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Explanatory Notes
INTRODUCTION
1. These Explanatory Notes have been prepared by the Scottish Executive in order to assist the reader of the Bill and to help inform debate on it. They do not form part of the Bill and have not been endorsed by the Parliament.
2. The Notes should be read in conjunction with the Bill. They are not, and are not meant to be, a comprehensive description of the Bill. So where a section or schedule, or a part of a section or schedule, does not seem to require any explanation or comment, none is given.
THE BILL
Section 1 - Entitlement to interest
3. This section creates an entitlement to interest for a person entitled to payment of a sum of money. The interest is referred to in the Bill as "statutory interest".
4. The general rule in this section applies to a wide range of Scots law obligations to pay money, subject to the exceptions set out in section 2. For example, obligations to pay money arising from contract and promise, trust, succession, quasi-contractual situations, such as unjustified enrichment, claims for legal rights and aliment, and damages claims (such as delict or breach of contract).
5. This new statutory rule will replace the existing law on entitlement to interest which is predominantly common law. It will also replace the existing statutory provisions dealing with interest on damages contained in the Interest on Damages (Scotland) Act 1958 (c.61) which is repealed by schedule 2 of the Bill. The Interest on Damages (Scotland) Act 1971 which amended that Act is also repealed.
Section 2 - Circumstances in which interest not payable
6. This section sets out those obligations to pay which are to be exceptions to the general rule set out in section 1.
7. Paragraph (a) disapplies the general rule in section 1 to situations where interest is due on a different basis (or not due at all) by reason of an express or implied agreement between the parties. This means that parties can agree to contract out of an entitlement to statutory interest.
8. Paragraph (b) provides that no statutory interest is due on obligations to pay which are a fine, penalty or tax due to a public authority.
9. Paragraph (c) provides that no statutory interest is due on obligations to pay for which there is already legislation which specifies that interest, including no interest, is to be paid.
10. By virtue of paragraph (d) where a person claims interest on a sum of money under the Late Payment of Commercial Debts (Interest) Act 1998 (c.20) then no statutory interest is due on the sum under this Bill. If no claim has been made under the 1998 Act, a person may claim under either that Act or the Bill. That Act was introduced on 1 November 1998 to implement Directive 2000/35/EC of the European Parliament and of the Council on combating late payment in commercial transactions. It gives commercial parties a right to claim interest if another commercial party is late in paying sums due. Under the Late Payment of Commercial Debts (Rate of Interest) (Scotland) Order 2002 ( SI 2002/No 336) the interest rate is currently 8% per annum above the Bank of England rate.
11. Paragraph (e) gives Scottish Ministers the power to make an order to exempt other types of payment from the statutory interest regime.
Section 3 - Starting date generally
12. This section provides for the starting date of statutory interest. "Starting date" for the purposes of this section and sections 4 to 8 is defined in section 17 of the Bill to mean the date on which statutory interest on a sum of money starts to run. "Principal sum" for the purpose of this section and other sections in which the term appears (namely sections 4, 9(3), 10 and 11(2)) is defined in section 17 of the Bill to mean a sum of money on which statutory interest is payable.
13. Subsection (1) requires to be read with sections 4 to 8. Those sections make it clear what the starting date is for statutory interest in relation to certain types of obligation. For those obligations which are covered, interest starts to run on the day after the starting date until the day or days on which the principal sum of money owed is paid. The reference to "days" in this section covers payments which are paid in instalments.
14. Subsection (2) covers all other types of obligations to pay which are not covered in sections 4 to 8. This includes non-contractual payments due by way of redress for unjustified enrichment and awards of aliment. It will apply to such obligations where the parties to the contract have not agreed that interest should be due on a different basis or have agreed interest should not be due.
15. The rule set out is that statutory interest starts to run on the day after the principal sum is due to be paid, ending on the day before the date or dates of payment of that sum. The date when the principal sum is due to be paid is to be determined by application of the relevant existing law.
Section 4 - Starting date: certain obligations where provision is made for date of payment of principal sum
16. This section provides that when a contract states the date when payment under the contract is due then that is the starting date for statutory interest. This starting date is then applied in the general rule set out in section 3(1), discussed above. This section applies to all contracts (other than a contract of loan specifically dealt with in section 6 of the Bill or a contract of cautionry dealt with in subsection (2)).
17. Subsection (2) provides that for cautionary obligations the starting date for statutory interest is the day on which any payment is made by the cautioner.
Section 5 - Starting date: certain obligations where no such provision is made
18. This section provides for a starting date for payments due under contracts for the supply of goods and services when the contract does not specify the date when payment is due.
19. Subsection (2) provides that for a contract for the supply of goods and services, the starting date for statutory interest is 30 days after the later of two dates. Those are firstly, the day on which the supplier performs the supplier's obligation. This could, for example, be the delivery of goods or the performance of a service. The second date is the day on which the person receiving the goods or services has been informed of the amount due. Notice of the amount due could be given either in writing or simply verbally.
20. The terms "supply" and "supplier" are defined in section 17 of the Bill to make it clear that supply includes sale and supplier includes seller. This section therefore covers the sale of goods.
21. Subsections (3) provides that for a cautionary obligation, the starting date for statutory interest is the day on which the payment of the right of relief is made by the cautioner.
Section 6 - Starting date: contracts of loan
22. This section provides that statutory interest should run on a loan of money from the date on which the loan is made. It preserves the common law presumption that interest on a contract of loan runs from the date on which the loan is made.
Section 7 - Starting date: damages
23. Section 7(1) sets out the general rule that in an action for damages, interest should run on each head of loss from the date on which the loss in question was sustained. Determination of the relevant date will be made according to the particular facts and circumstances of the case.
24. Section 7(2) provides that a court can consider a loss as having been sustained over a period of time, including solatium for pain and suffering, and would allow the court to apply statutory interest at a rate the court considers appropriate in the circumstances of a particular case throughout the period during which the loss was sustained. This is because some consequences of injury continue over a period of time and are not sustained on any particular date. "Court" is defined in section 17 to include any tribunal, arbiter or adjudicator.
Section 8 - Starting date: fees and outlays in proceedings
25. This section provides that where a party to an action has paid fees (such as legal fees or fees for an expert witness) or outlays and is entitled to recover them from another party, statutory interest is payable from the dates when the fees or outlays were paid. An entitlement to recover fees derives from an award of judicial expenses. This section applies to proceedings before a court, tribunal, arbiter or adjudicator.
Section 9 - Calculation of interest
26. Section 9 provides that statutory interest for any period runs at the statutory rate. The statutory rate is defined in the Bill under section 17 as being 1.5% above the "official dealing rate". The official dealing rate is also defined in section 17 of the Bill. It is the rate announced by the Monetary Policy Committee of the Bank of England as the official Bank Rate, though its name has varied over time. By virtue of section 17(2) of the Bill the Scottish Ministers can make an order to substitute a different percentage rate for the rate specified in the definition of "statutory rate".
27. Subsection (2) provides that statutory interest is to be calculated as simple interest. Simple interest is interest paid only on the amount of the principal sum due and so does not include interest on past interest. Interest accrues daily.
28. Subsection (3) provides that at the date of a court order for payment of a sum of money to which statutory interest applies then statutory interest will be applied to both the principal sum and the sum of the interest accrued to that date. In effect this is a one-off compounding of interest to the date of the court order. Again, this applies to any court, tribunal, arbiter or adjudicator by virtue of the definition in section 17 of the Bill.
29. Subsection (4) provides that there can be no such compounding for interest due on foreign judgments authorised for execution in Scotland or under documents registered for execution in the Books of Council and Session or the sheriff court books.
Section 10 - Principal sum payable in foreign currency
30. Obligations to pay may be in a foreign currency, for example, under contract or by virtue of a court order. Scottish courts may competently award decree in a currency other than sterling. This was decided in the case of Commerzbank AG v Large 1977 SC 375. Section 10 provides that where payment of a sum of money is to be in a foreign currency, statutory interest would run at a rate appropriate to the currency concerned based on the equivalent official dealing rate of the country in question. Where no such equivalent exists, a rate which best meets the interests of justice is to be applied. This could be applied either by a court or by parties.
31. Subsection (2) provides that the percentage above the official dealing rate can be amended by order by the Scottish Ministers.
Section 11 - Power of court to waive or reduce interest
32. This section provides for judicial discretion to decide if it is in the interests of justice either that statutory interest is not payable or that the amount of interest to be paid is to be less than it would be under the other provisions of this Bill. The court is directed to have particular regard to the conduct of the person to whom statutory interest would be payable. The court's discretion applies to all obligations to pay including damages. The definition of court in section 17 makes it clear that this power to remit interest is given also to tribunals, arbiters and adjudicators.
Section 12 - Tenders
33. This section deals with statutory interest on tenders. A tender is a judicial offer by a party to pay a part of the sum asked for by the party's adversary after an action is raised. They are usually made by a defender to a pursuer, but where there is a counterclaim, it may be the other way round. Tenders affect liability for the expenses of an action. Where a pursuer gets an award of an amount greater than a tender the pursuer is entitled to an award of the whole expenses of process. Where the amount awarded is less than a tender, the award of expenses from the date of the tender will normally be made in favour of the defender.
34. This section provides that a tender is presumed to be in full satisfaction of any claim for interest and, in considering whether the tender has equalled or exceeded the award, the court (including a tribunal, arbiter or adjudicator) will not include interest between the date of the tender and the date the award is made.
Section 13 - Application of Act
35. This section provides that this Act binds the Crown to the conditions imposed by the Bill on everyone else.
Section 14 - Ancillary provision
36. This section allows the Scottish Ministers to make provision ancillary to the Act in subordinate legislation.
Section 15 - Modification and repeal of enactments
37. This section gives effect to schedules 1 and 2 to the Bill which modify and repeals certain enactments.
Section 16 - Orders
38. This section sets out the Parliamentary procedure for statutory instruments made under powers given in this Bill. Most orders which may be made under the Bill, such as an order to change the way the statutory rate is calculated, are to be made by negative procedure which would allow orders to be made quickly, for example to reflect changing market conditions.
Section 17 - Interpretation
39. The section has been discussed above where relevant. It provides a number of definitions used throughout the Bill and also allows the Scottish Ministers to amend by order the definition of the "statutory rate" of interest to change the percentage rate above the official dealing rate which will apply in the calculation of statutory interest.
INTEREST (SCOTLAND) BILL
Explanatory Notes
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