The following scenario was prepared by Rod O’Driscoll and James Mumford for their session on interest and costs on 18 February 2003, but not used because of shortage of time. We thought, nonetheless, that members might like to test themselves on it. Please send your answers to Roger Clarke or Peter Horne (addresses on inside front cover). In the next issue we hope to offer our own ideas – and yours – on the answers.
Puzzle 6
1. Grumbling Electronics, a large company, ordered 5000 circuit boards from Acme Boards, a small supplier, at £100 per board, which were delivered on 1 January 2000 and paid for in full on 1 February 2000. There was no provision for interest in the supply agreement between the parties. When they came to be used in March 2000, 1000 boards were found to be defective. In preliminary discussions, Acme did not accept the boards were defective and in April 2000 Grumbling undertook repairs costing a further £50 per defective board to satisfy their customer commitments without further contact with Acme. Due to Grumbling’s desperate financial position, they had to borrow an additional £10,000 at 50% pa interest to pay for components to carry out the repairs; this loan was repaid a year later.
2 On 1 August 2000, Grumbling wrote to Acme claiming £50,000 for the cost of repairing the defective boards. Acme replied on 1 September 2000 requesting details of the claim, of the nature of the defects and the repairs undertaken. Grumbling eventually replied with this information on 1 September 2001. Acme assessed the information, agreed that the boards contained some defective components but believed that only 500 boards were actually defective (the rest were damaged by Grumbling) and that the repairs should have cost only £10 per board: Acme paid Grumbling £5,000 in compensation on 1 January 2002. Grumbling accepted the payment but maintained the balance of their claim and the parties appointed you as arbitrator on 1 September 2002.
You find that all 1000 boards were defective and that the proper price for the repairs should be £20 per board. Taking into account the £5,000 already paid, you award Grumbling a further £15,000 damages.
a. What would you award by way of costs?
b. What do you award for interest (both up to the date of the award and beyond it) if:
• Grumbling’s claim is just for £45,000; there is no mention of interest?
• Grumbling’s claim is for £45,000 plus interest?
• Grumbling’s claim is for £45,000 plus £5,000 finance charges (the £10,000 borrowed at 50% for 1 year) plus interest?