WHEN SHOULD INTEREST ON COSTS RUN FROM? A DECISION THAT DOESN’T GO ALL AROUND THE GARDEN…

We looked at the decision of Senior Costs Judge Gordon-Saker in  Marbrow v Sharpes Garden Services Ltd [2020] EWHC B26 (Costs) last week in relation to the question of whether the costs budgeting caps were inclusive or exclusive of VAT.  There are other aspects of the judgment that warrant consideration.  (1) Should the defendant pay  interest on a disbursement funding loan?  What is the date from which interest on costs should run?  In brief the answers are (1) No; (2) normally from the date of the order, unless there are exceptional circumstances.

THE CASE

The Master was considering issues arising out of an assessment of costs in a personal injury case.  There was issues between the parties as to interest: (i) Should the defendant pay  interest on the sums taken out to fund a disbursement funding loan? (ii) From what date should interest on costs run?

THE JUDGMENT ON THESE ISSUES?

“The recoverability of interest paid under a disbursement funding loan
  1. The Claimant claims, as an item of costs, the interest that he is liable to pay under a loan agreement with his solicitors in relation to the funding of disbursements. The agreed interest rate was 5%.
  2. In Hunt v RM Douglas (Roofing) Ltd [1987] 11 WLUK 221 the claimant sought to recover on the taxation of his costs the interest that he had incurred under an overdraft to fund the disbursements required for his claim. The Court of Appeal held that funding costs had never been included in the categories of expense recoverable as costs and to include them would constitute an unwarranted extension.
  3. Mr Gibbs relied on the decision of the Court of Appeal in F&C Alternative Investments v Barthelemy [2012] EWCA Civ 843 where (at paragraph 98.3) Davis LJ apparently approved the submission by leading counsel for the appellants that “costs of funding litigation by way of bridging loans are not ordinarily recoverable in themselves as costs of litigation”.
  4. Miss Walton relied on the decision of the Court of Appeal in Secretary of State for Energy v Jones [2014] EWCA Civ 363. However that case was concerned with the rate of interest that could be allowed on costs from a date earlier than judgment where, as here, the claimants had incurred a liability to pay interest to their solicitors in respect of the funding of disbursements. The court upheld the decision to allow interest on pre-judgment disbursements at 4% above base rate. The argument on appeal was that the rate should have been calculated by reference to the circumstances of the claimants’ solicitors, rather than of the claimants. The solicitors, it was said, could have borrowed at a much lower rate.
  5. In my judgment it is clear following Hunt that interest incurred under a disbursement funding loan cannot be recoverable as costs. Item 481 in the bill must therefore be disallowed.
    1. However r.44.2(6)(g) does allow the court to order the payment of interest on costs from a date before judgment. Mr Gibbs submitted that a costs judge does not have power to award pre-judgment interest on costs. However in my experience parties often ask costs judges to award interest from a date different to the date of judgment. Indeed in this case the Defendant seeks an order that the Claimant should be entitled to interest on his costs from 3 months after the date of the costs order. I can see no reason why a costs judge should have power to award interest from a date after judgment, under r.44.2(6)(g) but not from a date earlier than judgment, under the same rule.
Whether the Claimant’s entitlement to interest should run from 3 months after the date of the order for costs
    1. The Defendant submits that interest should run from three months after the order for costs and relies on the decision of Leggatt J. (as he then was) in Involnert Management Inc v Aprilgrange Limited & Ors [2015] EWHC 2834 (Comm) at paragraph 24:
it seems to me that a reasonable objective benchmark to take is the period prescribed by the rules of court for commencing detailed assessment proceedings. Pursuant to CPR 47.7, where an order is made for payment of costs which are to be the subject of a detailed assessment if not agreed, the time by which detailed assessment proceedings must be commenced (unless otherwise agreed or ordered) is three months after the date of the costs order. In order to commence such proceedings, the receiving party must serve on the paying party a bill of costs giving particulars of the costs claimed. It is then for the paying party to decide which items in the bill of costs it wishes to dispute. Postponing the date from which Judgments Act interest begins to run by three months will therefore generally serve to ensure that the party liable for costs has received the information needed to make a realistic assessment of the amount of its liability before it begins to incur interest at the rate applicable to judgment debts for failing to pay that amount.
    1. The Claimant maintains its entitlement to interest at the Judgment Act rate of 8% from the date of the costs order.
    2. Section 17 of the Judgments Act 1838 provides:
(1) Every judgment debt shall carry interest at the rate of 8 pounds per centum per annum from such time as shall be prescribed by rules of court . . . until the same shall be satisfied, and such interest may be levied under a writ of execution on such judgment.
(2) Rules of court may provide for the court to disallow all or part of any interest otherwise payable under subsection (1).
    1. Rule 40.8 of the Civil Procedure Rules 1998 provides:
(1) Where interest is payable on a judgment pursuant to section 17 of the Judgments Act 1838 or section 74 of the County Courts Act 1984, the interest shall begin to run from the date that judgment is given unless –
(a) a rule in another Part or a practice direction makes different provision; or
(b) the court orders otherwise.
(2) The court may order that interest shall begin to run from a date before the date that judgment is given.
    1. Rule 44.2 provides (in part):
(6) The orders which the court may make under this rule include an order that a party must pay –
….

(g) interest on costs from or until a certain date, including a date before judgment.

    1. The entitlement to interest on costs under section 17 of the 1838 Act is automatic. Generally the court will not order it expressly. Interest is therefore payable on costs at 8 per cent from the date of judgment (Hunt v R.M.Douglas (Roofing) Ltd [1990] 1 AC 398) without an order to that effect unless the court makes a different order under either CPR 40.8 or CPR 44.2(6)(g).
    2. In Simcoe v Jacuzzi UK Group PLC [2012] EWCA Civ 137 Lord Neuberger, then Master of the Rolls, said:
47. We were referred to Fattal v Walbrook Trustees (Jersey) Ltd [2009] EWHC 1674 (Ch)[2009] 4 Costs LR 591, paras 25-30, in which Christopher Clarke J held, in summary terms, that the effect of CPR 40.8 was that (a) the general rule is that interest on costs runs from the incipitur date, (b) a departure from that general rule is justified if it is ‘what justice requires’; (c) the notion that a departure can only be justified in ‘exceptional’ cases is an unhelpful guide; (d) the primary purpose of an award of interest is ‘to compensate the recipient for [having] been precluded from obtaining a return on [his] money’; (e) ‘[s]ince the payment of solicitors’ costs involves the payment of money which could otherwise have been profitably employed, the overwhelming likelihood is that justice requires some recompense in the form of interest’.
48. I agree with all those observations, but would add two precautionary comments on his observations. First, I would discourage too detailed an approach into the facts of the particular case in hand for the purpose of determining the date from which interest should run. As Lord Ackner’s speech in Hunt [1990] 1 AC 398 implies, when making such a determination, the court should take a broad view of the position. Prolonged argument, let alone detailed evidence, on the issue must be avoided. There will often be no perfect date, and the decision inevitably will, indeed should, be broad brush. Further, if interest was to run from different dates on different components of the costs, it would, in many cases, lead to arguments which would do the legal system no credit. The second observation is that I would not necessarily agree with the suggestion, at [2009] 4 Costs LR 591, para 30, that it may be inappropriate to award interest on costs where the case is being funded by a third party entirely voluntarily or otherwise free of any cost. I would have thought that, following the logic of reason (v) in para 11 above (and see para 46 above), if interest on costs is payable from the incipitur date, the party to whom it is paid may have to account for it to the third party, and, if that is correct, there would seem to me to be a powerful argument for saying that the third party should get interest on costs in the normal way.
    1. Accordingly the court should depart from the incipitur rule only where that is what justice requires in the particular case and should avoid awarding interest from different dates on different components of costs.
    2. In this case Mr Gibbs did not rely on any particular feature to justify a departure from the general rule. He relied merely on the passage from the judgment in Involnert quoted above. However that was a commercial case in which the court had ordered the payment of interest at 2% over base rate from when the costs were incurred (ie pre-judgment interest) until the date 3 months after the date of the costs order when interest would become due at 8%.
    3. As far as I am aware, most if not all of the cases in which the court has awarded Judgment Act interest only from a date after judgment have been commercial cases, in which orders for pre-judgment interest on costs at commercial rates are often made.
    4. As he did not identify any particular feature in this case, Mr Gibbs’ argument, in effect, is that the default position should be that interest should run only from the date on which notice of commencement of detailed assessment is or should have been served. However that is not the default position and no reason has been shown to depart from the general rule.
What order(s) should be made in relation to interest?
  1. Given my decision that the Claimant should be entitled to interest at the rate of 8% from the date of judgment, is there any particular reason to award interest on part of the costs before judgment?
  2. Jones was a rather different case to the present: a group action in which the disbursements came to a total in excess of £787,500. The present case is a straightforward personal injury claim. No evidence of the Claimant’s means has been produced but for present purposes I am happy to accept, on my reading of the papers, that it is unlikely that the Claimant would have had the means to fund disbursements other than by a loan. That is almost certainly the case for the vast majority of claimants in personal injury actions. Yet the incipitur rule remains the default position and parliament did not choose, when enacting the Legal Aid, Sentencing and Punishment of Offenders Act 2013, to make specific provision for the funding of disbursements whether by enabling the recovery of funding costs or by creating a default entitlement to pre-judgment interest.
  3. In my view, justice does not require a departure from the general rule in this case and the Claimant should be entitled only to interest from the date of the costs order. The higher rate of interest under the Judgment Act should go some way to compensating the Claimant for the interest that he is liable to pay for funding the disbursements.”