Author: Nicola Sharp
23 January 2023
3 min read
Nicola Sharp of Rahman Ravelli considers a case that shows the courts’ reluctance to expand the jurisdiction of equity to award compound interest in common law claims.
In a recent summary judgment decision (Granville Technology Group Ltd (in liquidation) and others v Chunghwa Picture Tubes Ltd and others  EWHC 3271 (Comm)), the High Court was asked to decide whether or not interest could be awarded on the compound basis under the court’s equitable jurisdiction. The reasons put forward for claiming compound interest were that the defendants (a cartel) engaged in (i) “serious wrongdoing” and (ii) “deliberate concealment” of such wrongdoing, which prevented pursuit of the claims and the recovery of damages by the victims of the cartel.
The court considered Lord Brandon’s dictum in President of India v La Pintada Compania Navigacion SA  AC 104, in which he set out a two limb ambit within which to award compound interest. Lord Brandon held that compound interest could be awarded in cases where (i) money had been obtained and retained by fraud or (ii) where money had been withheld or misapplied by a trustee or anyone else in a fiduciary position.
In this case, the relevant limb was the first; whether money had been obtained and retained by fraud. So, the logical next step is to define what constitutes a “fraud” in order to fall within the equitable jurisdiction to award compound interest.
This has long been a subject of amorphous complexity. The word fraud has been described as “protean” in English civil litigation, and “elusive of any hard and fast definition” (Grant & Mumford on Civil Fraud (1st ed, 11-001). There is no freestanding action in fraud.
The defendants’ case was that neither fraud nor dishonesty were expressly pleaded, so the claim must fail. But Mr Adrian Beltrami KC (the presiding Judge) considered that substance was more appropriate than the mere wording, even though he accepted that an allegation of fraud must be distinctly alleged and proved.
The claimants’ case was that fraud should not be construed as limited solely to the common law tort of deceit but rather as encompassing ‘dishonest conduct’.
This argument may have merit. But its virtue wasn’t tested in this instance because the claimants had not pleaded any allegation of dishonesty, and so failed on its own premise. Instead, the claimants were forced to pursue the argument that “deliberate concealment” may be sufficient to constitute an equitable fraud (which does not necessarily require an element of dishonesty).
The court turned to whether the allegation of deliberate concealment, as pleaded, was sufficient to engage equity’s jurisdiction, or whether it was arguably sufficient so as to leave the matter for trial.
Mr Beltrami KC considered that “in theory at least, conduct which involves the deliberate concealment of a wrong, may in appropriate circumstances be capable of being characterised as an equitable fraud.” But the many qualifications in that statement reveal how reluctant the courts are to extend the scope of equitable fraud.
However, as the case was pleaded, deliberate concealment was not judged to be a central allegation. The fraud needs to be the cause of action and it must have caused the money to be obtained and retained.
On the case before him, Mr Beltrami KC held that the allegation of deliberate concealment was not a cause of action. Nor was it alleged to be part of a cause of action. It appeared only in the Reply in relation to s.32(1)(b) of the Limitation Act 1980 to determine when time begins to run for limitation purposes.
In any event, the deliberate concealment was not alleged to have caused defendants to obtain and retain a fund for their own benefit. The concealment was only relevant to prevent the pursuit of damages and that was deemed insufficient to engage Lord Brandon’s first limb.
The decision shows understandable reticence by the courts to expand the jurisdiction of equity to award compound interest in common law claims. The circumstances in which compound interest may be awarded remain restricted to limited categories (defined in Lord Brandon’s dictum).
The reason for these defined parameters is that statute has the superior authority on the issue. In the High Court, interest is awarded under section 35A of the Supreme Court Act 1981. In the County Court interest is awarded under section 69 of the County Courts Act 1984. In both statutes, interest is expressly stated as “simple” and not compound.
In a case which involves an express allegation of dishonesty or fraud in the pleadings, the outcome may have been different. Where funds have been obtained and retained by fraud then compound interest on damages may be available. But it must be clearly particularised as a central issue in the pleadings.
Nicola is known for her fraud, civil recovery, arbitration and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.