A point of interest

In this article, Mickaela Fox and Deborah Sullivan consider the issue of interest awards in solicitors’ negligence cases in the wake of the recent decision in Frank Perry v Raleys Solicitors [2017] EWCA Civ 314.

Unprecedented lows in the Bank of England base rate have, in recent years, led to increased arguments about interest awards in professional negligence claims against solicitors. Typically, the Claimant will ask for judgment rate interest; the professional will argue that that is preposterous given the rate that the Claimant could have achieved had they invested the money over the same period. So, who is right?

It is not often that the appellate courts are vexed with questions about interest on damages. That the Court of Appeal was asked to deal with the issue in Perry v Raleys, is a marker of how prevalent disputes on this point have become.

Perry v Raleys was a claim in respect of the lost opportunity to pursue a claim for a services award in the context of a VWF claim. Raleys had settled Mr Perry’s claim against the National Coal Board pursuant to the DTI’s Compensation Scheme (“the Scheme”) in November 1999. In February 2009, he issued proceedings against Raleys for the loss of opportunity to claim a services award in respect of gardening, DIY etc. 

The main issue in the Perry v Raleys claim was whether it was appropriate for the judge to have conducted a trial within a trial as to whether, on the balance of probabilities, Mr Perry was unable to carry out the relevant tasks without assistance. However, the Court of Appeal also awarded Judgment Act rate interest at 8% on damages over a ten year period — reflecting its disapproval of how the claim had been defended. A discussion of its impact in respect of this issue demands a brief overview of the facts as they were presented to the appellate court.

At first instance, the judge held that Raleys’ negligence had not caused Mr Perry to settle at an undervalue because he did not accept that Mr Perry could not perform unaided the tasks which he did carry out unaided before the onset of VWF. On the appeal, it was agreed by the parties that, in the event that the appeal was allowed, the Court of Appeal should quantify damages in an agreed sum of £14,556.15 plus interest from 1 December 2006 i.e. the notional date when the DTI would have determined any services claim under the Scheme. There was no agreement as to the rate of interest. 

According to the Court of Appeal transcript, during the conduct of the action, Raleys (or their insurers) refused to accept that they were in negligent breach of duty until two days before the trial; filed a defence which raised every conceivable defence, including putting Mr Perry to proof that his claim would have succeeded under the Scheme; effectively sidelined the findings of the jointly instructed sole expert and attempted, contrary to clear statements in the authorities, to conduct a trial of the underlying issues in the hypothetical claim under the Scheme.

It was common ground before the Court of Appeal that an award of simple interest pursuant to Section 69 of the County Courts Act 1984 in respect of the period pre-judgment is a matter within the court's discretion and that in this case the discretion should be exercised in favour of the appellant. However, the appropriate rate was strongly contested. Raleys argued that the appropriate rate was the special account rate (6% until 31 January 2009, 3% from February and to May 2009, 1.5% in June 2009 and 0.5% from 1 July 2009 until judgment) and Mr Perry contended for judgment rate interest at 8%. The rates contended for would have given rise to interest awards of £2,630.30 and £12,126.67 respectively i.e. a difference of almost £10,000 on the sum of £14,556.15 that Mr Perry ought to have received in 2006.

Practitioners dealing with professional negligence claims will be aware that there are examples amongst the authorities of the court awarding interest at each of the rates contended for, depending upon the circumstances of the case. However, the well-known authorities of Pinnock v Wilkins & Sons and Watts v Morrow — decisions of the Court of Appeal which demonstrated that the court may take the rate applicable to judgments — were both decided when the difference between judgment and special rate interest was small by comparison to the overall rates. 

Mr David Railton QC (sitting as a Deputy High Court Judge) clarified the principles on which an award of interest is made under Section 35A of the Senior Courts Act 1981 in Dreamvar (UK) Limited v Mishcon De Reya (a firm), Mary Monson Solicitors Limited [2016] EWHC 3316 (Ch):

“The broad object of the exercise is to compensate the claimant for being kept out of his money. It is not however a measure of the claimant's actual loss, whether in the form of the actual costs (if any) which the claimant has incurred by borrowing the sum of which he has been deprived, or the loss of profit (if any) which he has suffered by not being able to use and earn profits from that sum. … The enquiry under s.35A is intended to identify the rate of interest which would fairly compensate a person in the position of, and having the same general attributes as, the claimant.”

His comments are equally instructive in the context of Section 69 of the County Courts Act 1984.

In Perry v Raleys, Lady Justice Gloster Vice President of the Court of Appeal, with whom Civil Division Lord Justice McFarlane and Sir Stephen Tomlinson agreed, determined the issue as follows:

“In my judgment, I consider that it is wholly appropriate to adopt the judgment debt rate in the present case. That is not just because the judgment debt more adequately compensates Mr Perry for the fact that he has been kept out of his money for so long, but also because the conduct of Raleys (or their insurers), in their long drawn-out defence of this claim, deserved appropriate sanction.”

The decision is interesting for the following reasons:

• It demonstrates that the courts can and will use the award of interest in professional negligence claims as a means of punishing defendants, in cases where their conduct deserves it.
• The court did not shy away from awarding judgment rate interest, notwithstanding that the judgment rate no longer bears any realistic resemblance to the cost or value of money in the current climate of lower interest rates.
• Raleys submitted that the appropriate rate of interest was the special account rate but did not advance any alternative rates of interest in the event that its primary contention was rejected. One wonders how the matter would have been decided had they presented the Court of Appeal with a halfway house between the options of judgment rate and special account rate. The Court of Appeal clearly did not consider that the special account rate adequately compensated Mr Perry but no viable alternative to judgment rate interest was being advanced.

It is important to note that the Court of Appeal did not close the door on defendants contending for special account rate interest/some other more flexible commercial rate of interest in professional negligence claims. However, it did emphasise the importance of choosing your battles carefully when defending them, lest your conduct comes back to bite you when interest is awarded. It also illustrated the fact that defendants need to help the Court to help them in the context of this type of interest argument. Being prepared to argue why an alternative interest rate might be appropriate and having evidence in support, is key in reducing the risk of judgment rate interest being awarded.