Interest on Money Claims Act 2016

The Interest on Money Claims Act 2016 sets the rules for awarding interest on money claims in New Zealand civil proceedings. Its primary purpose is to provide interest as compensation for delay in the payment of debts, damages, and other money claims where civil proceedings are commenced.

For a business owner, the practical point is that a court judgment may include more than the unpaid amount itself. Interest can be part of the judgment, and the Act sets the default method for when it is awarded and how it is calculated.

The Act also has a second function. It provides standard provisions for calculating interest on amounts payable under certain other enactments through Schedule 2. But for most businesses dealing with an ordinary court dispute, the main focus is Part 1, Part 2, and the pleading rules in Part 3.

The Act applies to every civil proceeding commenced after 1 January 2018. It applies when a court gives a money judgment, meaning a judgment or order in a civil proceeding that requires payment of money. That includes default judgment and summary judgment.

The Act binds the Crown. But the definition of court does not include a tribunal or an arbitral tribunal. So if your dispute is in arbitration or a specialist tribunal, do not assume this Act applies in the same way.

In business terms, the Act commonly appears in debt recovery claims, contract damages claims, negligence claims that end in a money judgment, and defended proceedings where one side is trying to estimate the full cost of delay.

Most businesses notice this Act once a payment dispute becomes formal court litigation. It often matters when one side is calculating settlement exposure, deciding whether to defend a claim, or working out whether delay is making the claim more expensive.

It also matters when drafting pleadings. Interest is not automatic in a procedural sense. The party claiming it must identify the section relied on and, as far as possible, the period claimed. For some sections, the amount or rate claimed must also be stated.

When giving a money judgment, the court must award interest under the Act for the relevant period unless the Act expressly says interest cannot be awarded, or the court specifies one or more shorter periods in accordance with the Act.

The starting point is important. The period begins on the day the cause of action arose. If the amount on which interest is to be awarded was not quantified on that day, the court may instead specify a later day as the day that amount was quantified.

The period ends on the day the judgment debt, including all interest payable under the Act, is paid in full. But interest does not keep accruing on an amount after the date that amount is paid.

In every money judgment, the court must award interest under section 10 as compensation for delay in payment unless the Act expressly provides otherwise. This remains true even if, after proceedings start but before judgment, the debtor pays the entire amount due except interest.

When the court awards interest for a period under section 10, it must specify the amount on which interest is awarded for that period. The Act calls this the initial amount.

The initial amount must include amounts paid after proceedings began but before judgment if the relevant period began before the payment date. It must also include accrued interest from any earlier period specified in the judgment under this Act, another Act, or a contract.

The Act does not use a single fixed court rate. For section 10 awards, interest is calculated daily using the Ministry's internet site calculator.

The rate for any given day is the base rate plus the premium, expressed as a daily effective rate. The base rate is generally the average of the 6 most recent observations of the retail 6-month term deposit rate published by the Reserve Bank before that day. The premium is 0.15%, unless regulations prescribe something different.

Interest accrued over a particular year is added to principal in the following year. If the debt is paid in one payment, the calculator uses the initial amount, start date, and last day. If there are instalments, the amount and date of each instalment must also be entered.

The Act does not simply override contractual interest terms. If a contract provides for the award of interest, or provides that no interest is payable, the court may award interest for that period in accordance with the rights and obligations set out in the contract.

This applies despite Part 1 or section 24, and despite any rule of law that contractual rights and obligations merge in the judgment after judgment is given.

The Act also sets limits. If the court has awarded interest under the contract for that period, it may not also award interest under this Act for that same period. The court may also not award interest under Part 1 or section 24 for a period if doing so would be inconsistent with the contract.

Unless the contract expressly provides otherwise, a contractual provision about payment or non-payment of interest on an unpaid amount is taken to apply both before and after judgment. A contractual rate of interest is also taken to be inconsistent with an award under Part 1 or section 24 unless the contract expressly provides otherwise.

The Act contains several important limits. These matter for both claimants and defendants because they can reduce or remove an interest claim for particular amounts or periods.

Some limits are absolute for certain categories of claim. Others are aimed at preventing overlap where interest has already been awarded under another legal basis for the same period.

If the initial amount in a money judgment is expressed in a foreign currency, the court may use a different rate and a different calculation method. The court may award interest at a rate it considers fairly and realistically reflects the relevant economic circumstances, and may decide whether the calculation is with or without compounding.

The court also has a separate discretion where special circumstances make it inequitable to award interest under the standard rules. For all or part of the period, the court may award interest on terms it directs, award a compensatory lump sum, or decide not to award interest or a lump sum.

These powers are not a free-standing extra. They apply only where interest could have been, but was not, awarded under the standard provisions for that amount and period.

There is a special rule for contracts entered into before the Act came into force. This rule applies to the period before the date of a money judgment if the judgment is for an amount under, or for breach of, a contract entered into before 1 January 2018.

Where that rule applies, the court may not award interest under Part 1 for the pre-judgment period. Instead, the court may award interest on all or part of the amount at a rate not exceeding the prescribed rate, award a compensatory lump sum up to that amount, or award nothing.

The Act notes that 5% per annum was prescribed as the maximum rate for section 24(2)(b)(i) on 12 April 2019 by regulation 4 of the Interest on Money Claims Regulations 2019.

The court may not award interest under a section of the Act for a period unless the party claiming interest specifies the section and, as far as possible, the period in its statement or notice of claim or counterclaim.

If the claim is under section 17, 18, 22, or 24, the party must also specify the amount or rate of interest claimed. The court may not award more than the amount claimed or at a rate higher than the rate claimed under those sections.

The Act allows interest to be claimed in the alternative. It also allows amendments if the pleading is amended in accordance with the rules of court and then complies with the Act.

Before relying on this Act in a dispute, work through the practical trigger points. A small error in dates, contract wording, or pleading can change the result.