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You are here: BAILII >> Databases >> The Law Commission >> Pre-Judgment Interest on Debts and Damages (Report) [2004] EWLC 287 (23 February 2004) URL: http://www.bailii.org/ew/other/EWLC/2004/287.html |
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Item 4 of the Eighth Programme of Law Reform: Compound Interest
Laid before Parliament by the Lord High Chancellor pursuant to section 3(2) of the
Law Commissions Act 1965
Ordered by The House of Commons to be printed
23 February 2004
HC 295 London: TSO £xx.xx
The Law Commission was set up by the Law Commissions Act 1965 for the
purpose of promoting the reform of the law.
The Law Commissioners are:
The Honourable Mr Justice Toulson, Chairman
Professor Hugh Beale QC
Mr Stuart Bridge
Professor Martin Partington CBE
Judge Alan Wilkie QC
The Chief Executive of the Law Commission is Mr Steve Humphreys and its
offices are at Conquest House, 37-38 John Street, Theobalds Road, London
WC1N 2BQ.
The terms of this report were agreed on 12 December 2003.
The text of this report is available on the Internet at:
http://www.lawcom.gov.uk
| Paragraph | |
| Summary | Summary |
| PART I: INTRODUCTION | |
| Policy considerations | 1.9 |
| Interest should not be seen as a penalty on debtors | 1.10 |
| Interest should provide fair compensation for claimants | 1.14 |
| Interest should be seen to be fair | 1.15 |
| The law on interest should minimise the scope for disputes | 1.16 |
| Summary of recommendations | 1.18 |
| The effect of our recommendations | 1.20 |
| Structure of this Report | 1.24 |
| PART II: AN OUTLINE OF THE PRESENT LAW | |
| History | 2.3 |
| The 1934 Act | 2.4 |
| Personal injury claims and the 1969 amendment | 2.7 |
| Law Commission's 1978 Report | 2.10 |
| The Administration of Justice Act 1982 | 2.13 |
| The Arbitration Act 1996 | 2.16 |
| The current law | 2.18 |
| Interest under a contract or trade usage | 2.19 |
| Interest as special damages | 2.20 |
| Interest under the equitable or Admiralty jurisdiction | 2.23 |
| The equitable jurisdiction | 2.23 |
| The Admiralty jurisdiction | 2.28 |
| Interest under section 35A of the Supreme Court Act 1981 | 2.29 |
| Interest under other statutes | 2.34 |
| The Late Payment of Commercial Debts (Interest) Act 1998 | 2.37 |
| The Arbitration Act 1996 | 2.44 |
| Interest under Part 36 of the Civil Procedure Rules | 2.46 |
| Conclusion | 2.48 |
| PART III: SETTING THE INTEREST RATE | |
| Interest rates: three approaches | 3.4 |
| Using the judgment interest figure | 3.6 |
| The special investment account rate | 3.10 |
| Commercial rates | 3.12 |
| Interest rates in practice | 3.15 |
| The problems with the current system | 3.17 |
| It is uncertain | 3.18 |
| It is often arbitrary | 3.19 |
| Many rates are too high | 3.21 |
| Interest rates: the way forward | 3.24 |
| Setting a specified rate | 3.24 |
| What should the rate be? | 3.34 |
| The likely impact of setting a rate at base +1% | 3.45 |
| The effect on consumer debtors | 3.46 |
| Commercial claims | 3.50 |
| Personal injury claims | 3.54 |
| Summary of recommendations | 3.56 |
| PART IV: SHOULD THE COURTS HAVE A POWER TO AWARD COMPOUND INTEREST? | |
| The argument for a power to award compound interest | 4.2 |
| The arguments against a power to award compound interest | 4.7 |
| Undue complexity | 4.9 |
| Calculations by judges | 4.13 |
| Court officials | 4.16 |
| The parties | 4.19 |
| The cost to defendants | 4.24 |
| The effect on delay | 4.27 |
| Our conclusions | 4.33 |
| PART V: WHEN SHOULD COMPOUND INTEREST BE GRANTED? | |
| A general or limited power? | 5.2 |
| Only large or long running cases | 5.5 |
| Debts rather than damages | 5.9 |
| Excluding consumer debts? | 5.15 |
| Discretion: open or subject to presumptions? | 5.23 |
| A dual system | 5.29 |
| Our favoured approach | 5.33 |
| The scope of our recommendations: when should the power to award compound interest apply? | 5.41 |
| The scope of section 35A and section 69 | 5.42 |
| Policy considerations | 5.46 |
| Late Payment of Commercial Debts (Interest) Act 1998 | 5.53 |
| Law Reform (Miscellaneous Provisions) Act 1934, section 3 | 5.59 |
| Summary of recommendations | 5.68 |
| PART VI: CALCULATING COMPOUND INTEREST | |
| Computer programme or tables | 6.2 |
| A prescribed computer programme | 6.7 |
| Prescribed tables | 6.12 |
| Annual, quarterly or monthly rests? | 6.18 |
| A discretion to vary the compounding intervals? | 6.25 |
| "Mixed" awards | 6.30 |
| Summary of recommendations | 6.33 |
| PART VII: COMPOUND INTEREST IN PERSONAL INJURY CLAIMS | |
| Interest on damages for non-pecuniary loss | 7.2 |
| Interest on past pecuniary loss | 7.14 |
| The cost to the taxpayer | 7.30 |
| The exponential effect of compounding | 7.32 |
| Clinical negligence claims | 7.37 |
| Is compound interest for clinical negligence claims a priority? | 7.44 |
| Summary | 7.47 |
| PART VIII: OFFERS TO SETTLE | |
| Claimant offers and additional interest payments | 8.3 |
| The current law | 8.3 |
| Should the maximum rate be expressed as a compound rate? | 8.9 |
| Expressing claimant and defendant offers | 8.17 |
| Summary of recommendations | 8.25 |
| PART IX: TRANSITIONAL ARRANGEMENTS | |
| The policy issues | 9.1 |
| A single system | 9.2 |
| Respect for existing arrangements | 9.5 |
| The options | 9.9 |
| Our views | 9.12 |
| PART X: LIST OF RECOMMENDATIONS | |
| APPENDIX A: DRAFT INTEREST ON DEBTS AND DAMAGES BILL | APPENDIX A |
| APPENDIX B: THE CURRENT LEGISLATION | APPENDIX B |
| APPENDIX C: COUNTY COURT DATA COLLECTION EXERCISE | APPENDIX C |
| Methodology | C2 |
| The overall findings | C6 |
| Business claims | C8 |
| Personal injury claims | C13 |
| Consumer cases | C16 |
| Other cases | C19 |
| Conclusion | C20 |
| APPENDIX D: CONSIDERING THE LIKELY IMPACT OF OUR PROPOSALS | APPENDIX D |
| The effect on consumer debtors | D5 |
| County court default actions: small, quick and routine | D9 |
| Consumer actions in the High Court | D12 |
| Cases that proceed to a small claims hearing | D14 |
| The effect of interest proposals on consumer debtors: conclusion | D17 |
| Commercial debt recovery | D22 |
| The effect of the Late Payment of Commercial Debts (Interest) Act 1998 | D26 |
| Commercial debts: conclusion | D28 |
| Personal injury litigation | D31 |
| Standard cases | D33 |
| Long cases | D36 |
| Professional negligence | D39 |
| Professional negligence cases: conclusion | D46 |
| Other disputes | D48 |
| Actions against the police | D49 |
| Judicial review | D51 |
| Defamation | D52 |
| Housing disrepair | D53 |
| Conclusion | D57 |
| APPENDIX E: THE IMPACT ON CLINICAL NEGLIGENCE CLAIMS | APPENDIX E |
| Assumptions | E3 |
| Tables | E10 |
| National Health Service Litigation Authority (NHSLA) | E10 |
| Medical Defence Union and Medical Protection Society | E12 |
| Overall costs | E15 |
| General methodology | E17 |
| Example | E18 |
| APPENDIX F: CALCULATING COMPOUND INTEREST FROM TABLES | APPENDIX F |
| Using the table | F5 |
| Continuous loss | F12 |
| APPENDIX G: RESPONDENTS TO CONSULTATION PAPER NO 167 | APPENDIX G |
