, what was the appropriate rate was not agreed.
Mr Watt-Pringle submitted that the appropriate rate of interest was the Judgments Act rate (currently and at all relevant times 8%), which the preponderance of authority indicated is the appropriate rate in cases of negligent solicitors or surveyors, particularly in cases where the award is made many years after the loss was incurred: see Pinnock v Wilkins & Son (CA transcript, 29.01.90); Watts v Morrow  1 WLR 1421, at 1443H – 1444C and 1446A – B and 1446E; Hamilton-Jones v David & Shane  1 WLR 924, paragraph 81, Neuberger J; Credit Lyonnais SA v Russell Jones & Walker  Lloyd’s Rep PN 7, paragraphs 41-42. Although in other cases the Special Account rate had been applied, that rate had been only 0.5% since 1 July 2009 and would not properly compensate Mr Perry for being kept out of his money for 10 years.
Mr Quiney, on the other hand, submitted that the appropriate rate was the special account rate: he relied on Harrison v Bloom Camillin (No 2)  Lloyd’s Rep PN 404, at 408 – 410, per Neuberger J; and Griffiths v Last Cawthra Feather  PNLR 27, at p.622, per HH Judge Grenfell. He submitted that the special account rate was the appropriate rate because: it was fair and did not over compensate Mr Perry; it was the typical rate in personal injury claims, such as the underlying claim in this case; and, as this claim was one of many similar claims, particular care needed to be taken in deciding this point “fairly and justly”, as it could affect a number of other claims.
The appropriate interest rate – determination
In my judgment, the appropriate interest rate, in the particular circumstances of this case, for the entire period from 1 December 2006 to the date of judgment in this court is the judgment rate of 8% per annum. My reasons are as follows.
Had it not been for Raleys’ negligence, the reasonable chances are that by 1 December 2006 at the latest, Mr Perry would have received the sum of £14,556.15 from the Scheme as a services claim award. This would have included an element of interest at the Scheme rate up until December 2006. If he were only to be awarded simple interest thereafter at the special account rate – 6% until 31 January 2009, 3% from February to May 2009, 1.5% in June 2009 and 0.5% from 1 July 2009 until judgment – he would not, in my judgment, be adequately compensated for the lack of the use of that money in the intervening period not least because of the erosion of the value of the fund due to inflation.
In Pinnock v Wilkins & Son the Court of Appeal was divided as to whether or not the judge who had awarded interest at the judgment debt rate had exercised his discretion in a way which should be interfered with by the Court of Appeal. Ralph Gibson LJ, in the minority, held that it was a wrong exercise of the discretion as he would have awarded interest at the short term investment/special account rate. Nicholls LJ, with whom Fox LJ agreed, upheld the judgment debt rate, concluding that the judge exercised his discretion in a way which could not be criticised. At page 16 of the transcript, having set out the relevant short-term investment account rates and judgment debt rates, he said as follows:
“When considering these figures, and noting that for the past four and a half years the Judgments Act rate has been higher than the special account rates, and considering whether it is just to award the higher rate, it is to be borne in mind that under Section 35A of the Supreme Court Act 1981 only simple interest can be awarded, however long the period may be. To be contrasted with this is the special account and the lower rates of interest payable on this account. The interest payable from time to time on money in the special account is compound interest, the interest accruing twice-yearly: see rule 27 of the Courts Funds Rules 1987. So an award of simple interest at the special account rate will not put the judgment creditor in the same position as having received the money and paid it into the special account as an investment, for had he done so he would effectively have received the higher rate which compound interest would have yielded for him.”
“Of course, whatever rate a judge may choose as a convenient starting point, he will consider all the circumstances of the case when making his decision. In particular, if a plaintiff and his advisers have not been diligent in commencing the proceedings and vigorous in pursuing them, the court will be astute to take that into account appropriately in determining what the justice of the case requires regarding interest.
I turn to the facts in the present case. The judge awarded interest for the period of five years and ten months from March 1983 to January 1989 at the rate payable on judgment debts from time to time over the period: 12 per cent. for the two years up to April 1985 and 15 per cent. for the following three years and ten months. That is equivalent to an average rate for the whole period of approximately 14 per cent. per annum. Before allowing for the interim payment of £10,000 made in May 1987, that rate of interest produces an interest award in the sum of £36,650. In this Court the defendants contended that the rate should not be higher than the special account rate. Application of that rate for the whole period would produce, on a capital sum of £45,000, an interest award of £31,081, the equivalent to an average rate of 11.8 per cent. per annum. A third figure canvassed before us was the Judgments Act rate current in March 1983 when, but for the solicitor’s negligence, Mr Pinnock would have received his £45,000. That rate was 12 per cent. per annum, and would produce an interest award of £31,500.
Criticism was made of some of the judge’s observations and reasoning. In particular it was said that the judge’s reasoning should have led to an award of interest at the Judgments Act rate current in March 1983, as the rate which would have applied to a judgment obtained then. Thus, on his own reasoning, the judge should have awarded interest at the rate of 12 per cent. throughout the 70-month period, and not at a fluctuating rate.
I do not find it necessary to pursue these criticisms. Let me assume in favour of the defendant that these criticisms are well-founded. The consequence of that would be that, the judge having misdirected himself, it is for this Court to exercise its own discretion regarding the appropriate rate of interest. For my part I think that the appropriate rate in this case is the rate which, over the relevant period, was payable from time to time on judgment debts. There is nothing abnormal or special about this rate which requires special factors to justify its use. If a special reason were needed, there is one here. The period of nearly six years came on top of an initial lapse of time of four and a half years. Because of his solicitor’s negligence, Mr Pinnock did not receive payment until January 1989 for injuries sustained in an accident over ten years earlier, in September 1978. That was a factor which impressed the judge, and I agree with him.
Counsel for the defendants told us that in personal injuries cases the use of short term investment account rate is “hallowed” . Whether this is so or not, this is not a personal injuries case. It is a case of professional negligence in the conduct of a client’s personal injuries claim, and the interest under consideration is interest payable after the amount of the damages which would have been recoverable in March 1983 for personal injuries had first been calculated in the usual way.”
In Harrison v Bloom Camillin Neuberger J had to consider the appropriate rate in a case where claimants sued their previous solicitors for negligence in allowing their claim against their former accountants to become time-barred. Negligence had been admitted. In the relevant passages of his judgment he cited from the Fourth Edition of Jackson and Powell on Professional Negligence. It was there suggested that, although the trend had previously been in favour of the judgment debt rate, nonetheless the judgment debt rate was usually higher than that awarded in respect of pecuniary losses in, for example, personal injury actions and that accordingly the appropriate rate in claims against professionals in cases such as the present should be the special account rate. Neuberger J concluded, albeit with some hesitation, that the short-term investment rate was the right rate to select. That was because:
“It is more flexible and therefore, unlike the judgment debt rate, it better reflects changes in value of money and changes in interest rates more realistically. Furthermore, judgment debt rate tends to be high, for the reasons given by Bingham LJ and the editors of Jackson and Powell and there is no reason to penalise the defendants in the present case. The fact that the period of time involved in the present case is long seems to me to cut both ways.”
“Interest is awarded to compensate the claimant for being deprived of his damages for a period of time, not as compensation for the damage done to him82 or as a punishment for the defendant. For this reason the nature of the transaction giving rise to the claim will be material to the choice of the rate of interest. A commercial transaction will more readily attract a commercial rate of interest than a domestic house purchase. The decisions of the Court of Appeal in Pinnock v Wilkins & Sons83 and Watts v Morrow84 establish that the court may take the rate applicable to judgments by s.17 of the Judgments Act 1838. However, that is only an option and should not be applied without considering whether some other, more flexible rate is more appropriate.85″
85. For a detailed critique of these decisions see paragraphs 1-182 to 1-188 of the 4th edn of this work. In Harrison v Bloom Camillin (No.2)  Lloyd’s Rep. P.N. 404 (Neuberger J); and Griffiths v Last Cawthra Feather (A Firm)  P.N.L.R. 27 (HH Judge Grenfell sitting in the TCC) interest was awarded on damages awarded against solicitors at the short term investment rate.”
In my judgment, I consider that it is wholly appropriate to adopt the judgment debt rate in the present case. That is not just because the judgment debt rate more adequately compensates Mr Perry for the fact that he has been kept out of his money for so long, but also because the conduct of Raleys (or their insurers), in their long drawn-out defence of this claim, deserves appropriate sanction. This is a case where Raleys refused to accept that they were in negligent breach of duty until two days before trial; where the defence which they filed to Mr Perry’s claim raised every conceivable defence, including putting Mr Perry to proof that he would have succeeded in his claim under the Scheme; where Raleys effectively sidelined the findings of the jointly instructed sole expert, Mr Tennant, and attempted, contrary to clear statements in the authorities, to conduct a trial of the underlying issues in the hypothetical claim under the Scheme, based on a superficial cross-examination of an unsophisticated claimant by reference to historical medical records going back many years. If that is the manner in which Raleys, and/or their insurers, propose to conduct what Mr Quiney referred to as “many similar claims”, then they should be under no illusion that, at least in my judgment, a fair and just result justifies interest being awarded on the judgment debt basis. I note that it was not suggested in argument that Mr Perry or his advisers had been responsible for any delay in the resolution of the litigation.”
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