IM Properties Plc v Cape & Dalgleish

Under section 35A of the Supreme Court Act 1981, the power to award simple interest on damages paid or recovered before judgment is confined to payments made during the currency of proceedings. The section does not permit interest on loss avoided before proceedings began where that avoidance reduces the damages for which judgment can be entered. Recovery from a third party in mitigation is not the type of payment contemplated. An apparently inconsistent House of Lords award made without argument on the statutory point was not binding on this aspect.

The plaintiffs claimed damages from their former accountants and auditors for negligence which had enabled an employee’s fraud to continue. Liability was accepted, and the judge assessed the total loss at £704,568.29. Before proceedings began, the employee transferred shares under a settlement which released the plaintiffs’ claims against him. The judge valued that recovery at £430,000 and entered judgment for the unrecovered balance of £274,568.29, but awarded interest by reference to the larger loss before recovery.

The defendants appealed on the construction of section 35A of the Supreme Court Act 1981. The central issue was whether interest could be awarded on sums which reduced the recoverable damages but for which judgment was not entered.

1. Appeal allowed. Waller LJ, with whom Robert Walker LJ agreed, held that section 35A had to be construed in its historical context. Section 3(1) of the Law Reform (Miscellaneous Provisions) Act 1934 had permitted interest only on a sum for which judgment was given. Section 35A extended the power to cover late payment after proceedings had begun but before their conclusion. It did not extend to late payment before proceedings were commenced.
2. For debts, section 35A(3) deals with payment of the whole debt, while section 35A(1) deals with part-payments made during the currency of proceedings. The same construction applies to damages. Section 35A(3) has no application to a claim for damages.
3. Recovery from Fitzgerald was mitigation by a third party, not payment by the defendants. It reduced the loss and therefore the damages for which the plaintiffs could obtain judgment. Section 35A did not empower the judge to award interest on that recovered element.
4. Swingcastle v Gibson concerned the assessment of special damages, not an award under section 35A. The relevant aspect of Westdeutsche Landesbank v Islington Borough Council was treated as per incuriam, because the statutory issue had not been argued and the House of Lords had not considered Lord Brandon’s analysis in President of India v La Pintada Compania.
5. Hobhouse LJ added that a damages claim is confined to loss actually suffered after mitigation. The plaintiffs had claimed only their unrecovered loss and had not pleaded a separate claim for loss of use of money.
6. The interest award was reduced to £138,500.81 and the total judgment varied to £413,069.10. Excess already paid was to be repaid with interest. The appellant received the costs of the appeal, including the hearing on 14 February 1997.

• Court of Appeal: Appeal from an order of His Honour Judge Rivlin QC allowed. The judgment sum was varied by substituting interest of £138,500.81, making a total of £413,069.10. The decision is reported at [1998] EWCA Civ 862.
• Lower court: Judgment had been entered for £274,568.29, with interest awarded on a wider calculation.