Saturday, 11 March 2017

Whether court should grant interest on damages for breach of contract of professional services?

The extent of damages for the breach of the contract of professional services agreed and failed to be rendered and for the consequent mental agony, distress and anguish would be analogous to the damages which are grantable for similar effects upon a tort.
 Courts have also granted interest upon the damages awarded. Under Section 3 of the Interest Act, 1978 interest can be allowed as much in proceedings for recovery of damages as in proceedings for recovery of debts. The interest which is allowable is at a rate not exceeding the current rate of interest from the date of the notice till the date of institution of the proceedings. Further interest from the institution of the Suit is payable under Section 34 of the Code of Civil Procedure at the reasonable rate on the principal sum from the date of Suit until the date of the decree and at the rate not exceeding 6% per annum from the date of decree until payment.
167. Interest has been granted on the amount of damages even under common law. In the case of Perry v. Sidney (supra) it has been observed the compensation for inflation be also accounted for "because damages carry interest". In the case of Hayes v. James (supra) a rough estimate of the true value of the property at the time of the sale which resulted in the action for damages itself came to be granted by way of interest. The rough estimate made by the trial Judge was upheld by the appeal Court as a fair assessment. The relevant portion of the Judgment at page 818 shows how the interest on the property came to be calculated roughly assessing the property's value thus:
The judge awarded the Plaintiffs 80% of the interest because of the true value of the marionette at the time of sale, and the Defendants argue that the proportion should have been much less. The judge was making a rough estimate which should not readily be criticized. However, the Defendants submit that it was wholly wrong. In my opinion the judge's assessment is fair. In considering how to apportion the original price of 65,000, he has deducted the 10,000 paid by the Plaintiffs from the overpayment for the marionette, leaving 55,000. 10,000 of that is the balance of the overpayment, which leaves 45,000 as the amount for which the Defendants are responsible. 45,000 is near enough 80% of 55,000.
168. In the case of Watts v. Morrow (supra) interest at the rate of 15% per annum on the award of damages based on the cost of the repairs was held appropriate.
169. Those interest rates are on the principal amount of damages for breach of contract calculated under all the heads including mental distress from the date of the Suit till the date of Judgment.
170. In the case of Nizam's Institute (supra) a lump sum payment of Rs. 10 lakhs only for pain and suffering came to be made with interest at 6% per annum from the date of the Judgment which is the interest allowable under Section 34 of the Code of Civil Procedure.
171. The claim of interest of 18% is at the usual commercial rate prevailing at the time of the filing of the Suit. Judicial notice must be taken of the fact that that rate prevailed until the end of 2007 after which the rate of commercial interest was lower. A reasonable rate of interest is required to be granted to the Plaintiffs for the 22 years period during which the Plaintiffs' Suit remained on the docket of this Court and the Plaintiffs remained indemnified. In this case interest @ 16% p.a. for the entire period from the date of the surgery of the original Plaintiff No. 2 till the date of this Judgment and thereafter @ 6% p.a. till payment/realization would meet ends of justice.
Suit No. 1101 of 1989
Decided On: 02.09.2011
 Padam Chandra Singhi and Ors.
Dr. P.B. Desai and Ors.
Hon'ble Judges/Coram:
R.S. Dalvi, J.

Citation: 2012(1) ALLMR 510
Read full judgment here : click here
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