Foreign Currency: Claims, Judgments and Damages

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12.1 The underlying justification for awarding interest on a claim for debt or damages is that a successful claimant has been kept out of his money while the defendant has had the use of it.1 For a successful commercial claimant, there is a presumption that he has borrowed the amount awarded to him, so he will normally recover interest at a commercial borrowing rate; whereas interest awarded to a non-commercial claimant will generally reflect deposit rates.2 In English law the principles governing the allowance of interest and the period for which interest is awarded in a particular case (as distinct from the rate to be allowed) are generally the same for sterling and foreign currency claims.3 Sums awarded in a foreign currency will normally attract interest at a rate appropriate to that currency.4 In some circumstances compound interest may be awarded. The court has power to curtail the period for which pre-judgment interest is awarded. The rate of post-judgment interest on a foreign currency award will generally be in accordance with the same principles governing the rate of pre-judgment interest, adjusted for variation over time, rather than (as with sterling awards) at the statutory rate applying to judgments. All these matters are considered in more detail below. Many of the cases considered in this chapter do not involve foreign currency claims, but the same underlying principles apply whether the claim is expressed in sterling or a foreign currency.

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The purpose of awarding interest

12.2 The rationale behind awarding pre-judgment interest to successful claimants is that they have been kept out of the use of the money which was due to them. This rationale is articulated particularly clearly by Robert Goff J (as he then was) in BP Exploration Co (Libya) v Hunt (No 2): ‘[the] fundamental principle is that interest is not awarded as punishment but simply because the plaintiff has been deprived of the use of the money which was due to him.’5 The best view is that, here, the money ‘due to’ the claimant comprises either the money that the claimant would have had but for the defendant’s wrong, or - where the wrongful loss was not of money - the damages that it is felt the defendant should have paid to compensate the loss as soon as it occurred.6 The implications of this reasoning become apparent in the principles applied in cases involving both commercial and individual claimants and, as will be seen, which determine the rate of interest to be awarded.

Recent developments

12.3 Until the start of the 21st century, the law regarding the award of interest was in many ways problematic. In Westdentsche Landesbank Girozentrale v Islington Borough Council 7 Lord Browne-Wilkinson stated: ‘our law of interest has developed in a fragmentary and unsatisfactory manner.’8 Dr Mann went further and suggested that the treatment of interest at common law showed the common law of England ‘at its worst’.9 The principles governing awards of interest at common law have since undergone a radical overhaul by the House of Lords in Sempra Metals Ltd v Inland Revenue Commissioners.10 In that case it was held that English courts had jurisdiction at common law to award compound interest in respect of claims founded on unjust enrichment or breach of statutory duty. The House of Lords used the opportunity to restate the common law principles regarding awards of interest generally.

Before Sempra Metals: the general position

12.4 Before the decision in Sempra Metals, English law had taken a restrictive approach to making awards of interest. Under the provisions of the Senior Courts Act 1981, ss 35A(1) and (2), the High Court has discretion to order simple interest on awards of damages, and must award simple interest on damages exceeding £200 for personal injuries or death, unless satisfied that there are special reasons why it should not do so. 12.5 The position at common law, however, was more complex. In the late-19th-century case London, Chatham & Dover Railway Co v South Eastern Railway

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Co.11 the House of Lords held that, at common law, interest could not be awarded as damages for late payment of a debt.12 That was partly overtaken in 1934, when a provision was enacted allowing the award of simple interest on sums awarded as damages.13 But in The President of India v La Pintada Compania Navigacion 14 the House of Lords refused to depart from the general principle laid down in London, Chatham & Dover Railway Co. case15 and declined to award interest on sums tendered after the start of proceedings. However, it was held that the rule in London, Chatham & Dover Railway Co. did not apply to claims for special damages,16 The three reasons given by Lord Brandon for upholding the general rule in London, Chatham & Dover Railway Co.17 were that the statutory provisions enacted in 1934 were curative of the injustice caused by the rule in that case; that one could not look outside of the statute if a case did not fall within its scope; and that it would be unsatisfactory to have a common law and statutory regime operating side by side. The position following these decisions can be shortly stated as being that the English courts could, under statute, award simple interest on damages, but could not award interest at common law as damages (at any rate, not as general damages).

Before Sempra Metals: exceptions to the general principle

12.6 It must be noted, however, that although London, Chatham & Dover Railway Co.18 and La Pintada 19 represented the general position, there was a conflict with several other lines of English case law where the courts explicitly awarded interest otherwise than pursuant to statutory provisions. A number of early cases recognised a jurisdiction in equity to award damages for late payment or non-payment of a debt.20 Furthermore, in the Admiralty Court there was a ‘clear and uniform rule’21 that the court could award interest in the case of total destruction of a ship, whether arising from a collision or otherwise.22 The same principle also applied to total loss of a cargo,23 and to damage to ships.24 The Admiralty Judge in 1868 made clear that the High Court of Admiralty had consciously developed its own approach to the award of interest, which was at variance with common law courts:

The Admiralty, in the exercise of an equitable jurisdiction, has proceeded upon another and a different principle from that on which the common law authorities appear to be

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founded. The principle adopted by the Admiralty Court has been that of the civil law, that interest was always due to the obligee when payment was not made ex mora of the obligor; and that, whether the obligation arose ex contractu or ex delicto.25

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