knowledge 23 October 2017 |

Award of Courts Act Interest Cannot Infringe the Separation of Powers

In Da Silva v Rosas Construtores S.A,¹  the High Court made an award of damages against the defendant for breach of contract. It also awarded Courts Act interest against it on the award running from the date of the commencement of the proceedings to the date of judgment. The defendant appealed arguing that this was a punitive sanction in terms of the length of time and the interest rate of 8%, having regard to the prevailing bank interest rate during the same period.

S22(1) of the Courts Act 1981 Act provides:

“Where in any proceedings a court orders the payment by any person of a sum of money (which expression includes in this section damages), the judge concerned may, if he thinks fit, also order the payment by the person of interest at the rate per annum standing specified for the time being in section 26 of the Debtors (Ireland) Act, 1840, on the whole or any part of the sum in respect of the whole or any part of the period between the date when the cause of action accrued and the date of the judgement.” ²

The Court of Appeal confirmed that s22 sought to compensate the plaintiff for loss caused by the breach of contract concerned. While the power to award Courts Act interest was discretionary, the exercise of that discretion was often governed by factors such as the conduct of the parties and of the litigation. For example, a plaintiff who had unduly delayed in the conduct of the litigation should not be rewarded by the making of an order for Courts Act interest back-dated to the date of the commencement of the litigation. However, the issue of delay did not arise here.

Turning to the rate of interest, 8% was far in excess of prevailing bank interest rates. To that extent, there was some force in the defendant’s submissions. However, this pre-supposed that the courts had a jurisdiction to vary the applicable interest rate. The wording of s22 precluded this. The discretion there related to whether or not interest should be paid on the debt. If, however, the court elected to order that interest be paid, it must do so at the rate specified. Insofar as previous case law suggested otherwise, this was incorrect. ³ 

Nor could the courts be dissuaded from exercising their discretion to order Courts Act interest in an appropriate case by reason of the prevailing bank interest rate. As s22 made clear, the Oireachtas had committed the determination of the interest rate to the Minister for Justice and Equality and the courts could not seek indirectly go behind that rate by declining to exercise the discretion to direct Courts Act interest in an appropriate case when they would otherwise have done so.

Comment

Since the award of interest was made in this case, the 8% rate has been significantly reduced to 2%. ⁴  This has assuaged the concerns of debtors. However, the views of the Court of Appeal will not be welcomed by successful litigants who might otherwise have sought to rely on earlier case law to argue for an increased rate on the basis that the new 2% rate does not take account of the real opportunity cost of awaiting payment of funds, perhaps for a significant period of time.