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Attorney(S)
- Charlotte Eborall (instructed by Walker Morris LLP) for the Claimant
- Michael Douglas QC (instructed by DAC Beachcroft LLP) for the Defendant
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Mortgage Express v. Countrywide Surveyors Ltd
Smart Summary
Factual and Procedural Background
This judgment concerns the assessment of damages following a prior finding that Company A was liable in deceit to Company B in respect of 39 loans categorized as A, B, and D. The court adopts the same abbreviations as in the initial judgment. The parties agree that damages should be calculated on the basis that none of the 39 loans would have been made absent the deceit, applying the House of Lords decision in Swingcastle Ltd v Alistair Gibson (a firm) [1991] 2 AC 223. The loss for each loan is calculated as the amount loaned plus costs of realisation less the sale price achieved plus repayments made by the borrower. The figures for these items are substantially agreed, and there is no suggestion that Company B failed to mitigate its loss. The dispute centers on the question of interest claimed in addition to these sums.
Legal Issues Presented
- Whether Company B has established its claim to interest as damages, and if so, whether such interest should be compounded at LIBOR or some other rate.
- Whether interest under section 35A of the Senior Courts Act 1981 should be computed at LIBOR plus 1%, LIBOR alone, or some other rate.
Arguments of the Parties
Appellee's Arguments (Company B)
- Claims entitlement to compound interest as damages at LIBOR rates with quarterly rests from the date of the loan advance to the date of sale, crediting actual repayments as made.
- Claims simple interest under section 35A of the Senior Courts Act 1981 at LIBOR plus 1% on the whole damages from the date of sale until judgment.
- Submits that the loans were offered in fixed-rate tranches hedged by interest rate swaps, and that Company B lost the opportunity to make alternative loans at similar commercial rates.
- Relies on authorities including Swingcastle Ltd v Alistair Gibson, Parabola Investments v Browallia Ltd, and Nationwide v Dunlop Haywards to support the claim for interest as damages.
Appellant's Arguments (Company A)
- Contends that the case does not justify an award of interest as damages, asserting that the evidence does not support such a claim.
- Argues that Company B is only entitled to simple interest under section 35A at LIBOR rates from the date the cause of action arises (the date of default, not the date of the loan).
- Challenges the claim for compound interest as speculative and hypothetical, noting the absence of evidence of unsatisfied demand for loans or that alternative loans would have been made.
- Raises secondary submissions that, if interest as damages is awarded, it should be compounded at a lower rate (the implied average cost of funding) rather than LIBOR, and that statutory interest should similarly reflect this lower rate.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Swingcastle Ltd v Alistair Gibson (a firm) [1991] 2 AC 223 |
Measure of damages in "no transaction" cases involving negligent valuation; rejection of automatic award of unpaid interest; assessment depends on evidence of lost opportunity or cost of funds. |
Guided the calculation of damages for loss of use of money lent; emphasised need for evidence to prove lost alternative opportunities or cost of funds. |
| Nykredit v Edward Erdman No 2 [1997] 1 WLR 1627 |
Interpretation of section 35A of the Senior Courts Act 1981 on awarding simple interest; determination of when cause of action arises; limited duty of valuers to losses attributable to valuation deficiency. |
Used to determine the date from which statutory interest should run and the nature of losses recoverable; cause of action arises when lender suffers loss, often at default. |
| Sempra Metals Ltd v IRC [2008] 1 AC 561 |
Recognition of jurisdiction to award compound interest as damages at common law; requirement to prove actual interest loss caused by breach; no presumption of loss. |
Supported the principle that compound interest can be awarded as damages but only on proof of loss; court emphasized need for particularised claims. |
| Parabola Investments v Browallia Ltd [2011] QB 477 |
Assessment of damages for lost investment opportunity after fraud; allowance for reasonable estimation of loss even if evidence is not certain. |
Referenced to illustrate circumstances where lost profits or opportunities may be assessed on the balance of probabilities rather than requiring precise proof. |
| Nationwide v Dunlop Haywards [2009] EWHC 254 (Comm) |
Damages for deceitful valuation; award of interest on alternative loan lost due to deceit. |
Cited as an example of awarding interest for lost returns on alternative loans, though evidential context was unclear. |
| Reinhard v Ondra [2015] EWHC 2943 (Ch) |
Discretionary nature of statutory interest rates; common commercial practice to award base rate plus 1%; consideration of actual borrowing costs. |
Informed the court’s approach to setting the rate of statutory interest, balancing conventional rates with actual cost evidence. |
| Tate & Lyle Food and Distribution v GLC [1982] 1 WLR 149 |
Use of base rate plus 1% as a common commercial statutory interest rate. |
Supported the norm for statutory interest rates in commercial cases. |
| Fiona Trust v Privalov [2011] EWHC 664 (Comm) |
Policy considerations in determining appropriate statutory interest rates. |
Referenced in relation to the court’s discretion in setting interest rates. |
| Challinor v Juliet Bellis Ltd [2013] EWHC 620 (Ch) |
Distinction between money lost and accretion to claimant’s funds in setting interest rate. |
Applied in assessing appropriate interest rates reflecting compensatory principles. |
Court's Reasoning and Analysis
The court began by reaffirming the agreed measure of damages for the 39 loans based on the prior judgment that Company A was liable in deceit. The calculation of principal loss was uncontested. The main dispute concerned the entitlement to and calculation of interest as damages and statutory interest under section 35A of the Senior Courts Act 1981.
Regarding interest as damages, the court analysed the binding authority of Swingcastle Ltd v Alistair Gibson and subsequent cases, which establish that damages for deceit require proof of actual loss, including lost interest or lost investment opportunities. The court noted that the burden was on Company B to demonstrate that it would have made alternative loans had the deceit not occurred.
Evidence presented by Company B was found insufficient to establish a measurable lost opportunity to make alternative loans. The witness evidence was vague and did not demonstrate unsatisfied demand for loans or that funds were constrained. The court rejected the claim that funds would have been placed in short-term money markets, which was not pursued at trial.
Consequently, the court held that Company B failed to prove loss of interest as damages and dismissed that claim.
On statutory interest, the court acknowledged the discretionary nature of the rate and considered submissions regarding the appropriate rate. Taking into account the actual cost of borrowing by Company B's parent entity, the court adopted LIBOR as the base rate but increased it by 0.5% to reflect that simple interest does not fully compensate for the absence of compounding. The court noted fluctuations in LIBOR and balanced competing arguments without requiring further calculations or adjournments.
Holding and Implications
The court held that Company B's claim for interest as damages (compound interest) fails for lack of sufficient evidence of lost alternative lending opportunities. Company B is entitled only to simple statutory interest under section 35A of the Senior Courts Act 1981, to be calculated at LIBOR plus 0.5% from the date of default to the date of judgment.
The direct effect of this decision is a substantial reduction in the interest recoverable by Company B. No new precedent is established beyond the application of existing authorities to the facts. The ruling clarifies the evidential burden on claimants seeking compound interest as damages in deceit claims involving lost lending opportunities and confirms the court's discretion in setting statutory interest rates based on actual borrowing costs and compensatory principles.
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