Pre-judgment Interest on Debts and Damages

Current project status

• Initiation: Could include discussing scope and terms of reference with lead Government Department
• Pre-consultation: Could include approaching interest groups and specialists, producing scoping and issues papers, finalising terms of project
• Consultation: Likely to include consultation events and paper, making provisional proposals for comment
• Policy development: Will include analysis of consultation responses. Could include further issues papers and consultation on draft Bill
• Reported: Usually recommendations for law reform but can be advice to government, scoping report or other recommendations

This project is complete. Our recommendations were initally accepted by the Government and were included in the draft Civil Law Reform Bill in 2010. However, the Bill was subsequently dropped by the Government, and our recommendations rejected

This project reviews the system for awarding interest before judgment, which leads to widespread confusion and mistakes. Even when the rules are applied correctly, they bear little relationship to commercial reality. In short cases, debtors often pay too much – frequently paying 8 per cent at a time when base rate is 4 per cent or less. In long-running cases the present ban on compound interest means that claimants may be undercompensated.

The Law Commission’s recommendations are designed to provide claimants with fair compensation for delays in payment, without penalising debtors.