In Lonestar Communications Corporation LLC v Kaye & Ors [2023] EWHC 732 (Comm), Mr Justice Foxton (Judge in Charge of the Commercial Court) clarified the approach that the Commercial Court will take in relation to US dollar interest awards where there is no relevant contractual right to interest.
The Court held that the default pre-judgment interest rate for US dollar awards in the Commercial Court going forward will be US Prime (i.e. a rate charged by US banks to creditworthy borrowers). The Court also indicated that in some circumstances an uplift to US Prime of 1% or 2% for example could be applied where the claimant's characteristics indicate it could not borrow at US Prime. Higher uplifts are likely to require specific evidence.
Background
The Court's power to order pre-judgment interest is derived from section 35A Senior Courts Act, which provides that the Court may order simple interest "at such rate as the court thinks fit".
In the Commercial Court the default approach is to award interest based on the rate that would apply for short term lending to a creditworthy borrower. Sterling awards tend to be based on the Bank of England base rate plus 1%. For US dollar awards, there have been a number of conflicting authorities on the applicable rate: both US Prime and US dollar LIBOR (i.e. a bank borrowing rate) have frequently been used with various uplifts, with some decisions suggesting that US dollar LIBOR is more appropriate for claimants based outside the United States.
The issues before Mr Justice Foxton included whether to award pre-judgment interest based on US Prime or 6-month US dollar LIBOR, whether any uplift should be applied and if so at what rate.
Decision
Mr Justice Foxton held that in the future the default interest rate for US dollar awards in the Commercial Court should be US Prime (irrespective of whether the claimant has a US place of operations). He gave the following reasons.
- Long standing precedent on US dollar awards suggests US Prime is the starting point for US dollar awards.
- LIBOR is in the course of being discontinued.
- LIBOR itself is an interbank rate, rather than a commercial borrowing rate.
- The trend of more recent authorities has been to favour the use of US Prime.
- A default rule would not achieve the requisite clarity if it did not apply to particular commercial sectors of indeterminate scope.
The claimant argued that it should be entitled to an uplift to US Prime because it was based in Liberia, where it argued borrowing costs reflected a country risk premium compared to the United States. However, the Court declined to provide an uplift because the claimant was part of a substantial multinational group and had not put forward specific evidence that it could not borrow at US Prime.
Key takeaways
This decision clarifies that the Commercial Court's default approach will be to apply US Prime for interest awards in US dollar awards.
It also underlines that the Commercial Court will not apply an uplift to US Prime lightly and the importance of claimants putting forward specific evidence to displace the default assumption that interest should be awarded at US Prime without an uplift. The decision also demonstrates that the Court may take into account the assumed borrowing power of a company's parent group in assessing whether to apply any uplift on interest, particularly in the absence of evidence from the claimant.
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