|
Hand over all the money
You can recover damages for losses caused by breach
of contract but probably not for the loss of the use of money
awarded in damages. Interest, in other words. That’s a bit odd
isn’t it?
“What the Sempra Metals case does is bring
the ‘loss of use of money’ smack up to date into the real world.
Common law and common sense match right now”
I have to confess that one of the areas of
law that I find quite loopy is awarding interest. Having decided
(as adjudicator or arbitrator or judge) that X owes Y a lump of
cash, what's to be done about also compensating Y for the time X
held on to that lump of cash? The truth is that the rules are
not soundly based. Not, at least, until the House of Lords got
to grips with it in a case called Sempra Metals Limited vs
Inland Revenue. This case was explained in a talk given to
the Society of Construction Law by Judge Anthony Thornton. The
judge calls the case The Sempra Metals Revolution.
Why loopy? Look, English law as a general law
provides that you can recover damages for losses caused by a
breach of contract or a general wrong caused by the other bloke.
But, and this is where I blink, English law does not generally
provide for damages for loss of the use of the money represented
by the award in damages. So, you can claim for breach of
contract and get damages but the bottom line is that claiming
for loss of use of the money now awarded is a no-no.
You would call this interest. And, over
umpteen years we have wrestled with ideas on how to overcome all
this. I well tell you how in a moment; but Sempra has
blown the cobwebs away. At the front of the judgment Lord
Nicholls says, “To a significant extent the law remains out of
step with everyday life in the 21st century. The common law
adopted a restrictive rule: unpaid debts do not carry interest,
either compound or simple. This was an exception to the ordinary
common law principles applicable to recovery of damages for
breach of contract.” He added: “We live in a world where
interest payments for the use of money are calculated on a
compound basis. Money is not available commercially on simple
interest terms. This is the daily experience of everyone,
whether they borrow money on overdrafts or credit cards or
mortgages or shop around for the best rates when depositing
savings with banks or building societies. If the law is to
achieve a fair and just outcome when assessing financial loss it
must recognise and give effect to this reality.”
Over all these years the unease felt about
the basic rule has been tackled by legislation. A variety of
acts gave courts, arbitrators and adjudicators the power to
award interest. But these provisions are hedged with ifs and
buts. For example, an arbitrator (or court) cannot award
interest on money paid late before the action is begun. Yet the
delayed payment may have hurt. The Late Payment of Commercial
Debts Act 1998 hits a late payer with a penal rate (currently
13.5% per annum) but it doesn’t apply in all cases.
None of these acts are swept away. But what
the Sempra Metals case has done is brought the “loss of use of
money” up to date into the real world. Common law and common
sense match right now. It was a test case, nothing, and
everything, to do with construction industry payments.
Sempra had paid advance corporation tax. It
was too much. That was discovered years later. The tax itself
was credited back to Sempra. Then Sempra held its hand out for
compensation for loss of use of the money. On the one hand
Sempra might have borrowed the money to pay the taxman, or lost
the opportunity to invest that money. It even went so far as to
claim the benefit that the taxman had enjoyed by having all that
money in his coffers. It’s called “unjust enrichment”.
Do you see what is happening here? An
ordinary debt paid late on a building contract will attract the
penal interest rate under the Late Payment of Commercial Debts
Act 1998. But English general law will now ask “Is that enough?”
And if compounding interest is appropriate so be it. Then, go
much further. This Lords case has recognised what the lawyers
call restitutionary rights.
If the other fellow has got, or had, your
money when he ought not to have, he has been unjustly enriched
at your expense. It is not difficult to show how, and, if that
can be compensated by compound interest, that’s your claim.
Readers are invited to forward recent
judgments for reporting in this column (with full
acknowledgement) to: Tony Bingham, 3 Paper Buildings, Temple,
London EC4Y 7EU. DX: 37164 Biggleswade
Top
|
