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	England and Wales High Court (Technology and Construction Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Technology and Construction Court) Decisions >> Hackney Empire Ltd v Aviva Insurance UK Ltd [2013] EWHC 2212 (TCC) (30 July 2013) URL: http://www.bailii.org/ew/cases/EWHC/TCC/2013/2212.html Cite as: [2013] EWHC 2212 (TCC)

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IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT

		Royal Courts of Justice Rolls Building, 7 Rolls Buildings London EC4A 1NL
		30th July 2013

Mr.Justice Edwards-Stuart:

Introduction

1. This judgment is on the question of interest following the principal judgment that I handed down on 21 September 2011. However, the Defendant ("Aviva") then obtained permission to appeal from the Court of Appeal. The appeal was subsequently dismissed on 19 December 2012. I heard counsel for the parties on the outstanding issues in relation to interest on Friday, 12 April 2013. The principal claim was under a bond which secured the performance of the contractor under a building contract that was made in 2001, which involved extensive works of refurbishment to the Hackney Empire Theatre. Unfortunately, the contractor, STC, went into administration in July 2003 before completing the work. The facts are set out in the principal judgment.
2. The claimant ("HEL") claims interest from 1 July 2003 to 3 November 2011 on the full bond amount of £1,106,852, and on the sum of £901,852 thereafter, at a rate of 8.08%, being the average of 4.25% above Barclays base rate from 2003 to 8 April 2013. That equates to a sum of approximately £845,000.
3. However, in its opening note for the trial served on 30 June 2011, HEL said:

"It is accepted that compound interest is not appropriate. However, it is submitted that in the circumstances HEL should be awarded interest from when the sum owing should have been paid. It is submitted that a suitable date is 8^th March 2004 when a schedule of losses was submitted to Aviva. An appropriate rate is a commercial rate of base rate plus 1%."

4. The dispute about interest can be reduced to three essentials:

i) From what date should interest run.

ii) For what period should interest run.

iii) What should be the rate, or rates, of interest during that period.

5. Numerous authorities were cited to the court, including the following (with the main relevant paragraphs in brackets): NHBC v Fraser [1983] 1 All ER 1090 (at 1092h.); Jaura v Ahmed [2002] EWCA Civ 210 (paragraphs 12-28); Claymore Services Ltd v Nautilus Properties Ltd [2007] BLR 452 (all); Bridge UK.com Ltd v Abbey Pynford plc [2007] EWHC 728 (TCC) (paragraphs 145-146); Sempra Metals Ltd v IRC [2008] 1 AC 561 (paragraphs 33 & 52); Fiona Trust & Holding Corporation v Yuri Privalov [2011] EWHC 664 (paragraphs 11-34); Attrill v Dresdner Kleinwort [2012] EWHC 1468 (QB) (Owen J, at paras 3-5); Sear v Kingfisher Builders [2013] EWHC 21 (TCC) (paragraphs 22-26); Sycamore Bidco Ltd v Breslin [2013] EWHC 174 (Ch) (all) (paragraphs 6-16 & 44-57) and Challinor v Bellis [2013] EWHC 620 (Ch) (paragraphs 20-50).
6. Although I do not propose to cite all these authorities in this judgment, I have read all of the relevant parts of them that I have indicated above.

HEL's position

7. HEL had a number of sources of funding, significant parts of which were obtained on an interest free or similar basis. Miss Alexandra Bodnar, who appeared for Aviva, submitted, and I accept, that this is probably fairly typical of a charity in its position. Only a relatively small part of HEL's activities were funded by borrowing, the details of which have been set out in witness statements.
8. Miss Bodnar also submitted, based on a detailed analysis of the evidence, that HEL's accounts reveal that actual interest on loans and overdrafts paid by HEL since 8 March 2004 amounted to a total of £80,792.60. In other words, less than 10% of the sum that HEL now claims in respect of interest. She said also, by way of example, that in 2009 HEL received £700,000 in gifts and donations.
9. I was reminded that when exercising its discretion the court should bear in mind the words of Lords Hope and Nicholls in Sempra Metals Ltd v IRC [2008] 1 AC 561, at paragraphs 33 and 52, respectively:

"… [s]imple interest is an artificial construct which has no relation to the way money is obtained or turned to account in the real world."

and

"[w]e 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 borrowing money on overdrafts or credit cards or mortgages or shopping 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."

The start date

10. As I have already noted, HEL now claims interest from 1 July 2003 in spite of its earlier acceptance that the appropriate start date was 8 March 2004, when a schedule of loss was sent to Aviva.
11. As Mr. David Thomas QC, who appeared for HEL, reminded me, the basic position, or starting point, "… is that interest will normally start running when the cause of action accrues (assuming that loss accrues then too)": see Sycamore Bidco Ltd v Breslin [2013] EWHC 174 (Ch), per Mann J, at paragraph 16. In that case Mann J explained the reason for this, at paragraph 26:

"As appears from the above authorities, the reason why interest is paid is because the defendant has had the use of the money (damages) for a time for which he should not have had that use. That is true whether or not the defendant is ignorant."

12. The importance of the defendant having had the use of the money when it should not have had it was underlined by Jackson J (as he then was) in Claymore Services Ltd v Nautilus Properties Ltd [2007] BLR 452, at paragraphs 52 to 55.
13. Miss Bodnar submitted that this was a case, like Claymore, where the relevant information resided with HEL, and not Aviva, with the result that Aviva could not know what sum it should pay until it had been presented with a demand.
14. In the light of this, it seems to me that HEL's first thoughts on the start date are to be preferred. It was from March 2004 that it was kept out of its money. Although its cause of action may have accrued on (or before) 1 July 2003, that is not the date on which in my view it suffered the loss. Its loss was caused when Aviva failed to pay on the bond as it should have done. I consider that this was three weeks from the date of the demand, namely 29 March 2004.

The period

15. Turning to the period for which interest should run and the effect of delay by HEL, at paragraph 8 of Sycamore Mann J cited a passage from the judgment of Langley J in Kuwait Airways v Kuwait Insurance [2001] 1 All ER (Comm) 972, in which he said, at page 986:

"(5) Where a claimant assured has been guilty of excessive delay, whether in making the original claim or in pursuing it, then the starting point (or on occasion the rate of interest) may be adjusted adversely to him. The rationale for such an approach has sometimes been expressed as a form of sanction for delay but can, I think, equally and more consistently with principle, be expressed in terms that in such a case it is wrong to view the claimant as kept out of or deprived of the use of the money payment of which he has delayed in seeking."

16. In Claymore Jackson J identified the following three propositions as emerging from the authorities, at paragraph 55:

"1. Where a claimant has delayed unreasonably in commencing or prosecuting proceedings, the court may exercise its discretion either to disallow interest for a period or to reduce the rate of interest.

2. In exercising that discretion the court must take a realistic view of delay. In the case of business disputes, litigation is for all parties an unwelcome distraction from their proper business. It is not reasonable to expect any party to take every litigious step at the first possible moment, or to concentrate on litigation to the exclusion of all else. Delay should only be characterised as unreasonable for present purposes when, after making due allowance for the circumstances, it can be seen that the claimant has neglected or declined to pursue his claim for a significant period.

3. When determining what disallowance or reduction of interest should be made to mark a period of unreasonable delay, the court should bear in mind that the defendant has had the use of the money during that period of delay."

17. In that case Jackson J awarded 50% of the rate he found was otherwise applicable (2% above base) during a period of one year's delay by the claimant for which it seems no explanation had been offered.
18. Mr. Thomas submits, in my view correctly, that Jackson J's first two propositions emerge from authorities such as The Athenian Harmony (No. 2) (quoted at paragraph 52 of Claymore), in which, after observing that if interest is withheld the defendant will receive a windfall, Colman J said:

"In cases where the delay and the degree of fault are so substantial that the predominant cause of the plaintiff being out of his money can be seen to be his own failure to prosecute the claim, rather than the defendant's maintenance of his defence, it is not difficult to see the policy should be that a successful plaintiff should not be compensated for loss of use of the money. However, in order for it to be said that the plaintiff's fault has displaced the defendant's fault as the predominant cause of the plaintiff being kept out of his money, the delay in question would have to be very substantial and not merely relatively short periods of weeks or months, during which, in commercial litigation, lulls in activity inevitably occur and the plaintiff's fault would have to be very substantial as where an action has inexcusably been allowed to go to sleep for years."

19. More recently in Challinor v Juliet Bellis & Co [2013] EWHC 620 (Ch), Hildyard J said, at paragraph 48:

"The delay must truly be exceptional and inexcusable, having made allowance for the fact that delays and lulls do occur in litigation."

20. The evidence in this case shows that HEL was at all times concerned to reopen the theatre as soon as it could and get back to business as usual. It was not a completely free agent: it had to manage its affairs in a way that would not attract the disapproval of its major funders (such as the Arts Council or the Heritage Lottery Fund) or its principal benefactor, Lord Sugar. Equally its directors or trustees did not want to rely on the generosity of Lord Sugar, unless they felt it absolutely necessary and could present a proper business case to him. They could not assume that he would simply provide funds for the asking.
21. It must be borne in mind also that HEL was in the business of providing entertainment, not project management in the construction industry. It was faced with a difficult contractor who had performed way below expectation and the subsequent problem of having to find another contractor to complete the work. Before it could embark on litigation, HEL had to be sure that it had the means to do so. The route on that front was not straightforward: for example, by the summer of 2009 it owed £300,000 to HM Revenue and Customs; it was not until March 2010 that Lord Sugar agreed to back HEL's claim financially, which then put HEL in a position to bring proceedings. In August 2010 HEL received just over £1 million from the sale of a property, which enabled it to issue the claim against Aviva the following month. By the end of 2010 Mr. Thomas had indicated that he was prepared to act under a partial CFA. During the early part of this period HEL had been attempting to secure ATE insurance cover, but without success.
22. Notwithstanding this, Aviva submitted that HEL could and should have pursued the litigation with more vigour and that it, Aviva, should not have to pay interest during periods of delay that were primarily or largely of HEL's own making. Miss Bodnar's submissions were, as usual, attractively put. She made two points. First, HEL was guilty of unreasonable and excessive delay in bringing the claim. Second, HEL insisted on advancing a claim against Aviva that was bound to fail (the claim to recover the £750,000 advanced to STC by HEL without Aviva's knowledge).
23. Miss Bodnar submitted that the delay between June 2004 and September 2008, being the date of the letter of claim, was an extraordinary delay. During this period, she said, Aviva heard nothing at all from HEL. She submitted that this delay could not be satisfactorily explained on the basis of HEL's financial position. Indeed, she pointed out that HEL had engaged CMS Cameron McKenna from as early as July 2003, and that firm thereafter spent over 300 hours working on the claim between then and the end of May 2007. She asked rhetorically, what were they doing?
24. Whilst the court does not know what CMS Cameron McKenna was doing from July 2003 onwards, it is in my view reasonably clear that HEL was not in a position to commit itself to litigation, and at that litigation which it knew was going to be strongly defended, until it had some prospect of being able to meet any adverse orders for costs. Unless it was in this position, it would simply be faced with an application for security for the costs as soon as it started proceedings. HEL's auditors' report for the period ending March 2010 cast some doubt on its ability to continue as a going concern.
25. Aviva has from the outset taken an unduly robust view of this claim - a view in which it persisted until its appeal to the Court of Appeal was dismissed. Its policy was, I have no doubt, to do whatever it could to deter HEL from pursuing the claim under the bond. In these circumstances it does not lie in its mouth to complain of the fact that its tactics were partly successful, in the sense that HEL was, as I find, reluctant to start proceedings until it was confident that it could meet the potential liabilities of doing so.
26. By way of example, Mr. Thomas took me to the minutes of a board meeting held on Tuesday, 17 January 2006, which showed that the board was preoccupied with a number of matters at that time. The minutes recorded that there was no news on the bond and that it was unclear as to how long it would be before there was any progress on it. It was noted that the third quarter accounts and forecast to the end of the financial year showed an anticipated loss of some £240,000. At that point HEL was running with an annual operating deficit.
27. So when I ask myself the question were the delays here, or any of them truly "exceptional and inexcusable" (to use Hildyard J's words), my answer is probably not. I had the advantage of seeing and hearing the principal witnesses and I am satisfied that after STC left site HEL did its best to move forward in what it saw as the most expedient manner. Whilst it might be said that the delay between 2004 and 2008 was exceptional, I do not consider that it can be categorised as inexcusable.
28. In a case such as this, where a claimant is being kept out of money that it has actually spent, to deprive it of interest is to give the defendant a windfall. That is why, I suspect, Hildyard J set the bar as high as he did. I agree that in a case such as this the delay has to be truly exceptional and inexcusable: in my view the court should be astute to avoid allowing a recalcitrant defendant to gain an advantage from its own obduracy in resisting demands for payment by a claimant.
29. However, I consider that it is appropriate to consider the extent of the delay as a factor to be taken into account when deciding on the appropriate rate of interest.

The rate

30. Mr. Thomas submitted that a "broad brush" approach should be taken to determine what rate of interest is just and appropriate. For reasons of practicality and proportionality it is not appropriate to attempt a minute assessment of what will precisely compensate the particular claimant. In particular, the courts usually do not have regard to the rate at which a particular claimant might have been able to borrow money.
31. So far as it goes, I accept this submission. However, it is also clear from the authorities that the individual characteristics of the claimant are not to be ignored altogether. The court will consider the class of litigant to which the claimant belongs and then treat the claimant as a typical member of the class.
32. In this context, in Challinor, Hildyard J said, at paragraph 31:

"... it seems to me that the Court's overall approach in the authorities cited to me is to distinguish between (a) cases relating to money lost in or in relation to the conduct of a business where the general assumption would be that money lost or detained would have to be replaced by money borrowed to maintain that business and (b) cases where any award is an accretion to the funds of the claimant, rather than replacement of monies which the claimant had previously had and put to use."

33. In fact he held in that case that the claimants did not really fit easily into either of these two categories. He considered that they were an example of a third type of case, which is where the claimant was not running a business that depends upon credit, and where the loss of the money is likely to deprive the claimant of opportunities, but where any ordinary presumption of the need for credit is weak or non-existent.
34. I have already mentioned that HEL obtained much of its funding by way of grants or interest free loans. The evidence showed that in 2004 it negotiated an overdraft facility with Barclays in the sum of £270,000 which, five years later, it converted into a loan at a rate of 5.65% above base. In March 2011 it negotiated a further loan with Barclays in the sum of £140,000 in order to clear an outstanding liability to Greene King under an unfavourable contract. The loan with Barclays was repayable over three years at a margin of 2.9%.
35. So it can be seen that the extent to which HEL had to borrow money was very much less than the amount owed by Aviva. Like the claimants in Challinor, HEL does not fit into either of the first two categories identified by Hildyard J. It is, as Miss Bodnar submitted, a fairly typical small to medium-sized charity funded largely by donations, grants or interest free loans and funded to a lesser extent by commercial borrowing.
36. It would therefore be artificial, and in my view wrong, to treat HEL as if it was a medium sized commercial company which, when faced with a shortfall of funds, would have to make up that shortfall by borrowing on the open market. But that is what HEL is asking the court to do, with the result that its present claim is greater by a factor of 10 than the amount that it has actually paid by way of interest during the relevant period. This is not to say that the court should only reimburse HEL by way of an award of interest for sums that it has actually spent, but merely to note that it would be inappropriate to treat HEL as having commercial characteristics that it does not possess.
37. I was referred by Mr. Thomas to the particular rates of interest that the court had awarded in a number of cases, but I found these of limited assistance. Some of the cases involved businessmen or small commercial businesses and three of them involved private individuals. None of them was in a position similar to that of HEL. As Mr. Thomas correctly observed, there was no single benchmark by which to assess HEL's loss in terms of interest.
38. If HEL was a small commercial company which would need to borrow at commercial rates in order to make up any shortfall in its funds, I could see that it would be appropriate to award interest at a rate of 4-5% over base, perhaps reduced a little to reflect the extended period for which interest is claimed in this case. But HEL is not such an entity and so I consider that it would be wrong in principle to treat it as if it was.
39. If HEL is to be treated as a typical small to medium-sized charity, then it is likely to be an organisation which would probably have to borrow money on the open market to make up a proportion of any shortfall in funds, whilst looking to private donors and grant giving bodies to provide the rest by way of either gift or interest free loan. To award interest at a rate that would be appropriate for a small business would be to give it a substantial windfall.
40. Interest is being claimed for a period approaching ten years, which straddles the time when interest rates plunged rapidly following the global financial crisis. I therefore do not consider that it would be fair to confine the award of interest to the former commercial rate of 1% over base, which is the rate for which Aviva contends.
41. Doing the best I can, I consider that the appropriate rate of interest for the full period from 29 March 2004 to the date of payment of the principal sum is 2% over base. Since HEL has taken the Barclays base rate and Aviva has not objected to it, I will use that as the base rate to be taken.