IM Properties Plc v Cape & Dalgleish (A Firm)

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
Judgment Date20 May 1998
Judgment citation (vLex)[1998] EWCA Civ J0520-12
Date20 May 1998
Docket NumberNo QBENF 97/0393/1

[1998] EWCA Civ J0520-12




Royal Courts of Justice


London WC2


Lord Justice Hobhouse

Lord Justice Waller

Lord Justice Robert Walker

No QBENF 97/0393/1

I M Properties plc
Cape & Dalgleish (a firm)

MR NIGEL TOZZI (Instructed by Cameron McKenna of London) appeared on behalf of the Appellant

MR CHARLES HOLLANDER (Instructed by Frere Cholmeley Bischoff of London) appeared on behalf of the Respondent


This appeal raises an important point on section 35A of the Supreme Court Act 1981.


The defendants are accountants and auditors who acted for the plaintiffs. By a writ issued on 12 August 1994 the plaintiffs claimed damages for breach of contract, breach of statutory duty and negligence in respect of audits carried out by the defendants between 1988 and 1992.


What was alleged against the defendants was that their negligence had enabled a fraud to be committed by the former chief executive of the plaintiffs, Mr David Fitzgerald. The defendants ultimately accepted liability in negligence and the judge found that the true extent of the fraud for which the plaintiffs were entitled to be compensated was as follows:-

(a) £536,684.27 for goods and services fraudulently misposted by Fitzgerald during the years 1988 up to the discovery of the fraud in early 1993;

(b) £70,773.03 for a debt irregularly written off by Fitzgerald; and

(c) £97,110.99 for costs necessarily incurred in investigating the fraud and clearing up its aftermath.


The grand total was thus £704,568.29.


Judgment however was not entered for the above sum by virtue of the fact that on 18 June 1993 (prior to the commencement of the proceedings), Fitzgerald had entered into a settlement agreement with the plaintiffs (and others) pursuant to which he transferred his 10% shareholding in the plaintiffs' holding company, I M Properties Investments Limited to the other 90% shareholder of the plaintiff, I M Group Limited, in consideration of which the I M Parties (which included the plaintiff) waived and released all claims which they had against him. The plaintiffs accepted that its claim against the defendants was "diminished" by the value of those shares. The judge found that the value of the shares was £430,000 with the result that he held that the plaintiffs were entitled to judgment for £274,568.29 and that is indeed the sum recorded in the order of the court as the sum for which the plaintiffs were entitled to judgment.


Following entry of the judgment there was a dispute as to the correct basis on which the judge should award interest. Although the calculations of the parties followed a rather more sophisticated form, the respective contentions can be expressed simply as follows. It was the defendants' submission that since judgment had been entered for only £274,568.29, the power of the court under section 35A was limited to awarding interest on that sum. It was the plaintiffs' contention that the power of the court was not so limited. In the result the plaintiffs claimed that the judge had power to award interest on the sum of £704,568.29 being the grand total of the loss ultimately suffered by the plaintiffs up until 18 June 1993 being the date of the settlement with Fitzgerald. Only thereafter it was submitted by the plaintiffs should the interest be awarded simply on £274,568.29. As I have said the calculations of the respective parties were more sophisticated. The plaintiffs, not unnaturally, accepted that they were not entitled to interest on the total loss from 1988 having regard to the fact that the fraud only gradually developed. Accordingly their calculation claimed interest on the sums that could be shown to have been the subject of the fraud as at the dates when the said sums were lost by the plaintiffs. The defendants' calculation involved giving credit for the recovery from Fitzgerald as a percentage of each sum that Fitzgerald had taken over the period 1988 to 1993. The difference between the two calculations led to the plaintiffs claiming £249,876.01 and the defendants suggesting that the interest to be awarded should be £138,500.81.


It is unnecessary to consider the precise basis of calculation of interest because it has been agreed, and indeed was agreed before the judge, that the sums to be awarded for interest were the figures put forward by each of the parties depending only on the resolution by the judge of the point of principle i.e. whether the court had power under section 35A to award interest on any sum other than the sum for which judgment was entered of £274,568.29.


The point raised involves a question of construction of section 35A of the 1981 Act. That section must however be construed in its historical context. The historical context is set out in detail in the seminal speech of Lord Brandon of Oakbrook in President of India v La Pintada Compania 1985 AC 104 at 113. The important aspects of that history, as it seems to, me for the purpose of answering the question posed by the instant appeal, are as follows.


First as regards the common law it was decided by the House of Lords in The London, Chatham and Dover Railway Company v The South Eastern Railway Company [1893] AC 429 "that at common law, in the absence of any agreement or statutory provisions for the payment of interest, a court had no power to award interest, simple or compound, by way of damages for the detention (i.e., the late payment) of a debt. That decision was regarded as applying to any form of damages, and it was not until long afterwards, in cases to which I shall refer later [e.g. Wadsworth v Lydall [1981] 1 WLR 598] that the question whether it applied to special, as well as general damages, came to be considered."


Second, different rules applied in the courts of Admiralty and the courts of Chancery, but "neither the Admiralty court, nor courts of Chancery, awarded interest, except in respect of moneys for which they were giving judgment."


Third, prior to section 35A, the statutory power to award interest was provided by section 3(1) of the Law Reform (Miscellaneous Provisions) Act 1934. That section did not provide power to award interest other than on a sum for which the court was giving judgment. In other words it did not provide power to award interest simpliciter in a case where there was a late payment of a debt, whether that payment occurred before the proceedings were commenced or after they were commenced. That was indeed recognised by all three members of the Court of Appeal in Tehno—Impex [1981] QB 648 as noted by Lord Brandon at 118G.


Thus, if the Deputy High Court judge was to have power to award interest on any sum other than the £274,568.29 that power must be provided by section 35A of the 1981 Act. Furthermore, as it seems to me, the onus must be on a plaintiff to establish that section 35A has indeed provided the power.


In the La Pintada case the House of Lords were concerned with interest on a "debt" rather than interest on "damages". However, clearly the reasoning relating to the views expressed on the construction of section 35A will be relevant in a case concerned with damages. Lord Brandon identified three areas in which the absence of any common law remedy for damage or loss caused by the late payment of a debt might arise. He called them for convenience case 1, case 2 and case 3. "Case 1 is where a debt is paid late, before any proceedings for its recovery have been begun. Case 2 is where a debt is paid late, after proceedings for its recovery have been begun, but before they have been concluded. Case 3 is where a debt remains unpaid until, as a result of proceedings for its recovery being brought and prosecuted to a conclusion, a money judgment is given in which the original debt becomes merged." In relation to the enactment of section 35A of the 1981 Act (and section 19A of the Arbitration Act 1950) Lord Brandon said as follows at 128:-

"When one compares these provisions of the Act of 1982 with the corresponding provisions of section 3 of the Act of 1934, which by section 15(5)(a) they repeal and replace, the following points become apparent. First, whereas section 3 of the Act of 1934 covered only the award of interest in case 3 (debts not paid before judgment in proceedings for their recovery has been given), …. a new section 35A …. covers both case 3 and case 2 (late payments of debts after proceedings have been begun but before they have been concluded)."


Lord Brandon emphasised that the new provisions covering both case 3 and case 2 did not extend so far as to cover case 1 (late payment of debts before any proceedings for their recovery have been begun).


It is right that he was considering these matters in the context of a submission which had been made that the House of Lords should depart from the decision in London, Chatham and Dover Railway [1893] AC 429. Nevertheless, it has not been suggested that at least so far as debts were concerned La Pintada does other than provide clear authority that the court has no power under section 35A or otherwise to award interest simpliciter in a case where the debt has been paid late but prior to the commencement of any proceedings.


It was Mr Tozzi's submission that it was possible simply to replace the phrase in Lord Brandon's speech, "debts not paid", with the phrase "debts or damages not paid". That may in the result be right, but it is necessary to analyse how section 35A operates in relation to debt and then see what conclusion must be drawn so far as damages are concerned. The relevant provisions of section 35A of the 1981 Act provide...

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