International Construction Law Review
COMPOUND INTEREST AS DAMAGES—THE APPROACH IN AUSTRALIA AND NEW ZEALAND*
DOUGLAS JONES AM, RFD
Partner, Clayton Utz, Sydney
INTRODUCTION
An interesting article by Esther Martin-Pelegrin in a recent issue of ICLR1
discussed the process by which, in England and Wales, the House of Lords has examined the recoverability of compound interest on unpaid sums of money. Readers might be interested in how the issue of awarding compound interest as damages has been dealt with in Australian and New Zealand jurisdictions. The article highlights some judicial developments in this area and provides an overview of the method of awarding statutory interest in these jurisdictions.
Awards of interest in general
Interest can relate to an award of damages in different ways.2
It can accrue as a result of a delay in receiving the quantum of damages in the period from when a wrong is committed to when a judgment is delivered, or it can accrue as a result of late payment of a judgment debt. These forms of interest are generally distinguished as pre-judgment and post-judgment interest. They are awarded as “interest upon damages” and are quantified by either statute, contract or arbitration agreement, depending on the origin of the right to interest.3
There is no common law power to order payment of this form of interest, which compensates for the late payment of damages.4
Such interest can only be awarded pursuant to statute, contract or arbitration agreement.
* The author gratefully acknowledges the assistance he received in the preparation of this article from Coreena Smith, Legal Assistant, Clayton Utz.
1 [1999] ICLR 453.
2 Compensatory damages should not be confused with an award of restitution where a claim is based on the doctrine of unjust enrichment. Here, the court does not award damages—it awards restitution of the enrichment.
3 The author acknowledges that there are particular circumstances in which the courts in their equitable jurisdiction, when making an order for money to be paid to the plaintiff, may require pre-judgment interest be added to that sum. In addition, the court also has a jurisdiction in equity to award compound interest. However, these topics are beyond the scope of this article and will not be discussed in detail. For more information on the equitable jurisdiction to award compound interest see Westdeutsche Landesbank Girozentrale v. Islington London Borough Counc
il [1996] 2 All ER 961.
4 The common law position as to the awarding of compound interest was stated by Lindley LJ in London, Chatham and Dover Rly Co
v. South Eastern Rly Co
[1892] 1 Ch 120 at p 140 (i.e. in the Court of Appeal): “at common law interest was not payable on ordinary debts, unless by agreement or by mercantile usage; nor could damages be given for non-payment of such debts”.
[2000
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