Limitation defence and acknowledging a debt/ appropriate rate of interest on a judgment in US dollars
Section 29(5) of the Limitation Act 1980 provides that where there is a right to recover “any debt or other liquidated pecuniary claim”, and the liable person acknowledges the claim or makes any payment in respect of it, time will start running only from the date of acknowledgment or payment. There is no particular format for an acknowledgment, other than it should be in writing and signed. One of the issues in this case was whether a debt had been acknowledged when the “debtor” signed a letter effectively undertaking to acknowledge a debt should funds not be paid by a third party. Richards J held that a debt could only be acknowledged if it already existed and so the letter had “necessarily acknowledged” the creditor’s claim.
A further issue discussed in the case was the appropriate rate of interest for a judgment debt in dollars (none of the parties or the underlying transactions having had any connection with the United States). Noting that the general approach of the courts is that the rate should be the rate at which the recipient could have borrowed the funds of which he has been deprived, Richards J identified three potential rates:
- US Prime Rate – a benchmark based on what US banks charge their best customers;
- Federal Funds Rate – the rate at which US banks borrow from each other on an overnight basis (this applies only to US banks);
- LIBOR – the rate at which banks lend to each other on an international basis (hence an international interest rate benchmark, fixed in London).
Although LIBOR and Federal Fund Rates tend to be very similar, US Prime Rate runs at 2.5-3% above those rates.
Citing recent caselaw (eg Fiona Trust v Privalov (see Weekly Update 12/11)), the judge concluded that the appropriate rate would be USD LIBOR plus 3% in this case: “Neither US Prime Rate nor Federal Funds Rate has any obvious application to parties and transactions which are unconnected with the United States. In view of the long period involved in this case, I consider that six-month LIBOR, rather than three-month LIBOR, should be adopted as the base rate”.