The Gazette 1982

GAZETTE

JULY/AUGUS T 1982

Interest and the Courts Act 1981 by Ciarán O'Mara, Solicitor

I N the midst of the controversial changes in the jurisdiction of the lower courts the implications of the Courts Act 1981 ("the 1981 Act") for the law on interest should not be ignored. The new legislation represents the first substantive developments of our law in this area since the foundation of the State. That reform has come about is hardly surprising with the unprecedented levels of inflation in the last ten years. Both Church and State frowned upon usury in the Middle Ages and the common law would not allow claims for interest at all. With the growth of commerce and trade, investment had to be facilitated and the law came to allow the charging of interest where commercial risk was involved. By the end of the eighteenth century it was possible to recover as a debt the payment of interest where it was expressly provided for in the contract. For a period, the courts of common law waivered on the question of recovery of interest as damages for the withholding of a debt. Finally, the common law rejected such a jurisdiction. The leading case is the decision of the House of Lords in London, Chatham and Dover Railway Company -v- Southern Eastern Railway Company [1893] A.C. 429. The plaintiffs had obtained a judgment for a longstanding debt and claimed interest on it. It was argued that there was a right at common law to an award of interest by way of damages for the wrongful detention of a debt. Although the sympathies of their Lordships were with the plaintiffs the House concluded that interest on an unpaid debt was only recoverable at common law where it was provided for by agreement of the parties, express or implied, and that, on the facts of the particular case the plaintiffs had no such right. The harshness of this common law rule stood in the U.K. until 1934 and in our jurisdiction until May 12, 1981 (i.e. date of final passing of the 1981 Act). Despite the rejection by the common law of the jurisdiction to award interest as damages, courts of equity and of admiralty took a different view. In Admiralty, the practice grew up of awarding interest on damages where the complainant ship-owner had lost the use of his money between the sinking of his ship and the judgment of the court. Equity awarded interest where money had been withheld or misapplied by an executor or a trustee or anyone else in a fiduciary position or where equitable remedies, such as specific performance or recession, were granted. For example, in Walersteiner -v- Moir (No. 2) [1975] QB 373 the defendant was ordered to repay money that he had appropriated wrongfully and to

pay compound interest on the sum due, calculated at 1% over the minimum lending rate with yearly rests. The Bills of Exchange Act 1882, in section 57, provided that the holder of a bill that has been dishonoured may calculate the sum that would have been due as interest if a stipulation for interest had been agreed, and might sue for it as liquidated damages. If there appeared to be no defence to the action he could thus avoid having to take his case to trial and could instead apply for summary judgment. It was provided, however, that the court that heard the application for summary judgment might disallow or reduce the amount of interest claimed. So the remedy available is partly discretionery — the interest may be claimed as of right but the court has discretion to reduce or reject it completely. Interest on a debt may be payable as of right at common law or by statute. At common law, such a right may arise where the parties have provided for it expressly. A promise to pay interest may be inferred from the course of dealing between the parties, from the custom of the trade or from the circumstances of the particular transaction. By statute, interest may be payable as of right in respect of certain debts. For example:— (a) A partner may claim interest at 5% per annum on money advanced to the firm, subject to agreement to the contrary (S.24(3) Partnership Act 1890) and interest may be claimed at the same rate in partner- ship dissolution accounts as an alternative to claiming a share of the profits attributable to the use of the money (ibid, S42(l)). ! (b) Interest may be recovered by the Revenue 1 Commissioners on overdue taxes at prescribed rates in certain circumstances. Judgment Debts The Debtors (Ireland) Act 1840 provides in Section 26 that all judgment debts should carry interest at a certain rate. Until 1981 this was at 4% per annum. Whatever effect such a penalty had in Victorian times, by the 1970's it was an open invitation to delay paying until after judgment. With record inflation and interest rates, debtors realised that their judgment debts could be turned to their advantage. The 1981 Act has changed the rate to 11%. In addition, Section 20 of the 1981 Act, empowers the Minister for Justice to make an order varying this rate as often as every two years "if he is satisfied that the rate of interest per annum for the time being . . . ought, having regard to the level of rates of interest 201