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Balancing act

05 Oct 2018 / Courts Print

Balancing act

Under the Courts Act 1981, section 20.2, the Minister for Justice may change the rate of interest under section 26 of the Debtors (Ireland) Act 1840.

But a very significant change brought about by the 1981 act was that, for the first time, where there was no contractual right to interest, the court had a statutory discretion to order payment of interest on any pecuniary loss, from the period when the amount thereof became due until the date of judgment.

Payment of interest

Under section 22.1 of the 1981 act, the court may order payment of interest (at the rate specified for the time being in section 26 of the 1840 act) on the whole or any part of the sum in respect of the whole or any part of the period between the date when the cause of action accrued, and the date of judgment.

But no interest may be awarded on interest, and no interest is awarded under section 22, if there is a right otherwise to interest.

No interest is awarded on damages for personal injuries or on a person’s death (save for pecuniary loss). No such interest applies to awards not exceeding £150 (€190.46) or associated costs (1981 act, section 23).

Although a PIAB order to pay is equivalent to a judgment, section 22 interest does not apply to it (Personal Injuries Assessment Board Act 2003, section 40.1 and 40.2).

The interest rate decreased from 8% per annum to 2% per annum (SI 624/2016) with effect from 1 January 2017.

The debt is due

A debt due as a result of an ordinary trading or commercial transaction should attract interest under section 22 of the Courts Act 1981 (per Finlay P in Mellowhide Products Limited v Barry Agencies Limited). That 1982 case established that only a judge may award interest under the Courts Act 1981. Thus, it is not competent for a registrar or the Master of the High Court to do so.

Discretion

In relation to the discretion of a judge to award Courts Act interest, Finlay P stated: “Where a debt is due as the result of an ordinary trading or commercial transaction, it would appear to me that the debtor delaying the due payment of his liabilities is clearly and in a sense intentionally depriving his creditor of the use and value of the money concerned.

I am also influenced by the fact, as a matter of common knowledge, that the amount money can earn by way of interest rates at present is higher than the figure of 11%, which is now provided in the Debtors (Ireland) Act 1840. For these reasons, I am satisfied that the plaintiff is entitled to an order for interest and I so decree.”

In that case, Courts Act interest was ordered from the date on which the debt became due. The judgment also indicated that it was not necessary to claim Courts Act interest in the pleadings, though “such a claim may well be a wise precaution”.

Hepatitis C Compensation Tribunal

The Hepatitis C Compensation Tribunal had discretion to award interest under the Courts Act 1981 (so held by the Supreme Court in O’C v Minister for Health; see the last page of the judgment of Denham J).

An interesting and important Supreme Court case in relation to Courts Act interest is Reaney and Others v Interlink Ireland Limited (2018), in which O’Donnell J gave judgment whereby the court, to a limited extent, allowed the defendants appeal by substituting €26,001.26 for the award of interest of €57,325 made by the Court of Appeal, and reversed the conclusion of the Court of Appeal that interest should be included in a lodgment.

The defendants’ appeal was otherwise dismissed.

Economics 101

At paragraph 11 of the judgment, O’Donnell J stated: “It is rudimentary economic theory that money has a time value. The person who has a sum of money over a period can obtain a benefit either in interest on that sum if invested (or other return on investment), or interest avoided because that sum does not have to be borrowed.

By the same token, a person who has not received money incurs a cost, in particular if they have had to borrow.

By 1981, a decade of inflation had shown that, in many cases, an award of damages, particularly in commercial or contractual situations, could fall well short of a full remedy for a wronged party because the real value of the award at the conclusion of the proceedings could be substantially less than that monetary amount had been worth in real terms at the time of the breach of contract or the failure to pay.”

Trial judge’s discretion

O’Donnell, J continued (at paragraph 17): “As already set out, I would be slow to review the exercise of a trial judge’s discretion. A judge may have a very good sense of the manner in which the case has proceeded, how diligently it has been prosecuted, and indeed the extent to which the case can be said to be one which is clear-cut.

To the extent that any claim can be said to approximate to a claim for a price paid or a debt due, then interest might relatively routinely be awarded. In such cases, however, it may still be appropriate to take account of how diligently the proceedings have been prosecuted.

“In this case, for example, the Court of Appeal directed that interest should only accrue from the date of the commencement of the second set of proceedings, and I would respectfully agree. In general, therefore, to the extent to which it can be said that at the conclusion of a case a trial judge can conclude that the defendant ought to have paid the money earlier, then interest could properly be awarded.

“Thus, if the defendant has refused to pay a contractual price, and in particular in those cases in which it has raised a counter claim for unliquidated damages, which has been dismissed, it would be appropriate to award interest unless other features are apparent.

“On the other hand, where there is a genuine dispute which requires to be resolved, and perhaps some merits on either side, it may be much more difficult to say that the sum awarded ought to have been paid at a much earlier date, and therefore that interest should accrue. I consider that this approach is broadly consistent with what is said in Mellowhide and with what was done in Concorde Engineering.”

This was a reference to Concorde Engineering Company Limited v Dublin Bus, where McCracken J, having heard a road traffic case, gave judgment for the plaintiff. Interest had been claimed by the plaintiff, but not sought at the trial. McCracken J refused to allow the question of Courts Act interest to be argued almost nine months after perfection of the original order.

Punitive measure

An award of Courts Act interest was one of the issues dealt with by the Supreme Court in First Active Plc v Brian Cunningham, in which McKechnie J (at paragraph 36), stated: “Courts Act interest does not follow as of right, and the decision on whether or not to apply it is a delicate balancing act, given that it can amount to a punitive measure.

Although the court cannot alter the rate at which interest accrues, it does have discretion as to the portion of the sum on which interest is awarded and the period for which it is awarded.”

McKechnie J (paragraphs 40-41) further referred to the fact that the central purpose of section 22 of the 1981 act is to enable the court to make provision for the delay experienced in securing judgment.

Uncertainty

It could be said that the judgment of O’Donnell J in Reaney has introduced an uncertainty about the way in which a court may decide whether to award Courts Act interest or not. There is a lot to be said for having greater certainty in this regard, and perhaps it might be better, unless there were cogent circumstances leading to a contrary view, to hold that, where a party proves a debt owed by another party, the claimant should be entitled to Courts Act interest.

If a defendant owes a debt, he can hardly complain about delay on the part of the plaintiff in seeking to enforce it, given that the debtor has the opportunity (though perhaps not the means) to pay the debt prior to the issuing of proceedings.

Preferable situation?

Under section 30 of the Courts and Court Officers Act 2002, interest on costs at 2% per annum was allowed from the date of the order until the amount was agreed, or until the date of the certificate of taxation. From the appropriate date until the amount is paid, interest was due at the rate (which was then 8% per annum) specified in section 26 of the Debtors (Ireland) Act 1840.

But section 30 of the 2002 act was repealed by section 41 of the Civil Liability and Courts Act 2004, with the effect that no interest is allowed on costs until those costs are agreed or taxed.

Liability date

It is suggested that the situation under section 30 of the 2002 act was preferable to that introduced by section 41 of the 2004 act in that, in relation to liability, interest should run from the date that liability is incurred, rather than from the date on which the extent of that liability is ascertained.

Although the current 2% rate of Courts Act interest is only 25% of what it was before 1 January 2017, in the current economic climate, it is still a substantial rate having regard to available deposit rates. Thus, for example, it is a multiple of over 13 times the current State savings deposit account rate, which is only 0.15% p.a.

Already calculated

Judges may find it easier to award interest under the Courts Act 1981, where the amount of that interest has already been calculated, rather than to give an award related to a principal amount for a specified period, where the resulting amount of interest is unknown.

Thus, where, for example, an actuary is calculating a past loss of earnings, if such interest is to be sought, it is prudent to request the actuary to include this in his calculations. In cases where no actuary is involved, it would be helpful to a judge who is being asked to award Courts Act interest to inform the court of the amount of the interest being sought.

Patrick Keane
Patrick Keane is a senior counsel