Pre-Judgement interest on debt and damages

What is pre-judgement interest on debt and damages? What type on interest is this? The Judicial Proceedings (Interest on Debts and Damages) Act 2015 makes provision for pre-judgement on debt and damages.

What is pre-judgement interest?

Pre-judgement interest can apply to judgement by the court in cases involving a claim for debt or damages. In such a claim, the Court may make a finding in favour of the claimant and consequently order for payment on interest at a fixed rate for a period on part or whole of the amount awarded. This is pre-judgement interest and it is covered under Section 4 of the Judicial Proceedings (Interest on Debts and Damages) Act 2015.

The Court has the discretionary power to grant pre-judgement interest. In Polem Enterprise Ltd v Attorney-General of Papua New Guinea [2010] PGSC 20; SC1073 the Court comprising of Judges Kirriworm, Cannings and Manuhu affirmed the four aspects of pre-judgement interest, as set out by Justice Bredmeyer in Cheong Supermarket Pty Ltd v Muro; New Guinea Cocoa (Export) Co v Kieta Plumbing & Constructions Pty Ltd; Intertex Patterns v Bougainville Enterprises Pty Ltd [1987] PGLawRp 489; [1987] PNGLR 24, that the Court has discretion and can decide on:

1. Whether to grant interest at all?
2. What interest rate to apply?
3. Whether to grant interest on the whole or part of the debt or damages for which judgment has been given?
4. What period will the interest apply to?

Is pre-judgement interest mandatory?

The short answer is no. Pre-judgement interest is not a mandatory right of the judgement creditor. It is a relief that is at the discretion of the Court. Pre-judgement interest is consequential to an order for payment of debt or damages. It cannot stand on it own.

In National Capital District Commission v Dademo [2013] PGSC 37; SC1260 the Court (Injia CJ, Sawong & Murray JJ) considered whether the award of pre-judgement interest. The Court affirmed the decision in Sausau v PNG Harbours Board [2007] PGNC 106; N3255 (Injia DCJ, as he then was) wherein the Court found that pre-judgement interest should be awarded as a matter of course but upon the discretion of the Court. Irrespective of whether the claimant pleaded it in the statement of claim or even if pleaded, whether he pursued at trial, he his entitled to pre-judgement interest as a matter of course. This is because pre-judgement interest is a relief that has its basis on law. It is available for the claimant to claim at the discretion of the Court.

Exercise of discretion by the Court

The Court is granted a wide discretion by Section 4 of the Judicial Proceedings (Interest on Debts and Damages) Act 2015 when it comes to awarding interest. The Court must consider these matters set out in in the case of National Capital District Commission v Dademo [supra] when exercising this discretion:

1. Whether interest should be awarded for the type of damage in question? The Court could refuse to grant pre-judgement interest. The plaintiff does not have a right to an award of pre-judgement interest. It is not mandatory but discretionary.
2. Whether interest has been pleaded and litigated? The Court can still award pre-judgement interest even if the claimant did not plead it or even if the claimant pleaded it but did not plead the interest rate. This is because, the award in pre-judgement interest is provided for by statute. It is consequential to the awarding of debt or damages as the main claim. However, the only exception is when a statute provides the interest rate for such a claim. In such as case, the claimant must plead the interest rate.
3. If pre-judgement interest is to be awarded, the Court will consider whether interest should be awarded for the whole amount or a part of the amount. For example, if the court awarded damages in the sum of K10, 000.00. It has the discretionary to award interest on the entire sum of K10, 000.00 or its can only award interest on K2, 000.00 only.
4. Whether the Court should award interest for the whole or a part of the period from the cause of action to the date of the judgement. This period may vary from case to case as it depends on the circumstances of each case. For example, the Court could grant interest from the date of the cause of action to the date of the judgement or it could grant interest from the date of the commencement of the Court proceedings to the date of the judgement.
5. The Court would consider the appropriate interest rate to apply to the type of damage in question. In most cases, the Court awards interest at the rate of 8% per annum. However, it depends on the circumstances of each case and the type of damages awarded. For example, in 8% interest rate was applied to damages involving land and 4% to damages involving personal injuries.
6. The Court will consider the actions of the parties in the proceedings. Whether parties have unreasonably delayed the disposition of the case in Court? If a party caused the delay, he should not be awarded interest on damages and likewise if it’s the other way around.
7. Whether the Court has delayed in giving its jdugement beyonded the required period of 3 to 6 months after trial? In such a case, increase should not apply to the period after 6 months.
8. The interest of justice, fairness, and equity.

Pre-judgement versus post-judgement interest

In Polem Enterprise Ltd v Attorney-General of Papua New Guinea [2010] PGSC 20; SC1073 the Court comprising of Judges Kirriworm, Cannings and Manuhu set out the difference between a pre-judgement interest and post-judgement interest on debts and damages. A post-judgement interest is the interest on debts and damages that is calculated from the date after the judgement is made to the date when the judgement is paid. On the other hand, pre-judgement interest is the interest on debts and damages that is calculated from the date when the cause of action accrued to the date when the judgement is made.

Does pre-judgement interest apply to the State?

The short answer is yes, it does apply to the State. However, the interest rate differs from ordinary cases or judgement creditors. The interest rate applicable to the State should not exceed 2% per annum. For the State, the types of cases where interest should be granted is not limited to debts and damages but it is extended to cover proceedings that arising out of a breach of expressed or implied contract or mercantile usage. It does not matter whether contract or mercantile isage had a fixed interest rate higher than 2% per annum.

The interest rate against the State ought not be higher than 2%. If, however, a judgement is given and the pre-judgement interest is awarded against the State at a rate higher than 2%, then it is a nullity. This judgement is liable to be set aside and re-issued according to the law by the same judge who made the decision. To set aside this judgement, application must be made to the same judge by any of the following persons:

1. Lawyer for the State.
2. Registrar of the National Court, clerk or other proper officer of the Court by which the judgement was given,
3. Any party to the proceedings.

In conclusion, pre-judgement interest can be awarded to the claimant upon discretion of the Court. This type of interest only applies to debts and damages.

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