In your interest

It's your client's money, but are you achieving the maximum interest available for him? In my experience the answer is frequently in the negative.

Money claims may attract interest if the particulars of claim include a claim for interest either pursuant to a pleaded contract or pursuant to statute.

As to statutory interest, the rate and the period for which interest may be awarded are, as a general rule, in the court's discretion. There is no absolute entitlement to any interest save that a default judgment may include interest at a rate no higher than the Judgments Act 1838 (JA) rate applicable at the date of issue of the claim. Claimants should not assume that the rate currently prescribed by statutory instrument under the JA will be applied. However, where discretionary interest is claimed, the onus is on the defendant to show that interest should not be awarded. That said, the claimant should always be ready to explain to the court why he should be awarded interest at a particular rate and for a particular period.

All High Court judgments and county court judgments for £5,000 or more attract interest at the JA rate. Interest begins to run from the date that judgment is given unless the court orders otherwise. However, Senior Costs Judge Hurst has recently decided that interest on costs starts to run from the date of the costs certificate, not from the date when the order for costs was made, and further that such interest belongs to the client, not to the solicitors. The JA rate has been eight per cent per annum since 1 April 1993 and it can be changed only by statutory instrument.

On the other hand, the special account rate, also only variable by statutory instrument, which is currently fixed at 0.5 per cent, has been amended 28 times since February 2001. And no, I don't understand why the JA rate has remained at such a high figure for so long and has not been revised appropriately from time to time. I speculate that the special account attracts the attention of the legislators more easily because it is the rate paid by the Court Funds Office on money invested there for the time being.

The Court Funds Rules 2011 (SI 2011/1734) come into force on 3 October 2011. It is worth noting that there needs to be a direction to the accountant general to pay money into the special account or it will be paid into the basic account. It will not be possible to transfer funds from the special account to the common investment account unless the amount of the fund is £10,000 or more and it is to be held for at least five years.

One consequence of the low rate of interest paid by the Court Funds Office to funds in the special account is that there are many more applications than was previously the case to remove funds from the Court Funds Office for the purpose of investment elsewhere. There are no criteria or guidelines for district judges to apply to such applications save of course that the interests of the beneficiaries must be protected so far as is reasonably possible. Any such applications should be prepared with this in mind.

Commercial debts

The Late Payment of Commercial Debts (Interest) Act 1998 deserves greater attention. It applies where both contracting parties are acting in the course of business. The rate is fixed at eight per cent above the current bank rate, so presently 8.5 per cent. Section 5A of the Act provides that, in addition to the penal rate of interest, the debtor shall pay a fixed sum dependant on the size of the debt: for a debt of less than £1,000, £40, for a debt of £1,000 or more but less than £10,000, £70, and, for a debt of £10,000 or more, £100. Section 4 of the Act defines the various periods for which this statutory interest may run.

It's not all good news for creditors. For example, a judgment debt shall cease to carry interest as soon as the debtor has made any payment (even £1) when the judgment creditor takes proceedings in the county court to enforce payment (that includes an application under CPR 71

but does not include an application under CPR 73). Even though a charging order will not expressly provide for payment of interest, the amount charged will carry interest thanks to the somewhat controversial Ezekiel v Orakpo [1997] 1 WLR 340. Such interest has no limitation period attaching to it.

Both creditors and debtors under an agreement regulated by the Consumer Credit Act 1974 should be familiar with section 130A of that Act. To the extent that the creditor wishes to recover any post-judgment interest, notice of that intention must be given to the debtor, and, in default of such notice, the debtor shall have no liability to pay post-judgment interest. Section 130A further requires such notice to be given at least every six months thereafter. This section applies to regulated agreements whenever made but not to sums payable under judgments given before 1 October 2008.

Remember that the interest within the meaning of CPR 36 is not the same as interest pursuant to the Senior Courts Act 1981 or the County Courts Act 1984. Look out for the use of interest as a sanction against a party that has failed to accept a reasonable offer to settle. Part 36 rates of interest are penal because they are intended to be.