knowledge 22 February 2024 |

Time is money: how Courts award interest to compensate parties who have had to wait for their order

Irish position

In terms of the statutory rate section 22 Courts Act 1981 (“Act of 1981”) provides that where a Court orders the payment of a sum of money, whether by way of damages or otherwise, the judge may if they think fit also order the payment of interest at the statutory rate. The authority to impose a statutory rate of interest can be traced back to the Debtors (Ireland) Act 1840 and the current rate is 2%- as set pursuant to Courts Act 1981 (Interest on Judgment Debts) Order 2016 (SI 624/2016). This figure represents an annual interest rate rather than a flat rate and interest should only be awarded on the amounts awarded free of VAT.

This statutory rate of 2% can be imposed 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 judgment. In other words, a judge has no discretion regarding the quantum of the statutory interest - it must be 2%. However, he or she does have discretion as to from what point to permit that interest to accrue. A judge will enjoy a wide discretion in this regard and a range of factors may be taken into consideration in deciding how this discretion should be exercised. In practice a Court will often exercise its discretion to award interest to a plaintiff from the date of the commencement of proceedings to the date of judgment.

If parties have not agreed interest the statutory rate will be applied

In the absence of the parties agreeing an amount in respect of applicable interest the statutory rate will be used – section 22(2)(b) Act of 1981 precludes the Court making an order under section 22 where there is a contractual right to interest on the debt concerned. The Court of Appeal in Reaney v Interlink Ireland Ltd [2016] IECA 238 (“Reaney”) held that a trial judge had erred in not exercising his discretion to award interest where the contract breached by the defendant did not provide a specific amount in relation to the payment of interest. Finlay Geoghegan J accepted that while this was a factor to be taken into account it could not oust the jurisdiction of the Court under section 22 to award interest. In that same judgment, the Court gave principles that should guide the exercise of the discretion: “it is intended to compensate a person for being out of the money awarded from the time he ought to have received it to the date of judgment provided, however, other facts make it just between the parties to make such an award”. Furthermore, the Court stated that it is necessary when determining the period for which interest should be awarded to consider the facts pertaining to when the claim was made and how it was pursued including the manner in which the proceedings were conducted. 

In those circumstances, a plaintiff who delays in commencing proceedings may not be entitled to interest for the entire period from the cause of action to the commencement of the proceedings as this would not be a just exercise of the Court's discretion. The Reaney decision was appealed to the Supreme Court where O’Donnell J after comparing and contrasting the statutory Court interest procedure in Ireland and the UK broadly agreed with much of the analysis outlined in the Court of Appeal, emphasising that they had correctly identified the date from which the interest was to accrue. The Supreme Court did reduce the interest award on one aspect of the claim noting that a trial judge is best placed to decide on the factors required to make an award of interest. In a related finding the Supreme Court reversed the decision of the Court of Appeal to include the award of interest in consideration of whether the award had exceeded the lodgement, on the grounds that the interest did not affect the question of whether the plaintiff had acted reasonably at the time in refusing the offer implicit in the lodgement.

In Reaney, there was no express contractual agreement for the payment of interest on the sums claimed but it can often be a vexed question as to whether the parties have agreed the applicable interest rate or not. It should be noted any agreed interest rate will only be enforceable provided it is not so high as to constitute a penalty and be unenforceable.

UK development

In England and Wales section 3 Law Reform Miscellaneous Provisions Act 1934 (as amended) governs the question of statutory interest and differs significantly from Irish legislation.  The UK legislation allows the Court to determine the appropriate rate of interest in stark contrast to the Irish position (though the trial judge enjoys a wide discretion as to the point in time to permit interest to accrue thereby indirectly facilitating a similar outcome). As noted by O’Donnell CJ in Reaney, interest is fixed by statutory instrument in Ireland, whereas in the United Kingdom the interest rate can be fixed by the court, leaving a certain flexibility in the award of interest which is not possible in Ireland.

In the recent decision of Rolls-Royce Holdings plc v Goodrich Corporation [2023] EWHC 1637 the UK High Court dealt with the extent to which a party is entitled to statutory interest where the parties had agreed an interest rate but no claim for contractual interest was pleaded. After judgment was made in favour of Goodrich (a tyre manufacturer) in the amount of $112,285,440, Goodrich sought statutory interest on that amount from Rolls Royce. Rolls Royce claimed it was precluded from any statutory interest in circumstances where a clause in the agreement between the parties clearly set out an interest rate.

Section 35A Senior Courts Act 1981 gives the Court the power to award interest on debts and damages. Section 35A(4) states that interest in respect of a debt shall not be awarded by the Court for a period during which, for whatever reason, interest on the debt already runs. Acknowledging that there had been no attempt to assert the interest stipulated in the parties’ agreement, the Court held that no award of interest should be made under that section. The Court’s rationale was that if the parties had, by an agreement, consented as to when and in what amount interest should be paid, it would be inappropriate to award statutory interest where the contractual conditions for the payment of interest have not been shown to be fulfilled.

This case is broadly in line with Irish jurisprudence on the same topic and therefore gives helpful guidance as to the limits of the Court’s discretionary powers concerning statutory interest when a contract already contains provisions for interest. It aligns with the principles set out in section 22 Act of 1981 which specifically precludes the award of interest where interest is provided for by contract. In Reaney, O’Donnell J suggested that it is a relevant consideration in the exercise of the Court’s discretion that the parties’ relationship was such that they had not otherwise provided that interest should accrue on payments not made. Therefore, it may similarly be viewed as beyond the threshold of a trial judge’s discretion when it comes to assessing whether statutory interest can be applied where the parties have already agreed a rate by consensus.