Higher rate of interest designed to spur settlement

PUBLISHED : Thursday, 08 April, 2010, 12:00am
UPDATED : Thursday, 08 April, 2010, 12:00am

When a court orders a party to pay compensation, the amount can be subject to interest. The interest rate has been as high as 13.5 per cent since 1983, and is 8 per cent now.

Under the law, the court may set an interest rate it thinks fit or as provided by the rules of court from when the cause of action arises to the time of judgment. After judgment, the debt will be at an interest rate ordered by the court or according to a rate fixed by the chief justice, called the judgment interest rate.

The Gazette Notice publishes these rates at intervals, and they are available on the Inland Revenue Department and Judiciary websites. High Court and District Court judgments ordering compensation must do so at these published rates.

Christine Koo Cheung Man-kok, a partner at Koo Christine M. & Ip, says judgment interest rates are usually higher than bank interest rates.

The present rate of 8 per cent compares, for example, to HSBC's latest best lending rate of 5 per cent and its fixed deposit rate of 0.2 per cent on HK$1 million and above.

Judgment interest rates have ranged from 6 per cent to 13.5 per cent since 1983, the earliest year for which the Judiciary and Internal Revenue Department have provided judgment interest rates online.

Koo and Robertsons partner Michael Lintern-Smith say the higher rate is meant to promote settlement. If a party knows it must pay the judgment interest rate, it is likely to settle earlier rather than later.