A recent case reinforces the fact that the courts' power to award interest is discretionary, and that claimants should avoid delay in commencing court proceedings to obtain a full award of interest from the court.

In Claymore Services Ltd v Nautilus Properties Ltd the court awarded the building contractor (Claymore) interest on sums due at a rate of 2% over base rate from the date when the cause of action accrued. However, the award of interest was reduced by 50% for a period of 1 year because the Judge considered Claymore was guilty of one year's unreasonable delay in commencing the litigation.

When is Interest Recoverable?

Interest is generally recoverable under one or more of the categories below:

  • The terms of a contract.
  • Late Payment of Commercial Debts (Interest) Act 1998.
  • A claim for an award of interest from a tribunal i.e.
    • Courts have a discretionary power pursuant to s35A Supreme Court Act 1981.

    • Arbitrators have a discretionary power to award simple or compound interest pursuant to s49 Arbitration Act 1996.

    • Adjudicators have a discretionary power to award interest pursuant to certain adjudication rules e.g. the Scheme for Construction Contracts Regulations 1998; TeCSA Procedural Rules for Adjudication. However this is not a free standing power and the question of interest must be included in the Referral of a dispute to an adjudicator.
  • Damages.

The Issues

The case of Claymore v Nautilus only concerns a claim for interest pursuant to s35A Supreme Court Act 1981. During 2001 and 2002, Claymore carried out some building works to Nautilus’ property. In 2004, Claymore referred a dispute regarding the final account to adjudication. The adjudicator’s decision was unenforceable so Claymore commenced litigation proceedings. When the matter came to trial, the principal sum due under the final account had been agreed between the parties. There were two main issues for the Court to resolve:

  • The period of time for which interest should be paid to Claymore.
  • The applicable rate of interest.
Period of Interest

The Judge held that interest should start to run from the date when the sum due was ascertainable (i.e. when Claymore had submitted its final account and Nautilus had had a reasonable opportunity to assess it). However the court also had to consider the effect of Claymore’s delay in commencing the present action. The Judge noted the following:

  • Where a claimant has delayed unreasonably in commencing proceedings, the court may exercise its discretion either to disallow interest for a period or to reduce the rate of interest.
  • Delay should only be characterised as unreasonable when the claimant has neglected/declined to pursue his claim for a significant period.
  • When determining what the disallowance or reduction of interest should be, the court should bear in mind that the defendant has had the use of the money during that period of delay.

The Judge decided that there had been excessive delay by Claymore between the date of the adjudicator’s decision (June 2004) and the date of the letter of claim (December 2005). The rate of interest should therefore be reduced by 50% for a period of one year.

Rate of Interest

The Judge went on to consider the rate of interest that should apply. In doing so, his Lordship noted that the rate of interest should reflect the loss to the claimant from being kept out of its money. The Judge rejected Claymore’s submission for the Judgments Act rate (i.e. 8%). The Judge also rejected Nautilus’ submission for a commercial rate of 1% over base rate stating Claymore is a small business that would have had to pay interest at more than this if it had sought to borrow money. The Judge concluded that having regard to the nature of the claimant company the award of interest should be 2% over base rate.

Case reference: Claymore Services Ltd v Nautilus Properties Ltd [2007] EWHC 805 (TCC) (Jackson J)

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 18/04/2007.