Interest rates on non-contractual damages depend on the currency the loss was suffered in
Published 3 August 2016
The claimant, AS Latvijas Krajbanki, a Latvian bank, was given judgment at a previous hearing.
The court found that the defendant, Vladimir Antonov, had acted dishonestly, by subordinating the bank's interests to his own or those of persons closely linked to him, in breach of his duties under Latvian law. Although the bank's losses were sustained in Latvia, the bank entered liquidation, whereupon the defendant relocated to England. For that reason, the action was brought in the English courts.
The hearing was concerned with whether the bank was entitled to interest on the amount recoverable and if so, at what rate. The losses suffered amounted to €60,499,567 and $30,762,458.
Of relevance to the court in deciding the question was the implementation of Regulation 864/2007 ("Rome II"). This regulation governs questions of conflict of laws on the law applicable to non-contractual obligations. From 11 January 2009, Rome II created a harmonised set of rules within the EU to govern choice of law in civil and commercial matters (subject to certain exclusions) concerning non-contractual obligations, including, as in this case, specific rules for tort (and its near-equivalent in many European jurisdictions, delict).
Three of the eight transactions in question were made before 11 January 2009 and therefore fell outside of the temporal scope of Rome II. The other five, having been made after that date, fell within the Rome II regime.
For the first three transactions, the applicable law was the law of Latvia. However, under English law, "questions of procedure… [shall not] be determined otherwise than in accordance with the law of the forum", namely, in this case, the English court.
The question therefore was whether the matter in dispute – in this case, payment of interest – was a "question of procedure" or of substance. The right to recover interest is a matter of substance but the remedy – to be exercised at the Court's discretion – is a procedural matter and as such to be determined under English law.
For the five transactions which fell within the temporal scope, the law applicable to the claims was that of Latvia, as the country where the damage occurred. However, several of these transactions were excluded from Rome II because they were non-contractual obligations arising out of the law of companies (that is, the defendant's breach of duties owed to the bank as a member of its Supervisory Council). Therefore, for those transactions, the question of interest would need to be determined in the same way as above.
For those to which this distinction didn’t apply, Rome II also posits a distinction between matters of substance and procedure. The court held, however, that this distinction was not necessarily to be drawn in precisely the same way as in English law. In determining this, the court followed the interpretation that the rate of interest on damages was governed by the law applicable to the non-contractual obligation. This required the court to consider Latvian law. The court heard that there was no remedy in Latvian law requiring interest to be paid for periods prior to judgment.
Therefore, no interest was awarded for periods prior to judgment (which took place in May 2016). By contrast, for the losses which fell outside the scope of Rome II, the court did not feel it would be just to deprive the bank of compensation "merely because a similar procedural remedy would not be available to a Latvian court". The same would apply to those losses which, although falling within the temporal scope of Rome II, fell outside of the subject matter of Rome II and the court awarded pre-judgment interest accordingly.
The sale of 10,000 shares in MoPowered by Mr Breeze avoided him incurring a loss of some £1,900 although had Mr Breeze have been able to dispose of his entire shareholding, he would have been able to avoid a loss of some £242,000.
The FCA considered that Mr Breeze's conduct both in (1) effecting a sale of his shares in MoPowered and (2) improperly passing information to another shareholder who was not aware of the proposed share placing and failing to take any steps to ascertain if the shareholder was already aware of the inside information, amounted to market abuse in breach of S118 (2) of the Financial Services and Markets Act 2000. Indeed, he has been publicly censured and the FCA have commented that that "Mr Breeze's conduct demonstrates the abuse of insider trading is not well understood or appreciated even by experienced industry professionals".
The FCA imposed a fine on Mr Breeze of £59,557.00 pursuant to S123 (1) of the Act and required compensation to be paid pursuant to S384(5) of the Act of £1,850.00 plus interest which is to be paid to those who suffered loss as a result of Mr Breeze's actions. Mr Breeze benefitted from a 30% discount on his fine as he agreed to settle the matter at an early stage.
In cases where judgment is entered for a loss in sterling, the commercial rate currently used is 2% above the Bank of England rate. However, in the present case, the bank's losses were in Euros and US dollars.
The court awarded the bank interest on the Euro sums at 2% above the European Central Bank rate (currently 0%), as this appeared to the court to be an "equivalent benchmark". On the dollar sums, the rate awarded was 2.5% above 6 month US dollar LIBOR, which, the court noted, was currently set at 0.92% per year.
For post-judgment interest under English law, the usual rate is 8% per annum. However, in currencies other than sterling, the rate may be varied to that which "the court thinks fit". The court noted that, as the rate prescribed by law is "currently out of line with market rates", where the court has discretion, that rate need not be applied. However, just because the 8% rate did not apply did not mean that the same rate as for pre-judgment interest would be applied post-judgment. The purpose of the high rate is to compensate creditors for being kept out of their money. As noted above, under Latvian law, interest cannot be awarded pre-judgment however it can be awarded post-judgment. In such cases, the rate would be 6%. As such, the judge held that, although this rate is significantly higher than the rates for the period before judgment, the bank should not be prejudiced by the fact that proceedings had been brought in England, when this was because the defendant had relocated after the bank's collapse. Accordingly the post-judgment rate on the entire sum was 6%.