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Source : - http://www.thelawyer.com/cgi-bin/item.cgi?id=129457
Sempra in the House of Lords
Sempra was itself put forward as test claimant of the question of whether the notional interest should be compounded. In the lower courts, Sempra succeeded on the basis of a contention that the ECJ had specifically mandated compounding. In the House of Lords, however, the case took a different direction. Their Lordships preferred to decide the case on a point of domestic English law that was only fully developed in a second set of written submissions and during a second hearing requested by their Lordships.
In finding for Sempra, the House of Lords has held that compound interest can be given as damages in contract and tort where it is the true measure of the claimant's loss, and as restitution where it is the true measure of the defendant's gain. Claimants are still entitled to instead claim pre-judgment interest under Section 35A of the Supreme Court Act 1981 or under the Late Payment of Commercial Debts Act 1998, which do not allow for compounding, but also do not require the same exercise of pleading and proof. This is a radical decision in that compound interest has until now only been available in very exceptional cases.
In reaching their conclusion that compound interest should be available as general damages for breach of contract, their Lordships overruled two of their own decisions - London, Chatham and Dover Railway Co v South Eastern Railway Co (1893) and President of India v La Pintada Cia Navegacion SA (1985). Further, in deciding that compound interest can be given as restitution, their Lordships overruled a clear line of early authorities and sidestepped another more recent decision where the contrary position had been assumed by all parties and compound interest refused - Westdeutsche Landesbank Girozentrale v Islington LBC (1996).
The decision in Sempra is to be welcomed for finally putting the English law of interest onto a broadly defensible footing.
Steven Elliott is a barrister at One Essex Court
