Reinhard v Ondra

Under Senior Courts Act 1981, statutory interest is compensatory, not punitive. The court has a wide discretion to select a fair rate of simple interest. In commercial cases, the cost of borrowing may provide a useful broad-brush proxy, assessed by reference to the general characteristics of the claimant’s class. There is no continuing presumption that interest should be awarded at one per cent above base rate. Cases involving individuals who are neither ordinary commercial borrowers nor claimants receiving compensation for non-pecuniary loss require a fact-sensitive assessment. Neither a deposit rate nor an assumed borrowing rate necessarily provides a logical measure. The court may instead adopt a fair intermediate rate reflecting the claimant’s position and the defendant’s protection against over-compensation.

The claimant sought statutory interest on sums paid into the defendant solicitors’ current account pending an appeal. His claim was confined to simple interest under section 35A of the Senior Courts Act 1981; he did not claim interest as damages. The parties disputed both whether interest was payable on the relevant sums and, principally, the appropriate rate.

The judgment dealt with the rate of interest. A separate issue concerning interest on a dividend payment, and the effect of an alleged breach of duty on the claimant’s entitlement to that dividend, was to be considered at a later hearing.

1. The claimant’s claim was for statutory simple interest under section 35A of the Senior Courts Act 1981. The statutory discretion is wide. Interest compensates for being kept out of money after it should have been paid; it is not punitive.

2. The traditional approach in commercial cases is to use, as a broad-brush proxy, the rate at which a claimant with the general characteristics of the relevant class would have had to borrow replacement funds. The court should assess the claimant objectively and should not focus on the defendant’s profits or the claimant’s precise personal borrowing rate. Tate & Lyle was a principled authority for that approach in its commercial context.

3. The former practice of awarding one per cent above base rate is not a binding presumption. It may be displaced by the circumstances, and the court’s discretion must remain flexible. Sycamore Bidco v Breslin confirmed that recent developments had removed any such general presumption.

4. Cases should not be forced into rigid categories. A distinction may nevertheless be useful between: commercial cases where detained money would ordinarily be replaced by borrowing; cases where interest represents a minimum investment return on an award compensating for non-pecuniary loss; and cases involving individuals whose loss consists in denied investment opportunities without a strong assumption of borrowing.

5. The present claim fell into the third type. The claimant was to be treated as a sophisticated investor. A low deposit or special-account rate would under-compensate him, while five per cent above base rate would over-compensate the defendants’ position. Balancing the available borrowing and investment indications, the court awarded interest at three per cent above base rate.