Vs Msn 36118 Cav Designated Activity Company v SpiceJet Limited

A contractual provision stating that unpaid interest shall itself bear interest may provide for compound interest even where the claim does not separately plead compounding, provided the contractual provision and supporting schedule make the claim sufficiently clear.

Where the compounding period is unclear, the court should construe the clause by reference to its wording and commercial context. A construction producing an extraordinary or potentially penal result is unlikely to reflect the parties’ intention. Contractual interest may be compounded annually where the clause most naturally refers to an annual period.

After judgment, a claimant may have to elect between statutory judgment interest and contractual interest where the contractual cause of action has merged in the judgment.

The claimant obtained summary judgment against the defendant and permission to appeal was refused. This judgment concerned consequential matters dealt with on written submissions.

The issues were whether the lease entitled the claimant to compound default interest, whether compounding occurred monthly or annually, whether contractual interest continued after judgment, and what costs order should be made.

1. The lease expressly permitted compound interest. Clause 9.2 provided that interest unpaid at the end of the relevant period would itself bear interest. The Particulars of Claim referred to that clause, and the accompanying schedule claimed interest on a compound basis. A further claim was therefore unnecessary.

2. The reference to interest unpaid at the end of “each such period” was unclear. The previous sentence referred to a year, making annual compounding the most natural construction. Monthly compounding at 3% above LIBOR would produce extraordinarily large figures and could be potentially penal. The claimant was therefore entitled to interest at 3% compounded annually from the due date of each payment.

3. The contractual interest provision expressly continued after judgment. The claimant was entitled to a declaration to that effect, subject to an election between statutory judgment-rate interest and contractual interest, since the contractual cause of action had merged in the judgment.

4. Nothing justified indemnity costs. Clause 18(1)(ii) of the lease did not displace the ordinary CPR costs rules. The claimant was awarded £30,000 for the application and an interim payment of £14,000 on account of the costs of the action.

5. The parties were directed to agree the figures and an order on the basis of the judgment.

The judgment followed an earlier summary judgment in favour of the claimant, after which the defendant’s permission to appeal was refused. No citation for that earlier decision was stated.