Response by Allen and Overy to the Ministry
of Justice consultation paper on the Civil Law Reform Bill
We set out below our response to the proposals
made in the Civil Law Reform Bill and to the questions posed in
the accompanying Consultation Paper. We have limited our response
to only those proposals relating to the award of interest on civil
judgments, which are the subject of Chapter 3 of the Consultation.
The other matters in the Consultation fall largely outside the
areas of direct concern to our clients and so are not dealt with
in this response. We are grateful for the opportunity to provide
this feedback.
We are an international law firm, with clients
primarily drawn from the banking, corporate and commercial sectors.
We regularly act in disputes before the English High Court and
therefore the proposals relating to the award of interest contained
within the Consultation Paper are relevant to both our clients
and to us as practitioners.
This response has been compiled with input from
lawyers in our London office.
INTEREST
1. Do you have any comments on the draft
clauses of the Bill relating to the setting of pre—and post-judgment
interest?
As a general point, we note that with regard to many
of the consultation proposals much of the relevant detail is omitted,
being left to subsequent secondary legislation. It may be a truism,
but the "devil is in the detail" and, without that detail,
it can, on occasion, be difficult to respond fully to the proposals.
For example, it is suggested that the rate of interest will be
set by the Lord Chancellor and that the Lord Chancellor will prescribe
the cases to which section 11 of the draft Bill will not
apply. Without the detail of the rates to be used or the cases
to which the changes may not apply, it is difficult to give constructive
feedback on these proposals. We note that the relevant secondary
legislation will be subject to consultation and an impact assessment.
We would urge, however, that further consultation contains as
many of the relevant details as feasible to make the consultation
exercise as useful as possible.
PRE-JUDGMENT
INTEREST
We favour the retention of the court's discretion
in the award of pre-judgment interest, both as to the rate and
the period for which it should be awarded. We support the proposal
that there should be a default rate of interest set annually but
with the court retaining the discretion to depart from it. We
also believe that it should be in the discretion of the court
to be able to award interest on a compound basis, if appropriate,
as we believe that this better reflects commercial reality. We
do not see the need to limit the discretion to award compound
interest to amounts over £15,000.
We understand that the proposals will not affect
cases where:
(a) the interest payable is specified in a contract;
(b) it is a statutory debt and the interest is
specified by statute; or
(c) debts where interest is not currently awarded.
We agree that this should remain the case. However,
we support the suggestion made by the Law Commission that, in
the case of the Late Payment of Commercial Debts (Interest) Act
1998, claimants should be allowed whichever is greater out of
simple interest under the Act and compound pre-judgment interest.
POST-JUDGMENT
INTEREST
In contrast to our views on pre-judgment interest,
we believe that the rate of interest on judgment debts should
remain a fixed rate. A fixed rate ensures certainty and transparency.
We believe that such interest should be compensatory but with
a moderate penal element to ensure swift settlement of judgment
debts. We welcome the proposal to review the rate on an annual
basis in order to better reflect the cost of borrowing and to
ensure that creditors are properly compensated.
The Court of Appeal should have the power to
vary the rate applicable to the period between judgment and the
outcome of the appeal.
2. Do you agree with the impact assessment
on the proposed reforms relating to the setting of pre—and
post-judgment interest at Annex D?
We agree with the policy objectives and the
intended effects, as set out in the impact assessment. However,
as mentioned above, it is difficult to comment on the impact of
the proposed reforms when so much of the detail is left to secondary
legislation. It is not clear to us that the reforms, as set out
in the current draft Bill, will improve on the current situation.
EUROPEAN PERSPECTIVE
As a final point, we would suggest that in making
these proposed changes there is a careful consideration of the
implications of pan-European practice. In this regard and in our
experience, there can be practical problems involved in the transfer
of judgments across Europe and, in particular, uncertainty regarding
the interest rate applicable to money judgments transported between
Member States' courts. Member States have their own (often differing)
national rules about interest rates applicable to judgments. In
France, for example, an "automatic" interest rate applies
once a money judgment is given (unless provided otherwise). Problems
can arise because judgments may not mention these "automatic"
interest rates (as they apply as of right). If a judgment creditor
then seeks to get such a judgment recognised and enforced in another
Member State, the courts of that Member State may not be aware
of the relevant interest rate rule and applicable rate. That enforcing
court may decline to apply the "automatic" rates of
the court of the state of origin and may instead apply its own
national interest rate and only do so from the date of the order
of exequatur (ie several months after the initial judgment). This
situation can give rise to unfairness and inconsistencies in approach
across Europe, We have raised this issue with the Commission in
the context of the review of the Brussels Regulation
http://ec.europa.eu/iustice home/news/consulting
public/0002/contributions/civil society_ngo_academics_ ot_hers/alien_overy_lip_en.pdf
and note that the Rapporteur has recognised the difficulty in
his report of 2 December 2009 http://www.europarl.europa.eu/sides/aetDoc.do?PubRef=-//EP//NONSGML+COMPARH-PE-430.865+01 +DOC+PDF+V0//EN&language=EN.
Accordingly, we would respectfully suggest that careful thought
is given to how any changes might sit in the European context.
February 2010
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