Privy Council opines on when interest can be awarded as damages

In its decision in Sagicor Bank Jamaica Ltd -v- YP Seaton and others [2022] UKPC 48, the Judicial Committee of the Privy Council considered an appeal by Mr Seaton and his companies (together, the SPs) in relation to various damages claims (including for compound interest for various types of damages (including for compound interest). These pertained to losses suffered by Mr Seaton/the SPs as a result of contractual breaches committed by Sagicor, previously "Eagle Commercial Bank Ltd" (the Bank), some 30 years ago. The breaches consisted of the Bank (i) debiting funds from accounts held by the SPs in October 1992; and, sometime between then and August 1993, (ii) freezing certain of the SPs' foreign currency accounts.

The Supreme Court of Jamaica (SCJ) found the debiting of the accounts at (i) to be unlawful in a Judgment in March 2014, and ordered the Bank to repay the debited sums to the SPs (with interest). As for the foreign currency accounts at (ii), an assessment of accounts was made in respect of the dealings between the SPs and the Bank, and the SCJ made a subsequent order requiring the Bank to pay to the SPs compound interest on the foreign currency accounts. The Bank appealed and the Jamaica Court of Appeal made a substituted order, which Mr Seaton then appealed to the Privy Counsel.

The issue on the appeal was: "to identify the remedy to which Mr Seaton [was] entitled to restore him to the position he would have been in if the Bank had not breached its contracts with him by freezing and debiting the bank accounts".

Mr Seaton claimed to be compensated for the breach of contract by the Bank (i) for the money which the Bank wrongfully withdrew from the accounts; (ii) compound interest at the contractual rates on the withdrawn money from 16 October 1992 until the date when the Bank repaid the money in 2019; (iii) for the loss of use of the withdrawn funds; and (iv) for the loss of use of the money in the foreign currency accounts in the period in which they were wrongfully frozen. The Court held it could give effect to the claim for repayment of the sums due on Mr Seaton’s accounts as a claim in debt (a) by requiring the reconstitution of the foreign currency bank accounts as if the money had not been withdrawn from them; (b) by adding interest to the principal sums that were or that should have been in the bank accounts at the applicable contractual rates for the relevant period; and (c) by applying the accrued interest to the bank accounts on a monthly basis, as provided for in the contracts between Mr Seaton and the Bank.

Mr Seaton’s (iii) and (iv) claims were for damages for breach of contract, which in turn were a claim for the loss of use of the withdrawn funds and a claim for the loss of use of the money in the foreign currency accounts in the period in which they were wrongfully frozen. These were "more problematic".

Lord Hodge set out his views (with which the other judges agreed) from which we identified the following key take-aways:

• To claim compound interest as damages for a breach of contract which had deprived the claimant of money it was necessary to plead and prove that the claimant had suffered the relevant loss such that it had to borrow money on which it incurred interest charges as a borrower; or (ii) that it had lost the opportunity to invest the money or (iii) that, in the absence of the money of which it has been wrongfully deprived, the claimant had to use funds that otherwise would have earned such interest.
• The question of what evidence is required from which a court could infer that a claimant had suffered financial loss caused by the failure to pay money that is contractually due in the form of the incurring borrowing costs will depend upon the circumstances of the particular case; but the Court did not accept that the common law goes so far as to recognise that a claimant deprived of their money in a commercial context "is as a norm entitled to claim and receive as damages for breach of contract interest on the withheld sums that is calculated by reference to the cost of borrowing such sums at a conventional rate without evidence from which such a loss can be inferred". Such claims are for actual or real damages, not theoretical and non-existent loss, and must identify the nature or extent of that loss.
• Interest, including compound interest, may be awarded as damages for breach of contract. A claimant seeking interest as damages where the defendant has withheld money in breach of contract must plead and prove its loss. If a claimant pleads that it has incurred loss by having to borrow replacement funds, what it must prove are facts and circumstances from which a court may properly infer, on the balance of probability, that it has borrowed funds to replace those which have been withheld from it. What evidence will suffice to enable such an inference to be made will depend upon the facts of the particular case.
• If the claim for financial loss is the loss of an opportunity to make a profit or earn interest through an investment, it may be possible to infer from the way in which the claimant operates its business that it would have used the withheld funds profitably. But if it claimed as loss an inability to pursue a particularly profitable project, the claimant could face a defence that it had failed to mitigate its loss by borrowing. Where (as will often be the case) it is not possible to prove that the money would have been used for a particularly profitable venture, the commercial return on a deposit of funds or on relatively short-term lending may be an appropriate approximation of the claimant’s loss, provided it is properly pleaded and proved.

The Privy Council concluded that Mr Seaton was able to claim interest (i) on the debited funds; and (ii) on the frozen foreign currency funds "at the contractual rates…for the periods in which they remained or should have remained in [his] accounts"; but his claims for loss of use of (i) the debited funds; and (ii) any sums residing in the foreign currency accounts, failed.

Authors: David Capps and Melissa Sibley