[2019] EWCA Civ 2163

At first instance, the Judge held that, under s. 35A of the Senior Courts Act 1981, the claimants should receive interest at 3.5% from 7 August 2013 to 7 February 2019, resulting in total interest of £700k. As a result of the CA’s decision, it was common ground that interest could no longer be claimed under s. 35A. Interest would only accrue upon the judgment from January/February 2019. However, the CA went on to set out the court’s views on the interest point, on the assumption that the judge was right.

The claim made at trial was for the full cost of remedial works. The claim was said to include an allowance for inflation up to and including the time when the claimants expected to obtain judgment, then to receive payment and to be able to fund and execute the works. That allowance for inflation was not disputed by ZIP. In such circumstances, a claim for interest was unnecessary. ZIP argued that an award of interest was not justified as the claim had always been to recover remedial costs As the claimants had incurred no costs, they had not suffered loss requiring compensation by interest. ZIP further said that the evidence did not justify a claim on the basis that the claimants had been deprived of money from July 2013 in circumstances where (i) there was no evidence of what they would have done with the money; (ii) from September 2016 they would have been obliged to pay any sums to the bank funding the litigation; and (iii) they would have been able to obtain rental income until about July 2017 when the flats had to be vacated.

The trial judge rejected these objections noting that the claimants were under no obligation to have carried out works as a precondition of recovery under the policies and that the objection ignored the principle that interest was awarded to compensate claimants for being kept out of money rather than as compensation for damage done. HHJ Davies QC had said:

“The claim as presented was put on the basis, albeit disputed by ZIP, that the claimants could and would use the monies awarded to fund remedial works post judgment, hence the basis for the inflation claim. The claim as successful was on the basis that the policy allowed ZIP to discharge its liability by making a lump sum payment of the declared purchase price where the cost of undertaking the remedial works exceeded that sum. It therefore became irrelevant whether or not the claimants intended to or would be able to undertake remedial works. They were entitled to receive this lump sum capped payment and to do with it as they thought best. Thus, in this case the claimants were entitled to be paid the ML capped amounts regardless of whether or not they were to be used to fund repairs.”

The CA agreed with the trial judge. If the claimants were to be fully compensated for a sum equivalent to the cost of repair, no question arose as to whether they were being kept out of their money. However, once that claim was to be limited so significantly, to the extent that the feasibility of the repairs became highly questionable, then obviously the question arose as to whether that limited sum should have been paid far earlier than in response to a judgment of the court and, if so, at what date. Generally, where there was uncertainty as to liability and a need to investigate that; that was not a material factor in postponing the running of interest. LJ McCombe noted that where the uncertainty was as to quantum, once the answer was known and it was established, not only that payment was due, but also what was due and when, then there was no reason to postpone payment further. The trial judge had concluded that:

“… ZIP was obliged to investigate the claim, both as to liability and quantum, and to make payment once a reasonable time had elapsed for it to complete its investigations albeit that as a matter of contract law the cause of action accrued at an earlier date …”

On that basis, ZIP had to tender payment of the claim once it had had a reasonable time to investigate and reach a conclusion. The CA saw no objection to that approach.