Statutory interest rate changesAttorney-General
The interest rate courts can award for the recovery of debts or damages will be reduced to bring it into line with current market borrowing rates, Associate Justice Minister Margaret Wilson said today.
The new rate of 7.5 per cent will take effect from 1 August 2002.
"A review of the interest rates set down in certain statutes was long overdue," Margaret Wilson said. "Most are currently set at 11 per cent while first mortgage interest rates average 7.75 per cent."
The Judicature Act 1908, the District Courts Act 1947, the Disputes Tribunals Act 1988, allow the courts and the Disputes Tribunal (as appropriate) to award interest, not exceeding the "prescribed" rate (currently 11 per cent), for the recovery of debts or damages. The Trustee Act 1956 provides for the recovery of interest (currently six per cent) for trustees who pay insurance policy premiums. In all cases interest is simple, not compound. These statutes also allow the Governor-General in Executive Council to adjust the set rates.
Margaret Wilson said the change is also necessary because the rate set down in the Judicature Act is used by a number of other statutes. These include the Companies Act; Injury Prevention, Rehabilitation, and Compensation Act; Land Transfer Act; Life Insurance Act; Maori Reserved Land Amendment Act 1997; Mutual Insurance Act; and the High Court Rules.
Background information notes
Section 87 of the Judicature Act 1908 empowers the High Court and the Court of Appeal to award interest, not exceeding the prescribed rate, for the recovery of debts or damages. Interest is simple, not compound. Similar provisions exist for the District Court and the Disputes Tribunal (ss. 62B and 65A of the District Courts Act 1947 and s.20 of the Disputes Tribunal Act 1988).
The rate of interest prescribed for the purposes of section 87 of the Judicature Act 1908 is also used by other enactments, including the following ones (and so also affects the matters dealt with in those enactments):
- Companies Act 1993 section 309 (present value of debts payable after commencement of liquidation of companies)
- Companies Act 1993 section 311 (interest on claims against companies in liquidation)
- High Court Rule 363 (payments into Court including interest)
- High Court Rule 538 (Interest on Judgment Debt)
- Injury Prevention, Rehabilitation, and Compensation Act 2001 section 114 (interest on late payment of weekly compensation)
- Land Transfer Act 1952 section 235(3)(a) and Land Transfer Regulations 1966 regulation 36(1B) (interest on unpaid fees)
- Life Insurance Act 1908 section 41A (interest payable on certain money payable under life insurance policy)
- Life Insurance Act 1908 section 67B(1)(a) (limit on total amount of payments where deceased minor under age of 10 years)
- Mäori Reserved Land Amendment Act 1997 section 23(2) (interest payable on compensation)
- Mäori Reserved Land Amendment Act 1997 Schedule 1 clauses 8 and 25 (terms, implied into certain leases, as to interest on adjustments and on market values, respectively)
- Mutual Insurance Act 1955 section 19 (calls on premium notes of members of mutual insurance associations).
These prescribed rates may be changed by Order in Council. The rate prescribed in the Judicature Act was last changed with effect from 1 April 1980. (The prescribed rates in the District Courts Act and the Disputes Tribunal Act took effect on 16 January 1983 and 1 March 1989 respectively.) For all three statutes, the prescribed rate is currently set at 11 per cent.
Section 34A of the Trustee Act 1956 provides that where a trustee pays any premium of any insurance policy, he or she shall have a lien on policy money for any amount of the premiums so paid, together with interest at the rate of six per cent or such other rate as the Governor-General may for the time being by Order in Council prescribe. The prescribed rate for the Trustee Act has remained unchanged since 15 November 1968.
The present prescribed rate of 11 per cent is significantly above market rates. The interest rate (six per cent) prescribed for the Trustee Act is below present borrowing rates. A benchmark indicator rate - the average monthly 90-day bank bill rate - has been below 11 per cent for more than a decade. A comparison of the prescribed rate with the market indicator rate is illustrated in the following figure.
The prescribed rates in the Judicature Act, District Courts Act, Disputes Tribunal Act and the Trustee Act will be set at the new rate at 7.5 per cent with effect from 1 August 2002. This is consistent with current borrowing rates and represents a reasonable premium on the 90-day bank bill rate (5.93 per cent on 5 June 2002) and the Reserve Bank's Official Cash Rate (5.5 per cent). [The Employment Relations Act 2000 allows a two per cent premium on the 90-day bank bill rate through an established legislative provision.]
The new prescribed interest rate restores the rate prevailing under s.87 of the Judicature Act 1908 prior to 1 April 1980, and hence a Revocation Order effects this change; whereas the proposed new prescribed interest rates for the other three statutes are new rates and are effected by new Orders.
The Ministry of Justice will also conduct a regular review - at least every two years - of prescribed interest rates in statutes which it administers to ensure that the prescribed rates are consistent with current market interest rates.