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You are here: BAILII >> Databases >> Scottish Law Commission >> Scottish Law Commission (Reports) >> Interest on Debt & Damages (Report) [2006] SLC 203(6) (1 September 2006) URL: http://www.bailii.org/scot/other/SLC/Report/2006/203(6).html Cite as: [2006] SLC 203(6) |
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Part 6: Tenders, interim payments and judicial expenses
Tenders6.1 As a general rule, a pursuer who obtains decree for payment of a sum greater than an amount tendered by the defender is entitled to an award of the whole expenses of process. Conversely, if the pursuer fails to beat the tender, an award of expenses from the date of the tender will normally be made in favour of the defender on the ground that the pursuer by failing to accept the tender has unnecessarily prolonged the litigation. The Interest on Damages (Scotland) Act 1958, section 1(1B)[1] provides as follows:
"For the avoidance of doubt, it is hereby declared that where, in any action in which it is competent for the court to award interest under this Act, a tender is made in the course of the action, the tender shall, unless otherwise stated therein, be in full satisfaction of any claim to interest thereunder by any person in whose favour the tender is made; and in considering in any such action whether an award is equal to or greater than an amount tendered in the action, the court shall take account of the amount of any interest awarded under this Act, or such part of that interest as the court considers appropriate."
So far as we are aware the principle underlying this provision has not led to any difficulties. In practice, tenders are invariably calculated to take account of interest accrued to the date of the tender.6.2 An important point of construction of section 1(1B) arose in the case of Manson v Skinner.[2] The pursuer was awarded damages of £2,800 for personal injuries. A tender of £3,000 had been lodged along with the defences. At that time the value of the award, with interest to date, would have been £2,992. By the date of decree the principal award together with interest amounted to £3,047. In the Second Division, section 1(1B) was described as "abridging" the general rule that a pursuer who obtains an award greater than the amount of the tender is entitled to the whole expenses of process. The defender was held entitled to expenses from the date of the tender. This decision provided an authoritative interpretation of section 1(1B) which seems to us to produce a fair and reasonable result. Its effect is reflected in the wording of the new statutory provision which we propose with regard to tenders.
6.3 Section 1(1B) of the 1958 Act, quoted above, applies only to awards of interest "under this Act", ie to awards of interest on damages. In the Discussion Paper we proposed that its scope be extended to cover awards of interest on sums other than damages. Our consultees agreed. We therefore recommend that:
The principle to which section 1(1B) of the Interest on Damages (Scotland) Act 1958 gives effect should be retained and extended to awards of interest on sums other than damages.
(Draft Bill, section 10)
Interim payments6.4 There is at present no statutory provision dealing specifically with interim payments in part satisfaction of a debt or a liability for damages. So far as damages are concerned, interest runs under the current legislation[3] for the whole or any part of the period until the date of the interlocutor granting decree for payment of damages "including" interest. After decree, interest continues to run at the judicial rate.[4] Where the defender makes an interim payment of damages, interest ceases to run on the sum paid.[5] At present, this obviously sensible result is achieved in relation to damages by operation of the judicial discretion in s1(1) of the 1958 Act.
6.5 We consider that this result could equally be achieved by legislation which makes clear that interest runs only on the sum outstanding from time to time. In our draft Bill, this result is achieved by the general provision[6] that interest runs on a sum of money until the date or dates of payment of the principal sum.
Judicial expenses6.6 Parties to litigation incur expenses such as legal fees and fees paid to expert witnesses which, in complex cases, may amount to a significant expense. A successful party who has been awarded judicial expenses (or who has accepted an offer to settle which includes payment of judicial expenses) may, depending upon the view of the auditor, be entitled to recover such fees and outlays from the unsuccessful party. There is, however, no general entitlement to interest on expenses prior to the date of decree. The established rule is that it is competent for the court to award interest on properly incurred outlays from a date prior to the date of decree, but that this will only be done in special circumstances.[7] Thus, for example, in Presslie v Cochrane McGregor Group Ltd (No 2),[8] the fees of architects instructed to support the pursuers' claim were held by the auditor to be exceptional in nature and interest was allowed from the dates of disbursement. The Lord Ordinary (Lord Penrose) observed in that case that there was no consistent pattern in previous cases in which awards of interest had been made.
6.7 One of our consultees[9] suggested to us that the "established rule" is too narrow in scope in respect that the test for recovery of interest on outlays for a period prior to decree is too demanding. It also appears to us to be uncertain in scope. In practice, we understand that the burden of such outlays is often borne by the parties' solicitors pending resolution of the litigation. We agree that in modern practice, where it is common for expert witnesses to be instructed at considerable expense and also for lengthy periods to elapse between payment of such witnesses' accounts and recovery of that expense from the unsuccessful party, there is no good reason to restrict entitlement to interest to "special circumstances". Nor do we see any reason in principle to distinguish between outlays on the one hand and fees paid by the successful party to his solicitor on the other. It would be consistent with our guiding principles for interest to run both on legal fees and on outlays from the date of payment at the compensatory rates which we are proposing. We therefore recommend that:
Where a party to litigation is found entitled to recover fees and outlays in judicial expenses from another party, statutory interest should be payable on such expenses from the dates when they were respectively paid.
(Draft Bill, section 11)
Note 1 As substituted by the Interest on Damages (Scotland) Act 1971. [Back] Note 3 Interest on Damages (Scotland) Act 1958, s 1(1) (as substituted by the Interest on Damages (Scotland) Act 1971). [Back] Note 4 Rules of the Court of Session, rule 7.7, as amended; Sheriff Courts (Scotland) Extracts Act 1892, s 9, as amended. [Back] Note 5 Redman v McRae 1991 SLT 785; Jarvie v Sharp 1992 SLT 350. [Back] Note 7 Craig Line Steamship Co Ltd v North British Storage and Transit Co 1921 SC 114; Phillips v Upper Clyde Shipbuilders 1990 SLT 887; Presslie v Cochrane McGregor Group Ltd (No 2) 1999 SLT 1242. [Back]
