AB and Others v British Coal Corporation – overpayment under court order or agreement results in claim to interest [2007] EWHC 1948

Interest on payments made under a court order which is subsequently set aside must run from the date on which the payments were made. The purpose of the payment of interest in these circumstances is to prevent the payer being unjustly enriched at the expense of the payee and to place the payer in the position that he would have been had the monies not been wrongly paid to the payee. A successful appellant can compel the respondent to restore all benefits gained through the judgment which has been reversed and this will include a right to interest.

In this case overpayments had been made by the Department for Business, Enterprise & Regulatory Reform to claimants’ solicitors in respect of costs incurred in the coal respiratory disease group action under an agreement pending the final determination of costs. The court ordered the claimants’ solicitors to repay the sums in question, which totalled about £74 million. The Department claimed interest on the overpayments.

The judge implied a term into the agreement entitling the parties to interest in the event of overpayment or underpayment upon the same basis as would apply to a court order. She rejected the Department’s claim for compound interest, introduced late into the hearing in reliance on the House of Lords’ recent decision in Sempra Metals Ltd v Her Majesty's Commissioners of Inland Revenue, on the ground that such an entitlement would not have been contemplated by the parties at the date the agreement was entered into. Simple interest was awarded at the commercial rate (base rate plus 1%).