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Cite as: [2011] EWHC 2094 (Comm)

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Neutral Citation Number: [2011] EWHC 2094 (Comm)
Case No: 2009 FOLIO 375


Royal Courts of Justice
Strand, London, WC2A 2LL
1 August 2011

B e f o r e :


- and -



Mr R Dicker QC and Mr J Goldring (instructed by Linklaters LLP) for the Claimant
Mr A Malek QC, Mr C Freedman and Mr J MacDonald (instructed by Gibson & Co) for the Defendant



Crown Copyright ©



  1. This further judgment concerns the post-judgment interest payable to SCB.
  2. The issues which arise are as follows:
  3. (1) Should the post-judgment interest payable to SCB on the sum of $166,476,281 (the 'judgment sum') ordered to be paid in paragraph 1 of the Order of 11 July 2011 by 8 August 2011 be calculated by reference to:
    (a) the rate under the Judgments Act 1838 (which is currently 8%);
    (b) the US Prime Rate (which is currently 3.25%); or
    (c) the contractual rate laid down by Section 9(h)(i)(1) of the Master Agreement (which is currently 1.63%)?
    (2) Should the Judgments Act rate of interest payable on SCB's costs be postponed or apply from the date of Order?


  4. Sections 17 and 18 of the Judgments Act (as amended) provide as follows:
  5. "17 Judgment debts to carry interest.
    (1) Every judgment debt shall carry interest at the rate of 8 pounds per centum per annum from such time as shall be prescribed by rules of court until the same shall be satisfied, and such interest may be levied under a writ of execution on such judgment.
    (2) Rules of court may provide for the court to disallow all or part of any interest otherwise payable under subsection (1).
    18 Decrees and orders of courts of equity, &c. to have effect of judgments.
    All decrees and orders of courts of equity, and all rules of courts of common law whereby any sum of money, or any costs, charges, or expenses, shall be payable to any person, shall have the effect of judgments in the superior courts of common law, and the persons to whom any such monies, or costs, charges, or expenses, shall be payable, shall be deemed judgment creditors within the meaning of this Act; and all powers hereby given to the judges of the superior courts of common law with respect to matters depending in the same courts shall and may be exercised by courts of equity with respect to matters therein depending and all remedies hereby given to judgment creditors are in like manner given to persons to whom any monies, or costs, charges, or expenses, are by such orders or rules respectively directed to be paid."
  6. Section 44A of the Administration of Justice Act 1970 (as amended), which came into force on 1 November 1996 following enactment of the Private International Law (Miscellaneous Provisions) Act 1996, provides:
  7. "44A. Interest on judgment debts expressed in currencies other than sterling.
    (1) Where a judgment is given for a sum expressed in a currency other than sterling and the judgment debt is one to which section 17 of the Judgments Act 1838 applies, the court may order that the interest rate applicable to the debt shall be such rate as the court thinks fit.
    (2) Where the court makes such an order, section 17 of the Judgments Act 1838 shall have effect in relation to the judgment debt as if the rate specified in the order were substituted for the rate specified in that section."
  8. Where the judgment is expressed in a currency other than sterling, the Court therefore has a discretion under s 44A of the AJA 1970 to vary the statutory rate.
  9. CPR 40.8 deals with the date from which interest under the Judgments Act begins to run. It provides as follows:
  10. "40.8 Time from which interest begins to run
    (1) Where interest is payable on a judgment pursuant to section 17 of the Judgments Act 1838 ... the interest shall begin to run from the date that judgment is given unless (a) a rule in another Part or a practice direction makes different provision; or (b) the court orders otherwise.
    (2) The court may order that interest shall begin to run from a date before the date that judgment is given".


  11. The first question that arises is whether the rates and period of interest otherwise applicable under the Judgments Act should be altered because of SCB's contractual entitlement to interest under Section 9(h)(i)(1) of the Master Agreement, which provides (underlining added):
  12. "If a party defaults in the performance of any payment obligation, it will, to the extent permitted by applicable law and subject to Section 6(c), pay interest (before as well as after judgment) on the overdue amount to the other party on demand in the same currency as the overdue amount, for the period from (and including) the original due date for payment to (but excluding) the date of actual payment ... at the Default Rate."
  13. It is to be noted that the parties agreed that English law would apply, and that the English Courts would have non-exclusive jurisdiction: Section 13(a) and (b) of the Master Agreement.
  14. As SCB submitted, there is no rule that interest under the Judgments Act is not payable, or the rate should be reduced, if interest is payable for the post-judgment period under a contract, whether or not the contract expressly provides for interest post-judgment.
  15. The position contrasts with that applicable to discretionary awards of pre-judgment interest on debts or damages under Section 35A of the Senior Courts Act 1981. Section 35A(4) of the SCA makes plain that no interest can be awarded under that section for a pre-judgment period during which interest already runs. Section 35A(4) (set out in the White Book, Vol 2, p.2464) provides "Interest in respect of a debt shall not be awarded under this section for a period during which, for whatever reason, interest on the debt already runs". This means that, where the contract itself fixes interest, the court can only enforce that provision: its statutory power does not override the contractual provision, so that it cannot fix a different interest rate: see Chitty on Contracts (30th ed) paras. 26-177 and 26-182.
  16. In relation to post-judgment interest I agree with SCB that the reason for the underlined provision in Section 9(h)(i)(1) is to preserve the innocent party's right to claim contractual interest following judgment rather than to cap the rate of interest to which it is entitled under the Judgments Act. As Lord Bingham explained in First National Bank v. D-G of Fair Trading [2002] 1 AC 481:
  17. "3. The bank's stipulation that interest shall be charged until payment after as well as before any judgment, such obligation to be independent of and not to merge with the judgment, is readily explicable. At any rate since In re Sneyd; Ex p Fewings (1883) 25 Ch D 338, not challenged but accepted without demur by the House of Lords in Economic Life Assurance Society v Usborne [1902] AC 147, the understanding of lawyers in England has been as accurately summarised by the Court of Appeal at p 682 of the judgment under appeal:
    "It is trite law in England that once a judgment is obtained under a loan agreement for a principal sum and judgment is entered, the contract merges in the judgment and the principal becomes owed under the judgment and not under the contract. If under the contract interest on any principal sum is due, absent special provisions the contract is considered ancillary to the covenant to pay the principal, with the result that if judgment is obtained for the principal, the covenant to pay interest merges in the judgment. Parties to a contract may agree that a covenant to pay interest will not merge in any judgment for the principal sum due, and in that event interest may be charged under the contract on the principal sum due even after judgment for that sum."
    4. To ensure that they were able to recover not only the full sum of principal outstanding but also any interest accruing on that sum after judgment as well as before, it became the practice for lenders to include in their credit agreements a term to the effect of the term here in issue. If such a provision had not been included, a lender seeking to enforce a loan agreement against a borrower in the High Court would suffer prejudice only to the extent that the statutory rate of interest on judgment debts at the material time is lower than the contractual interest rate, because the High Court has, since 1838, had power to award statutory interest on a judgment debt until payment."
  18. In the light of the guidance provided by that decision the position may be summarised as follows:
  19. (1) The starting point is that, absent special provision, a right to interest merges into a judgment, so that the creditor is no longer entitled to contractual interest. It follows that if the Judgments Act rate of interest is higher than the contractual rate, the creditor receives a sum higher than that to which it would have been contractually entitled. Conversely, if the Judgments Act rate of interest is lower than the contractual rate, the creditor receives a lesser sum than that to which it would have been contractually entitled.
    (2) The usual purpose of a contractual provision preserving a right to interest post-judgment is to prevent that merger. It has the effect that the contractual right to post-judgment interest is preserved so that the creditor is protected if the Judgments Act rate is lower than the contractual rate.
    (3) But the incorporation of such a term is not generally intended to deprive a debt ordered to be paid by the court of its status of a judgment debt, and the creditor of its statutory right to payment of interest under the Judgments Act.
  20. To put it another way, the underlined phrase in Section 9(h)(i)(1) is not to be construed as an agreement that SCB would not be entitled to Judgments Act interest.
  21. The next question which arises is whether interest should be awarded at US Prime Rate or at the Judgments Act rate.
  22. Where the judgment is expressed in sterling the Court has no power to vary the rate of interest laid down by the Judgments Act. The rate is fixed by statutory instrument and can only be altered by that mechanism: see Schlumberger Holdings Limited v. Electromagnetic Geoservices [2009] EWHC 733 (Pat), at [11] (per Mann J).
  23. Where, however, the judgment is expressed in a foreign currency the Court has a discretion under Section 44A of the AJA 1970 (as amended) to award interest "at such rate as the court thinks fit".
  24. This amendment gave effect to recommendations of the Law Commission contained in its Report on Private International Law Foreign Money Liabilities (Law Com. No.124 (1983), Cmnd 9064), paras 4.1-4.15 and Appendix A.
  25. The background to the change was explained as follows in the Report:
  26. "4.8 As we have explained in paragraph 4.1 above, the question of interest on foreign-currency judgments was not canvassed in Working Paper No.80. On consultation, however certain commentators referred to the difference between the rules governing the award of interest on a foreign-currency claim in respect of the period to the date of judgment and the interest that automatically ran on judgments debts; and they suggested that this difference constituted an anomaly. This anomaly arises because the rate of interest applicable from time to time to judgments debts, whether expressed in sterling or in foreign currency, is fixed in the light of the interest rates currently prevailing in the United Kingdom. Thus, for example, the court might exercise its statutory discretion to award interest on a particular foreign-currency debt at the rate appropriate to the currency in question at, for example, 6% per annum in respect of the period from the date on which the debt fell due to the date of judgment, yet the rate of interest prescribed for judgment debts at the date of judgment may be, say, 12%. To express the point in different terms: the judicial development of the rules concerning interest on foreign-currency claims to the date of judgment has not been matched by legislative change relating to the rate of interest that automatically runs on foreign-currency judgment debts.
    In our view .... the Miliangos principle is applicable to foreign-currency claims after as well as before judgment, because, as Lord Wilberforce put it in that case, the plaintiff has "no concern with sterling"...."
  27. CPC submitted that the same anomaly will arise in the present case if interest is awarded at the Judgment Act rate. The rate appropriate to the currency in question (US dollars) is US Prime Rate (3.25%) which is less than half the Judgment Act Rate (8%). This is very similar to the example given by the Law Commission of a case where the exercise of the statutory discretion may be appropriate. The main difference is that the Law Commission's reasonable assumption that the Judgments Act rate would reflect the interest rates currently prevailing in the UK has not been borne out.
  28. SCB submitted that nevertheless the Judgments Act rate should apply. In particular:
  29. (1) The rate is just in relation to sterling denominated debts for the reasons explained by Mann J in Schlumberger, [18] to [22]. For example, CPC would be failing to pay a debt that the Court had found to be due, and so keeping SCB out of its money, while SCB would be in a position of being an unwilling lender to CPC. That justifies an elevated rate of interest, which encourages early payment of judgment debts.
    (2) The reasons why it would be just for Judgment Act interest to be payable in relation to a sterling judgment debt apply equally to the debt in this case. The parties contemplated that proceedings arising out of the Master Agreement would be subject to the non-exclusive jurisdiction of the English Court so that English procedural law (including the Judgment Act) would apply.
  30. I am not satisfied that the inclusion of an English jurisdiction clause is a sufficient reason for the Court to refuse to exercise its statutory discretion. If it was, it would exclude the discretion in many cases. It is not a reason for excluding the Miliangos principle and, as the Law Commission makes clear, the discretion as to interest is a logical extension of that principle. The discretion is there to enable the Court to award interest at a rate appropriate to the currency in question.
  31. In the circumstances of the present case I am satisfied that it would be appropriate for the Court to exercise its discretion so as to award interest at a rate suitable for the currency of the judgment. In particular, the difference between the two rates is significant; it is not due to rapidly fluctuating or highly variable factors; a much lower US dollar interest rate has been established for some time and is likely to continue for the immediately foreseeable future, and SCB has no relevant or sufficient "concern with sterling".
  32. It was common ground that if I was so to decide then the appropriate rate would be US Prime Rate see Kuwait Airways Corp v. Kuwait Insurance Co [2000] Lloyds Reps 678, at 692-3 (per Langley J).

  34. The question is whether the Judgments Act rate of interest payable on SCB's costs should be deferred.
  35. It is established that orders for the assessment of costs fall within the scope of the Judgments Act, even though there is no sum for which execution may be levied: see Hunt v. RM Douglas Roofing [1990] 1 AC 398 (HL). The general position is that interest on costs runs from the date upon which judgment was pronounced (the incipitur rule) as opposed to the date upon which the taxation of costs was completed by issuing of the taxing master's certificate (the allocator rule). Since this is a sterling judgment debt the relevant rate is the Judgments Act rate.
  36. However, under CPR 40.8 the Court has the power to postpone the date for liability under the Judgments Act rate, with interest accruing at the lower rate in the meantime. This issue has received consideration in a number of first instance cases see Schlumberger (no postponement); Colour Quest Ltd v Total Downstream, [2009] EWHC 823 (Comm) (David Steel J) (6 months postponement); D Pride and Partners v Institute for Animal Health [2009] EWHC 1617 (QB) (Tugendhat J) (4 months postponement); Cranway Ltd v. Playtech Ltd [2009] EWHC 2008 (Pat) (Lewison J) (no postponement); London Tara Hotel Ltd v Kensington Close Hotel Ltd [2011] EWHC 29 (Ch) (Roth J) (4 months postponement) and Fiona Trust Holdings v. Privalov [2011] EWHC 1312 (Comm) (no postponement).
  37. I accept that these cases show that the Court should not routinely make such an order and that it is necessary to justify a departure from the usual rule. Such a departure may, however, be justified where the Court considers that there may be real issues of proportionality and reasonableness on taxation, particularly if large amounts of costs are in issue.
  38. In the London Tara Hotel case Roth J stated as follows:
  39. "I respectfully agree with Mann J that it would be inappropriate to exercise the discretion under rule 40.8 to postpone the start of the judgement rate on costs until after assessment or agreement as a matter of course. But that does not preclude a limited postponement of the application of the judgment rate as applied to costs in a case where the costs are large and there may be real issues of proportionality and reasonableness on taxation. Whereas there may be some justification for the maintenance of a rate under the Judgments Act significantly in excess of the commercial rate in recognition of the fact that payment of a judgment debt is not to be viewed simply like another commercial debt, that reasoning does not apply before the amount which has to be paid is known."
  40. In the present case the costs are large and there may well be real issues of proportionality and reasonableness on taxation. The likely existence of such issues is a reason why the payment on account was limited to 50%. In respect of the payment on account which has been ordered interest will accrue at the Judgements Act rate. In respect of the disputed balance I consider in the exercise of my discretion that a limited postponement of the application of that higher rate is justified and I accordingly order a 4 month postponement.

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