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:

  1. US Prime Rate – a benchmark based on what US banks charge their best customers;
  2. Federal Funds Rate – the rate at which US banks borrow from each other on an overnight basis  (this applies only to US banks);
  3.  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”.