Pre-judgment interest and the time value of money

Thesis

This thesis answers the following question: What is the common law rule governing pre-judgment interest claims in contractual situations today, and what should it be moving forward? In restating the rule, the goal is to recover the purpose that pre-judgment interest serves in the common law. That purpose is to remedy the creditor’s loss of the time value of his money. The law can respond mediately to this loss through an award of investment interest, which depends on the creditor proving a counterfactual worsening of his pecuniary position. Alternatively, the law can respond directly via an award of time value interest, which does not require the creditor to prove anything beyond the fact of late payment. Time value interest compensates the creditor for risks associated with late payment and the denial of his time preference.

Although it forms an important part of the law on remedies, pre-judgment interest has largely escaped academic attention. This is the first book-length treatment of the subject post-Sempra Metals v IRC. The analysis in that important case suffered from an incomplete picture of the history of the common law rule. The long history of the rule is explored here, establishing two points. First, that time value interest was awarded prior to the 19th century prohibition. Second, that pre-judgment interest (both time value and investment interest) was awarded on liquidated sums but denied on unliquidated sums. These insights should guide the development of the rule after Sempra Metals v IRC. The economics literature is also explored to enflesh the concept of the time value of money. The practice of Chancery in awarding interest is considered in a chapter towards the end of the work.

Authors: Lau, J

• DOI: 10.5287/ora-oryej1d2m
• Type of award: DPhil
• Level of award: Doctoral
• Awarding institution: University of Oxford
• Language: English
• Keywords: contract law; time value of money; pre-judgment interest; remedies
• Subjects: Law; Commercial law; Law--History