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New process for calculating court-awarded interest

New process for calculating court-awarded interest

New process for calculating court-awarded interest

Tuesday 24 July, 2018

A new process for calculating Court-awarded interest on debt and compensation claims (‘money claims’) is now in place, since the Interest on Money Claims Act 2016 (‘IOMCA’) came into force on 1 January 2018.  In this article, we summarise the main changes to the interest regime and highlight some points with particular relevance to local authorities, including IOMCA’s application to the Public Works Act 1981 (‘PWA’).

Changes to the regime for interest on money claims

When the Court gives judgment on a money claim, it may also award interest to the successful party. 

This reflects the fact that one party has had unjustified use of the other party’s money, and provides compensation to the successful party for the relevant period of time.

Prior to IOMCA, the regime for interest on money claims was drawn from a number of different sources, and depended on several variables.  The applicable rate was provided for in regulations, and tended to either be ‘debtor-friendly’ or ‘creditor-friendly’, rather than reflecting prevailing market rates.  Interest was not compounding.   

The aims of IOMCA are to replace the old rules with a single comprehensive scheme, deter prolonged disputes and more fairly compensate creditors. 

The key aspects of IOMCA that give effect to its aims and remedy the issues with the previous regime are:

  • In most circumstances, interest is mandatory;
  • The interest rate is determined by reference to market interest rates;
  • Contractual entitlement to interest prevails over market interest rates;
  • IOMCA applies before and after judgment; and
  • Interest will compound annually.

These changes to the interest claims regime are positive for claimants as:

  • There is more certainty around a claimant’s entitlement to interest; and
  • The claimant is more likely to be fully compensated for the delay in payment.

Application of IOMCA to the PWA

When IOMCA was passed, it amended the PWA to enable the Land Valuation Tribunal (‘LVT’) to award interest on PWA compensation in accordance with (or not exceeding a rate calculated in accordance with) IOMCA.  Prior to that, the LVT could award interest at a rate it thought fit. 

Most often, acquisitions made under the PWA are completed by agreement, with agreement between the parties as to appropriate compensation.  In that context, it is up to the parties as to whether or not interest is payable on compensation and if so, at what rate.  However, we have seen interest pursuant to IOMCA as a feature of some PWA agreements, which reflects that parties to PWA acquisitions sometimes benchmark agreed compensation against what would occur if the matter was to proceed to the LVT. 


For any questions on IOMCA please contact Kate Cornegé or Chen Jiang, and for questions on PWA acquisitions please contact Campbell Stewart.

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