The District Court’s changing approach to interest under the Interest on Money Claims Act 2016.


On January 1st 2018, provisions came into force under the Interest on Money Claims Act 2016 which made significant changes to the manner in which the Court awards interest in civil claims.


The Act replaces a number of other provisions and regulations in an attempt to rationalize the awarding of interest in civil matters and provide a “beginning to end” process for the awarding of interest on money claims.


Prior to the Act coming into force, the District Court, following a direction from the Chief District Court Judge, generally only awarded interest for a period of twelve months from the date that the Defendant first defaulted under the Contract. They were also extremely loath to award compound interest and, even if the Contract specifically set a default interest rate, the Court could set same aside and substitute a lower rate if the Court considered the rate being charged was oppressive or was being applied in an oppressive manner.


Furthermore Creditors without a signed contract were restricted to claiming interest at the District Courts Act rate of 5% per annum. The award of such interest was solely at the Court’s discretion and was very rarely granted.


Since 1 January 2018, the Court’s approach has changed. If your Contract allows you to claim compounding interest, they will now award compound interest, as opposed to the simple interest previously granted.


Instead of granting interest for twelve months from the date of first default, the Court under Section 22 of the Act will now not only award interest from the date of first default to the date of judgment, they will also grant interest from the date of judgment to the date the Defendant actually pays the debt.


Furthermore, if your Contract allows you to claim collection costs and legal fees from the Defendant in the event of a default, the Court will now grant statutory interest on those costs until the date of payment.


For those Creditors without a signed Contract, the Act will allow them to claim interest as of right on the outstanding debt from the date of default until the date of payment at a rate to be prescribed under the Act. As yet that rate is yet to be struck.


To assist parties with the calculation of interest on money claims, the Ministry of Justice has established an online calculator at https://www.justice.govt.nz/fines/civil-debt-interest-calculator/


This allows a Creditor to input the amount of the debt, the date of default, the interest rate and the end date and it will calculate the amount of interest. It also allows the user to input any part payments made by the Defendant.


The process is still being fine-tuned. Applications for Judgment currently before the Court are on hold while a District Court Judge critically assesses the Ministry of Justice’s interpretation of how the Act is to be applied, but it seems that the Act is a welcome levelling of the playing field between Creditors and Defaulters.




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