Zagora Management Ltd & Ors v Zurich Insurance Plc & Ors

Interest on damages is compensatory. It reflects the claimant’s loss from being kept out of money that ought to have been paid, rather than the defendant’s profit or the claimant’s precise personal borrowing rate.

Where an insurer must investigate liability and quantum, interest may run after a reasonable period for investigation, even though the contractual cause of action arose earlier. The court may assess the rate broadly by reference to the claimants’ general characteristics. A claim for interest may be permitted after judgment in draft where the omission was inadvertent and causes no evidential prejudice.

This supplemental judgment concerned the individual leaseholders’ claim for interest following the substantive decision in Zagora Management Ltd & Ors v Zurich Insurance Plc & Ors [2019] EWHC 140 (TCC). The leaseholders had succeeded under building warranties, but their claims were limited by maximum liability provisions to £3,634,074.65.

The pleaded case contained only an unparticularised statutory claim for interest. After receiving the draft judgment, the leaseholders sought interest at 4.5% above base from March or April 2013. The insurer objected that the claim was too late and that the leaseholders had suffered no relevant loss because remedial works had not been undertaken. The court considered whether permission should be given and, if so, the appropriate rate and period.

1. Permission to advance the claim. The closing submission that interest was not claimed was not an admission under Part 14 and did not amount to an election between inconsistent remedies. Nevertheless, permission was required because the claim had not been pleaded with the required rate and period and had not been addressed at trial. Permission was granted because the omission was inadvertent, the issue could be decided on the evidence already available, and refusal would have caused greater unfairness to the claimants than allowing the insurer to contest the point.
2. Basis of entitlement. Interest compensates for being kept out of money that ought to have been paid. It is not compensation for damage caused by the defendant and does not depend on the claimant having incurred the expenditure for which damages were awarded. The successful claim entitled the leaseholders to receive the capped lump sums and to use them as they thought best, regardless of whether remedial works were undertaken.
3. Rate. The rate is assessed broadly. The court considers the general characteristics of the recipient, but not the precise borrowing or investment decisions of individual claimants. These claimants formed an intermediate category: private individuals, mostly buy-to-let investors, some borrowing and some not. A rate of 3.5% above base was appropriate.
4. Start date. An insurer has a positive obligation to investigate liability and quantum and to pay after a reasonable period, although the cause of action may accrue earlier. The insurer had received sufficient information, inspected the development and had nearly four months to investigate by early August 2013. Interest therefore ran from 7 August 2013 to 7 February 2019, a period of five and a half years.
5. The resulting interest award was £699,559.30, representing 19.25% of the judgment sum.

This was a supplemental first-instance judgment following the court’s substantive judgment in Zagora Management Ltd & Ors v Zurich Insurance Plc & Ors [2019] EWHC 140 (TCC).