Interest on Special Damages

By Lois Norris

On 1 June 2020, the Court Funds Office varied the special account rate of interest for the first time since 2009, in direct response to Covid-19 and the Bank of England’s reduction to the base rate in March 2020. The rate of interest for special accounts will reduce from 0.5% to 0.1% and on basic accounts will reduce from 0.1% to 0.05%. The special account rate was already substantially lower than it had been prior to 2009, where from 2002 it had stood at 6%.

Whilst the special account rate is not generally used to award interest on debt or damages, it does have an established purpose within personal injury litigation. This is as a result of Jefford v Gee[1] which confirmed that interest on past pecuniary losses should be calculated with reference to the “appropriate” rate (that being the rate of the special account).

Section 35 of the Senior Courts Act 1981 and section 69 of the County Courts Act 1984 provide the Court the general power to award interest within its discretion. In practice, interest is frequently awarded where losses continue to accrue on the total sum from the date of accident until the date of trial at half the appropriate rate of interest (previously 0.25%, now 0.05%). In certain circumstances, for example where the complete loss is accrued at the time of the accident, and does not continue, the Court will award the full rate (previously 0.5%, now 0.1%).

For some claims, where the sums are negligible or where interim payments extinguish past losses, the change will be trivial. For ongoing claims, it may require practitioners to plead two different interest rates in schedules.

Further consideration is required where, upon settlement for children or protected beneficiaries, sums are paid into Court Special accounts. Whilst inflation has fallen, sums placed in these accounts are now even more vulnerable to a real term decrease. Accordingly, practitioners may wish to consider alternative investment plans for approval by the Court.

As the special account rate today falls to the lowest recorded from 1 October 1965 (the date from which previous records are easily ascertainable)[2], it is unclear how long this variation will remain in place. The Lord Chancellor has stated he will review the same if the Bank of England base rate should rise, but for now this is another Covid-19 induced change for practitioners to contemplate.

[1] [1970] 2 Q.B 130

[2] White Book Volume 2, 6A-220

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