16 October 2020
Disputes Quick Read – 33 of 63 Insights
Disputes Quick Read: Law on interest applicable to US dollar awards reaffirmed
We recently updated you on Dodika Limited & Others v United Luck Group Holdings Limited [2020] EWHC 2101 (Comm) – a decision where we obtained summary judgment for the release of USD 50 million of the sale proceeds for the selling shareholders in Outfit7, creators of the Talking Tom digital games.
One of the issues that needed to be decided after the Dodika judgment was what interest rate should apply to the USD 50 million that had been held in escrow. Let's take a closer look at how this issue was ultimately resolved and its potential impact on future cases.
The facts
The parties agreed that interest should be awarded from the date on which the funds should have been released from the escrow account (1 July 2019), but did not agree on the applicable interest rate. It was a choice between US Prime Rate (which we argued) and the Bank of England base rate plus 1% (which the defendants argued); the difference was around USD 2 million.
Following a consequentials hearing on 9 September 2020, the court awarded interest at the US Prime rate and reiterated that this is the conventional rate to be applied to an award in US Dollars.
Key points to consider in an applicable interest rate dispute
As highlighted in the Dodika interest judgment ([2020] EWHC 2535 (Comm)), if you have an award in USD, you should consider the following points when arguing the applicable interest rate:
- Using the comparatively high US Prime rate (when compared to for example Bank of England base rate plus 1%) does not mean that you'll be overcompensated. Compensation is measured by reference to a party's presumed borrowing rate in the relevant currency because that rate fairly represents the loss of use of that currency.
- Your domicile doesn't determine the rate of interest payable. The court will take a broad-brush approach and won't look to the actual loss unless you're seeking higher interest rates. That only one of the 193 selling shareholders in the Dodika case was a natural person domiciled in the US did not change the court's view that US Prime was the most appropriate rate.
- In this case, the funds on which interest was being applied were held in an escrow account. The applicable interest rate wasn't limited to the rate set out in the escrow agreement agreed between the parties and the escrow agent to apply while the funds were held in escrow. Instead, it should represent the loss for being kept out of funds for the period after the funds should have been released.
- Just because the English Court has been chosen for dispute resolution doesn't mean that the Bank of England base rate must be used.
How does this impact future applicable interest rate disputes?
This judgment is a helpful restatement of the law on interest applicable to US dollar awards. Given the comparatively high US Prime rate – the applicable rate for the period in this case ranged from 5.5% to 3.25% – compared to Bank of England base rate, the difference in the amount of interest you'll receive can be significant.
Find out more
If you'd like to discuss the issues raised in this article in greater detail, please contact Laurence Lieberman in our Disputes and Investigations team.
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