Fiona Trust & Holding Corporation and others v. Yuri Privalov and others [2011] EWHC 664 (Comm)

The English Court's jurisdiction to award interest is discretionary and the overall purpose is to compensate the claimant for being deprived of the money which should have been available for its use. An award of interest is not meant to be punitive. The court has recently considered the rate of interest in shipping cases.

The Background

On 10 December 2010, Mr Justice Andrew Smith gave judgment in the Fiona Trust fraud case in which Ince & Co acted for Russian ship operators Sovcomflot and Novoship ("the Judgment"). The judge concluded that the claimants had succeeded upon various commissions claims. For a detailed review of that judgment, please see the article in our January 2011 shipping e-brief and also at www.incelaw.com.

Subsequently, Mr Justice Andrew Smith has given a further judgment in the proceedings ("the Further Judgment") concerning, amongst other things, the appropriate rate of interest and rest periods to be applied to the US dollar sums awarded to the claimants pursuant to the Judgment.

The claimants sought interest at US Prime Rate, alternatively at US$ three month LIBOR with an uplift of 2.5%, compounded on either basis at three monthly rests. The defendants argued that the appropriate rate was US three month LIBOR with an uplift of 0.85%, compounded at annual rests.

The Commercial Court decision

Whilst recognising the Commercial Court's convention of awarding interest on compensation awarded in US dollars at US Prime Rate, Mr Justice Smith noted that the court will depart from that convention where it would be just to do so. The judge reiterated that the court's policy is to disregard the rate at which the particular recipient of compensation might have borrowed funds because any investigation into such borrowings is likely to be impractical and disproportionate.

On the facts, Mr Justice Smith departed from the conventional US Prime Rate, reasoning that LIBOR was more appropriate since "LIBOR is used widely for setting interest rates on loans to shipping companies and US Prime Rate is not...". In determining the just and appropriate rate of interest, account was therefore taken of the recipients as companies within and the norms of the shipping industry. Similarly, in determining the appropriate rest periods, the judge considered it appropriate to apply three monthly rests as reflecting the rest periods common in the world of shipping.

As regards the appropriate rate uplift, the judge noted, by reference to a report approved by the London Maritime Arbitrators' Association ("LMAA") Committee and the authority of Kuwait Airways v Kuwait Insurance [2000] 1 All ER 973 (Comm), that this should be determined by reference to what might be charged for a short-term and unsecured loan. Mr Justice Smith agreed with the recommendation in the report approved by the LMAA Committee that 2.5% would be appropriate as it involves little departure from the conventional US Prime Rate. It may of course be possible to show that a different rate should apply on particular facts but the Judge held that there was no evidence that justified any further departure from what is the conventional methodology. In particular, he was not persuaded by the defendants' submissions that the uplift should be determined by reference to an assumption that the claimants would have used their assets as security for borrowings.

Comment

This judgment is helpful in that it considers the current approach to the award of discretionary interest in both the English Commercial Court and London maritime arbitration. It is also of note that the judge gave considerable weight to the practice of the LMAA in deciding how to exercise his discretion in the context of an award of interest to a shipping company.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.