COST BITES 141: INTEREST ON COSTS: PREJUDGMENT INTEREST ALLOWED; POST JUDGMENT INTEREST DEFERRED FOR A PERIOD

In Asturion Foundation v Alibrahim [2024] EWHC 757 (Ch) Mr Justice Adam Johnson made two decisions in relation to interest on costs. He awarded pre-judgment interest on costs at 2% above base rate (it was calculated that the interest amounted to £362,478.87).  He suspended post-judgment interest on costs for a period to allow the defendant to consider the bill of costs (albeit that the pre-judgment interest rate continued).

“The Princess has been out of pocket in respect of her costs for a substantial period of time. It seems to me unfair for her not to be compensated accordingly and I therefore agree that interest should be awarded and that an appropriate measure is the likely cost of borrowing over time. I propose to make an award of pre-judgment interest, therefore, at 2% above base rate from time to time.”

THE CASE

The defendant was awarded costs against the claimant in a judgment given on the 21st December 2023. The judge was now considering incidental issues, including costs. He ordered that the defendant recover 85% of her costs. He then considered the question of interest on costs.

THE JUDGMENT ON INTEREST ON COSTS

1. 1. The next point is interest on costs. This topic raises two sub-issues, namely whether there should be an Order under CPR rule 44.2(6)(g) for pre-judgment interest, and relatedly whether there should be an Order pursuant to CPR rule 40.8(1)(b) postponing the payment of judgment debt interest until three months from the date of the Court’s Order today.

1. 1. As to the first of these points, the Princess seeks interest on the costs expended by her since the dates of payment of the relevant invoices rendered by her solicitors. She makes the point that the litigation has been running for a long time, some nine years, and that she has been out of pocket therefore for a considerable period. She says she is entitled to a payment reflecting the time value of money. This has been calculated by her cost draftsman at £362,478.87, using an interest rate of 2% above the Bank of England base rate from time to time, which is said to represent a reasonable approximation of her likely costs of borrowing: see, for example, the Commercial Court practice in cases such as Richards v Speechly Bircham LLP [2022] EWHC 1512 (Comm) at [38]-[39].

1. 1. On the second point, i.e. suspension of payment of judgment debt interest, the Foundation’s submission is essentially that it should not be penalised by having to pay statutory judgment debt interest at a rate of 8% per annum until it has had a fair opportunity to decide what sums it accepts should be payable, and it has not yet been able to do so given that it has not yet received a detailed bill of costs and needs more time. The Foundation refers to the logic of that position as expressed in the judgment of Mr Leggatt J (as he then was) in Involnert Management Ltd v Aprilgrange Limited [2015] 2 CLC 405.

1. 1. In summary, I see merit in both points. As to pre-judgment interest, the matter is one for the Court’s discretion. The factors in the mix are straightforward. The Princess has been out of pocket in respect of her costs for a substantial period of time. It seems to me unfair for her not to be compensated accordingly and I therefore agree that interest should be awarded and that an appropriate measure is the likely cost of borrowing over time. I propose to make an award of pre-judgment interest, therefore, at 2% above base rate from time to time.

1. 1. I would make two further points in this regard. The first is that Mr Mumford KC, in argument, challenged the 2% figure, but I note the reference to the general Commercial Court practice in cases such as Richards, and I also note that in Marathon Asset Management v Seddon and Others [2017] EWHC 479 (Comm) cases, Leggatt J again, at [17], referred to a 2% uplift as common in the then current environment of low interest rates. That has been the environment, as Mr Reed KC has pointed out, during much of the period the present litigation is concerned with. So, in summary, I think that a 2% uplift is justified.

1. 1. The second point, though, is that I accept Mr Mumford KC’s submission that interest should not run during the period between September 2017 and January 2020, when the proceedings were effectively in a state of suspense pending determination of a strike-out application made by the Princess, which was eventually unsuccessful.

1. 1. As to post judgment interest, I agree that this is the sort of case where some real issues of proportionality and reasonableness are likely to arise on assessment and in which, therefore, it is appropriate for the paying party to be accorded some further time to consider its position in light of the information yet to be supplied to it. It seems to me that the sums involved are sufficiently large and the complexity such as to justify that conclusion. I therefore think it appropriate to make an Order which suspends the accrual of judgment debt interest, at least for a further period of three months, as Mr Justice Trower did in Galapagos Bidco v Kebekus and Ors [2023] EWHC 2348 (Ch). If further time turns out to be necessary beyond three months, then a further application will need to be made.

1. Taking the two matters, pre and post-judgment interest, together, in summary the Order I propose to make is as follows. The Foundation should be liable for pre-judgment interest on all sums expended by the Princess in respect of the recoverable costs I have allowed, i.e. 85% of her claimed overall costs, save for the period between September 2017 and January 2020. Judgment debt interest will accrue from today on the amount now ordered to be paid by way of interim payment. No judgment debt interest will accrue on the remaining disputed amount for a period of three months, but interest at the pre-judgment rate will continue in the meantime. There may not, in practice, be much difference between the two given current interest rates, but so be it.