Ninety-one years ago the House of Lords decided1 that, in the absence of agreement or statutory provision to the contrary, a court had no power to award interest by way of damages for the late payment of a debt. A recent attempt to persuade their Lordships to rely on the 1966 Practice Direction and reverse their own decision has failed, despite various earlier assaults upon and limited restrictions of the basic rule.

The attempt was made in President of India v. La Pintada Compania Navigacion S. A.2, an appeal to the House of Lords, by means of the “leap-frog” procedure, from two judgments of Staughton, J.3 The facts were simple. The respondents’ ship was chartered to the appellants. Various sums of money should have been paid by the appellants in 1975 and 1978 for demurrage and freight respectively. These sums were claimed by the respondents; the matter went to arbitration and in 1981 the respondents accepted payment of sums in settlement of their main claims but also claimed payment of interest on the respective sums from 1975 and 1978. The umpire awarded compound interest subject to the opinion of the court, in the form of a special case, on three questions:

(i) Were the respondents entitled to any sums in respect of late payment of the freight or demurrage, and, if so, what sums should be awarded ?

(ii) Did the umpire have jurisdiction to exercise any discretion to make an award of interest in respect of the late payments ?

(iii) To the extent that his award was made following the exercise of a discretion, was such exercise justified in law ?

The trial judge, relying on the Tehno-Impex case4, a recent decision of the Court of Appeal, answered “Yes” to all three questions and in the House of Lords, Lord Brandon of Oakbrook, who gave the leading speech, made clear that the apeal was, in substance, an appeal against the Tehno-Impex decision. The decision of the House of Lords was, in effect, to reverse that recent decision, to hold that the respondents were not entitled to interest as damages for late payment of the freight or demurrage and that the umpire had no discretion to award interest in the circumstances of the case. In other words, the basic rule that no damages are payable for late payment of a debt was upheld. Two interesting aspects of the case are to be found in the reasons given for not abandoning this basic rule and in the exposition of the exceptions to the basic rule which now exist, and which were confirmed by the House of Lords.

The main reason for not abandoning the basic rule lay in the reception given to the Law Commission’s Report on Interest5. There were two main recommendations in that report. The first was that nearly all contract debts should carry interest from a date and at a rate determined by statute. The second was that the powers of courts and