Claim No 2006 Folio 1267 
Neutral Citation Number: [2013] EWHC 89 (Comm)

IN THE HIGH COURT OF JUSTICE 
QUEEN'S BENCH DIVISION 
COMMERCIAL COURT

Royal Courts of Justice
The Rolls Building 
London EC4A 1NL 

18 January 2013

Before:
 
MR JUSTICE CHRISTOPHER CLARKE 
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BETWEEN:

NOVOSHIP (UK) LIMITED and others
 
Claimants 
‑and‑

VLADIMIR MIKHAYLYUK and others
 
Respondents
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MR D DOWLEY QC (instructed by Ince & Co) appeared on behalf of the Claimants.

MR S BERRY QC (instructed by Lax & Co) appeared on behalf of the Sixth to Eighth Defendants.
Judgment
MR JUSTICE CHRISTOPHER CLARKE:  

1.	On 14 December 2012 I ordered that there should be judgment against Mr Mikhaylyuk, the Ruperti defendants, and the Nikitin defendants in respect of the principal due in the light of the judgment that I had handed down shortly before.

2.	I ordered that a hearing should take place today in order to assess pre‑judgment interest.

The dispute

3.	There is a dispute on which a large sum of money potentially turns as to the date from which interest should be calculated under the Judgments Act 1838.  The claimants contend that pre‑judgment interest on the principal should be calculated up to 14 December 2012, and that interest at the Judgments Act rate of 8 per cent should run on the sum of the principal and the interest thereafter, that is to say from and including the day after 14 December.

4.	In this ruling I deal with the issue as between the claimants and the Nikitin defendants who, through Mr Steven Berry QC, have made submissions that I should adopt a different course. I shall consider the impact of this ruling on the defendants other than the Nikitin defendants hereafter.

5.	The Nikitin defendants contend that the interest calculations which have been prepared down to 14 December should be continued down to today, and that Judgments Act interest on the principal and on the interest thus calculated should begin tomorrow.

6.	There is also a dispute as to the rate at which Judgments Act interest should be paid. Section 17 of the Judgments Act 1838 provides as follows:

"1	Every judgment debt shall carry interest at the rate of 8 per cent per annum from such time as shall be prescribed by rules of court until the same shall be satisfied and such interest may be levied under a writ of execution on such judgment.  

2.	Rules of court may provide for the court to disallow all or part of any interest otherwise payable under subsection 1."

7.	There is a minor issue as to how the Act should now be read.  That which I have set out comes from Lexis. As originally enacted the Act read as follows:
"Every judgment debt shall carry interest at the rate of £ 4 per centum per annum from the time of entering up the judgment ... until the same shall be satisfied and such interest may be levied under a writ of execution on such judgment."

8.	In the current edition of Halsbury’s Statutes the first subsection is set out as follows:

"Every judgment debt shall carry interest at the rate of [8 pounds per centum per annum] from such time as shall be prescribed by rules of court ... until the same shall be satisfied and such interest may be levied under a writ of execution on such judgment."

9.	The difference arises because the relevant order which produced the latest change in subsection 1 of section 17 ‑‑ that is to say the Judgment Debts (Rate of Interest) Order 1993 ‑‑ provided as follows:

"(2)  In relation to any judgment entered up after the coming into force of this order, section 17 of the Judgments Act 1838 shall be amended so as to substitute for the rate specified in that section as the rate at which judgment shall carry interest the rate of 8 per cent per annum."

10.	It appears, therefore, that the inclusion in Halsbury of the words "8 pounds per centum per annum" does not represent the Act in the form amended by the 1993 order.

11.	Little turns upon this, save that Mr Berry submitted that the way in which the Act is expressed in Halsbury ‑‑ that is to say with the reference to “8 pounds per centum per annum” ‑‑ served to make it plain beyond argument that the rate could not be treated as constituting any form of default rate in relation to a currency other than pounds.

12.	CPR 40.8 provides as follows:

"(1) Where interest is payable on a judgment pursuant to section 17 of the Judgments Act 1838 ... the interest shall begin to run from the date that judgment is given unless – 
...
 (b) the court orders otherwise. 

(2) The court may order that interest shall begin to run from a date before the date that judgment is given."

13.	Section 44(a) of the Administration of Justice Act 1970 which was inserted by section 1.1 of the Private International Law (Miscellaneous Provisions) Act 1995 provides:

"(1) Where a judgment is given for a sum expressed in a currency other than sterling, and the judgment debt is one to which section 17 of the Judgments Act 1838 applies, the court may order that the interest rate applicable to the debt shall be such sum as the court thinks fit.  

(2) Where the court makes such an order, section 17 of the Judgments Act 1838 shall have effect in relation to the judgment debt as if the rate specified in the order were substituted for the rate specified in that section."

		When does the judgment debt arise?

14.	The first question, therefore, is when is the date on which judgment was, or will have been, given such that a judgment debt arose or will arise?  It is clear from Thomas v Bunn [1991] 1 AC 362 that it is not the date of any judgment for damages to be assessed. In that case the court had to consider section 17 in its then form (see para 7 above).

15.	Lord Ackner, with whom the other members of the House agreed, said this:

"If the words used in this section are considered in isolation, the problem would not appear to be a difficult one.  It is accepted there cannot be a judgment debt until there is a judgment for a quantified sum, i.e. a final as contrasted with an interlocutory judgment.  Such a final judgment is to carry interest from the time of entering up 'the judgment', i.e. the judgment which creates the judgment debt, i.e. the final judgment.  This is made doubly clear by the provision that the interest shall run 'until the same shall be satisfied'.  Until there is a quantified sum which the judgment debtor is obliged by the terms of the judgment to pay, there is no judgment which he is able to satisfy.  The final provision in the section that 'such interest may be levied under a writ of execution on such judgment' must refer to the judgment which has created the judgment debt.  That is the final judgment."

16.	Much of the case was concerned with the anomaly that an order for the payment of costs to be taxed has been held to have to be construed for the purposes of section 17 as a judgment debt, and as to the significance, if any, of that fact, to the matters under consideration by the House.

17.	At page 380G Lord Ackner said as follows:

"The wording of section 17 clearly envisages a single judgment which constitutes the 'judgment debt'.  This 'judgment debt' can only arise where the judgment itself quantifies the sum which the judgment debtor owes to his judgment creditor.  The language of the section does not envisage an interlocutory judgment, but only a final judgment.  This was clearly the view of Kindersley VC in Garner v Griggs [1858] 27 LJ Ch 483.

18.	Having cited from that case, he said:

"I accordingly take the view the judgment referred to in section 17 of the Judgments Act 1838 does not relate to an interlocutory or interim order or judgment establishing only the defendant's liability.  The judgment contemplated by that section is the judgment which quantifies the defendant's liability, the judgment which has been referred to in the course of these appeals as 'the damages judgment'.  The artificial distinction drawn in the Borthwick case, based on the precise terms on which damages are ordered to be assessed, can no longer stand."

19.	The Nikitin defendants contend that interest under the Judgments Act begins to accrue when the court makes a final order identifying their total liability, and that that cannot be before today.

20.	The judgment debt which carries interest under the Judgments Act will in this case, they say, be the aggregate of the amounts set out in the judgment of 14 December, and the amounts to be set out in today's judgment. It is, as the House noted in Thomas v Bunn, necessary to look at the substance and not the form.  This, they submit, is particularly so in case such as this, where the pre‑judgment interest compounded at quarterly rests is part of the calculation of the profits which the court has ordered the Nikitin defendants to disgorge in respect of the Henriot Finance charters.

21.	In that respect my attention has been drawn to a note in the White Book at 40.8.9, which reads as follows:

"Where there is a judgment for debt or damages, normally it will include the principal sum (say £ 50,000) plus any interest awarded by the court (say £ 5,000) and the total sum (£ 55,000) will constitute the judgment debt.  Such a judgment may be not only a judgment given at the end of a contested trial, but a consent order or a judgment on admissions."

22.	Then a little later:

"…in accordance with rule 40.8, the resulting judgment debt (i.e. the £55,000) may carry interest until it is satisfied."

23.	That illustrates, Mr Berry submits, that it is a judgment which quantifies the entirety of the sum of principal and interest which is the only judgment in relation to which Judgments Act interest is to be paid.

24.	It is material to note that in Thomas v Bunn the choice which the court had to make was between holding that interest under the Act should run (i) from the date of the judgment for damages to be assessed; or (ii) from the date when the damages were determined.  It was not concerned with a situation, such as arises in this case, where judgment for the principal is given on one day and interest is determined and judgment given in respect of it on a later day.

25.	There was in Thomas v Bunn only one judgment which ordered the defendants to make an identified payment.  It was in that context that Lord Ackner said that the wording of section 17 envisaged "a single judgment" which constitutes the judgment debt.

26.	That does not in my view mean that when there are two judgments, one for principal and a later one for interest, each of which contains quantified sums, the Judgments Act interest cannot run under the former until the giving of the latter.

27.	In such a case there will not be a single judgment for the whole amount due.  Nor does it seem to me that the passage in the White Book was directed to a set of circumstances such as the present.

28.	I do not therefore regard Thomas v Bunn as compelling the conclusion that interest can only run from the date upon which the court makes a final order which, when taken with its earlier order, identifies the Nikitin defendants' total liability for principal and interest.

29.	Section 17 refers to a judgment debt carrying interest.  CPR 40.8 provides that interest shall run from the date that judgment is given.  Of necessity these provisions require that judgment be given for an identifiable sum on which interest can be calculated.  But where judgment is given for the principal sum first, that judgment constitutes a final judgment for a quantified sum, such as Thomas v Bunn holds to be necessary.

30.	Indeed, it is the only judgment which will ever be given for that sum.  Any judgment that I give now will be in respect of interest only.  But for the stay the defendants would have been obliged to make payment in respect of that judgment, and execution could be levied in respect of it.  I see no good reason why the judgment of 14 December should be held not by itself to fall within section 17, particularly when the section speaks of "Every judgment" as carrying a right to interest.

Interest on the principal

31.	I propose therefore to order that interest under the Judgments Act on the principal sums for which I gave judgment on 14 December shall run from that date.

Interest on the pre-judgment interest

32.	In respect of pre‑judgment interest ‑‑ that is to say interest on the principal sums down to 14 December 2012 ‑‑ the position is that there has been no judgment which determines what is the amount due.  At the hearing on 14 December, the questions of rate and compounding were determined, and an estimate of some US$ 48 million was given in respect of the relevant interest.

33.	I ordered the making of an interim payment of US$ 30 million, although that is subject to a stay. But no sum in respect of the totality of the interest has yet been fixed, or, save as to the US$ 30 million, ordered to be paid.

34.	The claimants say that in those circumstances I should order that interest on interest should run from 14 December, pursuant to the power given to the court under CPR 40.8(2) to order that interest run from a date before the date, i.e. today, when judgment is given in respect of the interest down to 14 December.

35.	They submit that it was obvious from 14 December that a large sum of interest was going to be due.  If matters had been dealt with on 14 December, there would have been a judgment for the sum of the principal and interest, and interest would accrue on that sum. There is, they say, no good reason why they should be denied the interest on interest which they would have recovered if the matter had been dealt with on 14 December.

36.	Were it otherwise, claimants would be unjustifiably disadvantaged if the calculation of interest had to take place after the principal was ascertained, either because the court ran out of time or because there was some delay for which the claimant was not to blame, or for other reasons.

37.	The Nikitin defendants say that if the claimants are to get Judgments Act interest on the principal from 14 December, they should only get Judgments Act interest on the interest on and from tomorrow.  The claimants will already be getting interest on the principal from 14 December. They should not get interest on the interest down to 14 December from 14 December as well.  The fact that they might have got such interest if all the calculations had been in place, and there was time to argue the interest issue, on 14 December, cannot justify them getting interest on interest when those conditions did not exist.

38.	I have come to the conclusion that the interest calculation should be carried down to 14 December, and that there should be Judgments Act interest on the interest thus calculated thereafter.

39.	In ordinary course a successful claimant gets his judgment for principal and interest at the same time, at any rate in a case which is not as sizeable as this one. 

40.	Depending on the facts of the case, that interest may have been compounded, as it is in the present case at quarterly rests.  He is then entitled from the date of judgment to interest on the sum of the principal and the interest. But any compounding ceases. Simple interest on the interest down to the date of judgment is some recompense for the absence of further compounding after the date of the judgment.

41.	The following circumstances seem to me of relevance in the present case.  Firstly, there has been a short interval of time between the determination of the principal and the determination of the interest.

42.	Secondly, most of the interest is being compounded with quarterly rests, as agreed by the parties in the light of a similar course taken by Mr Justice Andrew Smith in Fiona Trust.

43.	Thirdly, there has been no culpable delay.

44.	Fourthly, it would not, I think, have been practical for the court to have dealt with interest on 14 December, having regard to the size of the issues then to be dealt with and the complications in relation to interest.

45.	Fifthly, I have decided to award Judgments Act interest from 14 December, thus bringing any compounding to an end.

46.	In those circumstances, it seems to me that the right order is that interest shall run from 14 December.  If I were to order Judgments Act interest to run on the principal from 14 December, but for there to be no interest on interest running until tomorrow, the claimants would in my judgment be unacceptably prejudiced.  Compounding would have ceased on 14 December, without the benefit of interest on interest thereafter.

The rate

47.	I turn then to the rate of interest.  The judgment rate on sterling sums is 8 per cent per annum.  The court does not have power to alter that rate, as Mr Justice Hamblen observed in Standard Chartered Bank v Ceylon Petroleum Corporation [2011] EWHC 2094 (Comm) citing Schlumberger Holdings Limited v Electromagnetic Geoservices [2009] EWHC 773 per Mann J.

48.	The court does, however, have a discretion as to the date from which interest shall begin, which may be before judgment.

49.	Further, in the case of the Nikitin defendants, the judgment is in dollars, and section 44(a) of the 1970 Act gives the court a discretion as to the rate in the terms which I have set out.

50.	The claimants contend that there is no good reason to depart from the 8 per cent figure for sterling because the judgment is in dollars.  Whatever might have been the original basis for the specified interest figure for sterling, it has stood at 8 per cent since 1993, i.e. nearly 20 years ago, and should no longer be regarded as tracking actual interest rates over any given period.

51.	Instead, it is to be regarded as: 

"... providing a consistent, readily ascertainable, easily applied interest rate for judgment debts.  In deciding whether to adjust the rate it cannot therefore simply be relevant to note that there is a discrepancy between the judgment rate and the applicable rate of the currency (at least unless this discrepancy is significantly larger than that between base plus 1 per cent and the judgment rate)."
                                  
                                      [Claimants’ skeleton para 21.4]

	Discussion

52.	The primary purpose of an award for interest is to compensate the creditor for having been kept out of his money, not to penalise the paying party, as I decided in relation to interest on costs: see Fattal and Fattal v Walbrook Trustees (Jersey) Limited and Another [2009] 4 Costs LR 591.

53.	Interest should restore a claimant to the position in which it would have been if it had received the money.  Since the claimant may be kept out of his money, the award of interest should cover the cost of borrowing such money. This is the essential basis for pre‑judgment interest, and there seems to me no sufficient reason for a different approach in relation to interest post judgment.

54.	The rate fixed by the Lord Chancellor for sterling debts was intended to reflect sterling interest rates prevailing in the United Kingdom, as appears from the Report on International Law ‑‑ Foreign Money Liabilities of the Law Commission (No 124 (1983), Cmnd 9064) referred to by Mr Justice Hamblen in SCB v Ceylon Petroleum Corporation.

55.	The fact that the Lord Chancellor has failed to amend the rate in recent years, so that the current rate is 16 times the current base rate, does not seem to me to mandate a departure from this principle on the basis that it must now be regarded as a rate fixed to encourage the payment of debts, or simply as a figure to take which may protect a claimant whose judgment debtor is a long time in paying against the vicissitudes of the money markets, so that, in consequence, the court must, or should, in respect of  post judgment interest now take a different approach to that adopted in Fattal and SCB v Ceylon Petroleum Corporation.

56.	The 8 per cent figure certainly cannot be regarded as some sort of default rate for non‑sterling debts, save in the sense that if no one suggests otherwise, it will be applicable. Nor can it be taken to represent the current rate for borrowing in dollars, or indeed in sterling.  The purpose of section 44(a) was, as Mr Justice Hamblen said in SCB v Ceylon Petroleum:

"... to enable the court to award interest at a rate appropriate to the currency in question."

Such a rate would reflect the cost of borrowing in that currency.

57.	Mr Dominic Dowley QC, on behalf of the claimants, accepted that if the currency in which judgment was given was a currency where there was very high inflation, it might be appropriate to vary the 8 per cent rate upwards.  Otherwise the value of the claimants' judgment might be unacceptably diminished.  Similarly, if the rate for borrowing in respect of the relevant foreign currency was very low in comparison with the 8 per cent, he accepted that it might be appropriate to adjust the rate downwards in favour of the defendant.

58.	It seems to me equally appropriate to vary the rate so as to produce what is an appropriate figure. I do not regard it as necessary, if the rate is to be varied, for the difference between 8 per cent and the appropriate foreign currency rate to be characterised as very marked.  Nor does it seem to me relevant to examine the extent to which 8 per cent exceeds relevant sterling rates, compared with the extent to which 8 per cent exceeds relevant US dollar rates, and to apply the 8 per cent to dollar debts simply because the difference is less in the latter than in the former case.

59.	In exercise of the discretion that I have under section 44(a)), I propose to fix the rate under the Judgments Act at three‑monthly US LIBOR plus 2.5 per cent, the rate at which I have already ordered pre‑judgment interest to be calculated.  That rate was a rate agreed by the parties in relation to pre‑judgment interest as the most appropriate interest rate.  It is the main commercial rate for borrowing US dollars in London, and the claimants' business is conducted from London and is mainly in United States dollars.

60.	By that I mean that the rate at which Judgments Act interest is to be payable is to be three‑monthly US LIBOR plus 2.5 per cent, as it is from quarter to quarter.  It does not seem to me appropriate, having regard to the principles on which I am acting, to fix a rate which is unchanging since that itself may prejudice one side or the other. That may make the calculation of interest more complicated than it would otherwise be, but in a case where interest runs to tens of millions, that seems to me a fact of limited importance.

61.	The question was raised as to whether I could fix a rate that changed from time to time, having regard to the terms of section 44(a) and the reference to "such rate as the court thinks fit".

62.	I am satisfied that I can.  It does not seem to me that that section was intended to be confined to a rate specified by a single figure. It can be one defined in the manner which I have stated, and if it is so defined, that is the best way of giving effect to the compensatory principle. 

63.	It was also submitted that if I was not going to take 8 per cent, I should not take a rate as low as three‑monthly US LIBOR plus 2.5 per cent or US prime, which is somewhat, but not much, higher. This was said to be because such rates would produce less than what the Nikitin defendants have been due to pay up until now, because, as from the date when Judgments Act interest begins, compounding will cease, whereas interest has been calculated to date with compounding. I should, accordingly, select some higher figure.

64.	I am not satisfied that that is a good ground for making a different order to the one which I propose.  The fact that compounding will cease is a necessary consequence of the giving of judgment, unless, perhaps, there is an agreement that compounding will apply as well after as before judgment.  It does not, in my judgment, constitute a ground, or at any rate a sufficient ground, for selecting a rate different to the one which I propose.