Court Lacks Power to Award Interest Under s.35A of Senior Courts Act 1981 if Not Pleaded.
If a successful party has a contractual right to interest, but has not pleaded that right, the court does not have power to award interest under s.35A of the Senior Courts Act 1981. Anyone bringing (or defending) a claim based on contract. Check carefully to see if there are any contractual provisions relating to interest. If the contractual terms are not pleaded then it is likely that the successful party will not recover any interest at all.
Rolls-Royce Holdings Plc v Goodrich Corporation [2023] EWHC 2002 (Comm) (01 August 2023) (bailii.org)– Mr Justice Foxton determined that a party who fails to plead contractual interest is not entitled to statutory interest.
The Defendant/Part 20 Claimant (Goodrich) brought a claim pursuant to the terms of a contract, initially seeking an account of all amounts due in respect of Initial Provisioning, damages for breach of an Exclusivity Obligation and statutory interest. The claim was later amended to remove the claim for an account and to add claims for a breach of clause 11 and, towards the end of trial, a debt claim was introduced. No claim was ever advanced for contractual interest.
The Part 20 Claimant obtained judgment in the sum of $112,285,440.00 at trial and sought pre-trial interest on those sums. In the contract between the parties there was a contractual right to claim interest, the Part 20 Claimant had not pleaded a claim for interest in line with the contract. However, interest was sought based upon S.35A of the Senior Courts Act 1981.
S.35A gives the High Court a discretion to award interest on debts and damages, it states:
“(1) Subject to rules of court, in proceedings (whenever instituted) before the High Court for the recovery of a debt or damages there may be included in any sum for which judgment is given simple interest, at such rate as the court thinks fit or as rules of court may provide, on all or any part of the debt or damages in respect of which judgment is given, or payment is made before judgment, for all or any part of the period between the date when the cause of action arose and— (a) in the case of any sum paid before judgment, the date of the payment; and
(b) in the case of the sum for which judgment is given, the date of the judgment …
(3) Subject to rules of court, where— (a) there are proceedings (whenever instituted) before the High Court for the recovery of a debt; and (b) the defendant pays the whole debt to the plaintiff (otherwise than in pursuance of a judgment in the proceedings), the defendant shall be liable to pay the plaintiff simple interest at such rate as the court thinks fit or as rules of court may provide on all or any part of the debt for all or any part of the period between the date when the cause of action arose and the date of the payment.
(4) Interest in respect of a debt shall not be awarded under this section for a period during which, for whatever reason, interest on the debt already runs.”
The Claimant argued that the Part 20 Claimant had no entitlement to interest. This was because there was a contractual right to interest, which was not pleaded. The argument was that, given that there was a contractual right to interest, there was no power to award statutory interest. That argument succeeded.
Mr Justice Foxton found that subsection 4 meant that the Part 20 Claimant was not entitled to statutory interest as there was already a contractual interest running on the sum, reviewing previous cases on the question of interest under statute and contractual interest, such as Standard Chartered Bank v Ceylon Petroleum Corp [2011] EWHC 2094 (Comm) and
Starbev GP Limited v Interbrew Central European Holdings BV [2014] EWHC 2863 (Comm), in the process.
If s.35A(4) is engaged, the statutory discretion to award interest does not arise.
Summary
If a successful party has a contractual right to interest, but has not pleaded that right, the court does not have power to award interest under s.35A of the Senior Courts Act 1981
Anyone bringing (or defending) a claim based on contract must check carefully to see if there are any contractual provisions relating to interest. If the contractual terms are not pleaded then it is likely that the successful party will not recover any interest at all.
Generally, if parties have reached a contractual agreement as to when interest should be paid and at what rate, the court will not award interest under S.35A, as this will be different to what the parties agreed.
Therefore, it is important that any claim for interest is pleaded correctly.
How can PIC help?
If you are bringing, or seek to bring, a costs claim payable under the terms of a contract, PIC would be happy to assist both generally and in terms of advising as to interest.
Shahid Ali, Costs Consultant
01.08.2024