The issue of the award of interest on damages by the Court has always been one which has the potential to be complex. Whilst questions such as whether a party is entitled to interest; the period to which interest should apply; and the rate of interest have always been present, the answers are not always straightforward.
The starting point is that interest is awarded by the Court in order to compensate claimants for being kept out of money which ought to have been paid to them rather than as a compensation for damage done or to deprive the defendant of profit it may have made from the use of the money (Carrasco v Johnson [2018] EWCA Civ 87). Subject to statutory or contractual provisions, the award of interest is within the Court’s discretion. Usually within a claim for a liquidated sum of money, the claimant will seek statutory interest at a rate to be determined by the Court.
As I say, the issue of the award of interest can be complex. For example, what is the position where A obtains a summary judgment order against B; B pays the sums owed under that order; and the order is subsequently set aside meaning that the sums paid by B are no longer owed? Is B entitled to interest on the sum it has paid under the erroneous order for the period it was without those funds?
This question was before the Court of Appeal in Evonik UK Holdings Limited v The Commissioners of Inland Revenue [2025] EWCA Civ 1392. Evonik sought and obtained summary judgment against HMRC on a set of causes of action which were premised upon the House of Lords’ decision in Sempra Metals v IRC [2007] UKHL 34. In accordance with that order, HMRC paid £6.4m to Evonik in 2016. The decision to award summary judgment was overruled by the Supreme Court in related group clams against HMRC. However, at trial, Evonik was ultimately successful and obtained judgment in excess of £6.4m. This raised the question of how the £6.4m payment was to be treated.
HMRC argued it was entitled to restitution of the £6.4m plus interest, or alternatively, that the £6.4m should be allocated to the principal owed to Evonik. Such would mean that interest would only accrue on a reduced balance. Evonik argued that the £6.4m should be treated as offsetting interest that had accrued by 2016, allowing interest to continue to accrue on the whole principal. The judge agreed with Evonik in that the £6.4m should be allocated against interest accrued at the date of the summary judgment order. Consequently, this denied HMRC any award of interest for the sums paid under the erroneous summary judgment order.
HMRC appealed. Whilst the Court of Appeal accepted that in light of the summary judgment order being set aside HMRC was entitled to restitution, such does not carry any automatic right to interest. Rather, such depends on what justice requires in the particular case. Here the judge in first instance was entitled to take a realistic approach considering that by the time he made his decision, it was established that Evonik’s overall claim had succeeded to a far greater extent than the 2016 £6.4m payment. The Court of Appeal deemed the judge’s approach to be fair and reasonable in allocating the £6.4m against interest accrued as at 2016.
Whilst fact sensitive, this case provides some guidance as to how the Court treats a payment made under an order which is subsequently set aside. The key phrase from the judgment here is ‘what justice requires’ and which goes further towards the Court discretion in awarding interest. The case also clarifies the position re allocation of part payments in that the ‘rule of thumb’ developed by the Courts is that payments should be allocated against interest first, rather than principal.
Written by: Richard David, CS Litigation Associate FCILEX
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