Interest is intended to reflect the wrongdoers’s use of money pending judgment while the claimant has been out of pocket. This intention reveals the true nature of an award of interest. It is restitutionary. Its restitutionary nature is intended to address the passage of time between the event giving rise to primary liability to the date a Court determines the existence of that liability. At the time primary liability accrues, the claimant is worse off. The intention of a judgment is to, as far as legal theory allows, make the claimant whole. A claimant may do things that unduly delay the date of determination. During these periods, the clock is paused. This makes sense seeing as the liability to pay interest is contingent upon a determination which at that time has not yet occurred. The claimant in this sense does not sit on an accrued obligation awaiting vindication but rather he has elongated the passage of time. Money matters. Time matters. It is the combination of money’s objective value and also the passage of time which compel a restitutionary award of interest.
The High Court in Sleight v Beckia Holdings Ltd [2020] 2020 2851 (the substantive decision regarding primary liability) and [2021] NZHC 456 (the decision considering interest and legal costs) grappled with this topic in a claim against an insurer responsible for rebuilding an insured’s residential dwelling after damage caused by the Canterbury earthquakes. Following the earthquakes, the insurer, IAG, entered into a contractual partnering-type arrangement with a construction company, Hawkins. The then dire circumstances dictated this kind of arrangement because without it the insurer would have found it impossible to meet its commitments to its many affected customers. A builder, Farrells, rebuilt the property under the auspices of this IAG/ Hawkins arrangement. The repairs proved to be defective. A debate about who was responsible ensued. In the end, the insureds sued; the builder, Hawkins’ liability insurer QBE seeing as Hawkins was by that time in liquidation, and IAG.
There was a trial in July 2020. The necessary remedial works had not occurred.
The HC Court determined that Farrells was liable to the insureds in contract and in negligence as well as under the Consumer Guarantees Act 1993 for its defective and inadequate repair work. Judgment was entered for the cost of the remedial work using present-day rates. IAG was liable under the insurance policy. The High Court awarded interest back-dated to 2015 when the repairs were carried out.
In IAG v QBE [2022] NZCA 208, the Court of Appeal disagreed with the interest award. It noted that the monetary award to the insureds was on the basis of current (i.e., around the time of trial in mid 2020) rates, not 2015 rates. There is a line of authority which holds that where present-day costs are awarded, interest should not run from the earlier relevant period. The reasoning is that an award of interest would duplicate an allowance already built into the damages calculation. The gain to the defendant is removed because it has to pay a higher sum now that it would have had to earlier and the loss to the plaintiff is removed because it will recover more than the loss at the time it became entitled to payment initially. Call this the balancing principle.
The Court of Appeal decision records that the insureds contended that notwithstanding this line of authority, an award was possible in accordance with the Court’s broad jurisdiction under the then applicable s. 87 of the Judicature Act 1908 (which is carried forward into its successor legislation). The Court was not satisfied that there should be any departure from the balancing principle just described. It allowed the appeal. No interest.
This is unfortunate. While application of the balancing principle addressed the financial aspect, it did not address the temporal aspect. The subject matter of the claim was the insured’s home, the full enjoyment of which they were deprived for many years. Reasoning that it makes no difference because the cost of the works has increased in the meantime (reflected in an increased monetary award) has an unfortunate air of sophistry about it. An award of interest was necessary to make the claimants whole.
It’s times like this that you lean back in your chair and ask yourself: what would Lord Cooke of Thorndon have done? One is moved to suppose that he would not have felt so constrained, preferring instead to permit the judge at first instance to exercise a discretion to do justice in the particular case before him.
This is not to criticise the insurer. There was a genuine issue to be tested about the rights and responsibilities between the parties. It is far from a sure thing, in my opinion, that the insurance company had the responsibility the Court found it did. It funded the works and did everything it could. If it could turn back time there is nothing it could have done differently. However, once the law was revealed, a necessary conclusion was that the insureds had been deprived of something to which they otherwise would have enjoyed, the full use of their home. Under New Zealand law, this could not be addressed fully by an award for stress and inconvenience. Awards in New Zealand have always been…what is the word. Thrifty. Interest is the legal tool that best assists.
The balancing principle lacks cogency in this situation. The damages award was higher because of the price inflation of building costs. It is fallacious to say that the detriment to the insureds was obviated. They had to wait five years to get the situation sorted. Time has a value. Time had passed. This detriment should be recognised.
In the image below, children play ball; unencumbered by these questions.
