Carrasco v Johnson

Factual and Procedural Background

The Appellant brought an action to recover the balance of two unsecured loans totaling £40,000 made to the Respondent in late 2008. The loans were to be repaid in two months with agreed interest, including default interest. The Respondent failed to repay the principal or contractual interest on time, making partial repayments in 2009. The Appellant commenced proceedings in May 2010 and obtained an interim payment order in January 2011, which the Respondent did not comply with. Interim charging orders were placed on the Respondent’s properties, but no further payments were made. The case was dormant until April 2014 when the Appellant applied to restore it.

The Respondent raised multiple defences, including unenforceability under the Consumer Credit Act 1974 (CCA) due to the Appellant being an unlicensed money lender, the existence of an unfair relationship under the CCA, and that the contractual interest was a penalty. These defences were rejected. The Appellant abandoned claims for contractual default interest shortly before trial, reducing the claim to £34,500 plus statutory interest. The District Judge awarded judgment for £39,970.84, including statutory interest at 3% per annum, which the Appellant appealed.

Legal Issues Presented

1. Whether the District Judge erred in the exercise of discretion by awarding statutory interest at 3% per annum rather than a higher rate reflecting the Appellant’s actual cost of being kept out of her money.
2. Whether the judge failed to properly consider expert evidence on borrowing rates in 2008.
3. Whether the judge improperly awarded a rate near commercial lending rates despite the loans being between private individuals.
4. Whether the judge failed to consider relevant factors affecting the fairness of the interest award.
5. Whether the judge erred by not adequately considering the effect of the interim payment order obtained by the Appellant.

Arguments of the Parties

Appellant's Arguments

• The awarded interest rate of 3% did not reflect the actual financial cost to the Appellant of being deprived of her money.
• The judge failed to give proper weight to expert evidence regarding borrowing costs for unsecured loans in 2008.
• The interest rate awarded was comparable to commercial rates, which was inappropriate for a private loan.
• The judge did not adequately consider overall fairness, including lost investment opportunities and the Respondent’s misuse of the loan.
• The judge failed to properly account for the interim payment order obtained in 2011.

The Appellant emphasized expert evidence about the high cost and limited availability of unsecured loans in 2008, evidence of the actual borrowing costs she incurred, and the unfairness arising from the Respondent’s use of the loan contrary to representations.

Table of Precedents Cited

Court's Reasoning and Analysis

The court recognized the broad discretion vested in judges to award interest, emphasizing that interest compensates claimants for being kept out of money owed rather than for damages or to penalize defendants. The court noted that the loans were private rather than commercial, so commercial rates were inappropriate. The judge’s award of 3% interest, which equated to approximately 2.5% to 2.75% over the Bank of England base rate during the relevant period, was consistent with awards for mid-category claimants in precedent cases such as Challinor and Reinhard.

The court rejected the Appellant’s argument that the actual borrowing costs or expert evidence on borrowing rates in 2008 should determine the interest rate, as the law requires consideration of claimants’ general attributes rather than their specific circumstances. The court also held that fairness considerations do not extend to lost investment opportunities or the underlying merits of the claim but may justify adjustments for delay in prosecuting the case. The judge’s decision to reduce the interest rate to reflect the delay between 2011 and 2014 was upheld.

Regarding the interim payment order, the court clarified that it does not attract interest at the judgment rate and thus does not affect the interest award. The court emphasized the practical and proportionate approach of using general class attributes rather than detailed financial inquiries.

Holding and Implications

The court DISMISSED THE APPEAL.

The judge’s award of statutory interest at 3% per annum was held to be within the wide discretion afforded by law and consistent with established principles. The decision confirms that interest awards focus on general claimant attributes and the compensatory nature of interest rather than on specific financial circumstances or punitive considerations. No new precedent was established; the ruling reinforces the practical approach to interest awards in private loan disputes.