Interest on costs

In what circumstances are you entitled to recover interest on legal costs ?

Statutory provisions :

 

According to s.17 of the Judgment Act 1838, costs attract interest as a matter of course on High Court judgments. The County Court (Interest on Judgment debts) Order 1991 (“CC(IJD)0 1991”) provides for interest to be paid on a “relevant Judgment” namely a Judgment or Order of a County Court for the payment of money of not less than £5,000.00.

 

Section 52 of the CC(IJD)0 1991 provides that; “every Judgment debt under a relevant Judgment shall    …….. carry interest….. from the date on which the relevant Judgment was given”.

 

CPR 44.3(6) (g) “The  …… Court may make…. an Order that a party must pay…. interest on costs from or until a certain date, including a date before Judgment”.

 

CPR 40.8 (1) “…. interest payable on a Judgment debt… begins to run from the date of Judgment unless…… the Court orders otherwise”…

In summary, if you have a judgment for a sum exceeding £5000.00, there is a presumption that you will be entitled to interest on your costs, however…

 

Are there any exceptions to the rule ?

If a case involves a split-trial, there is uncertainty as to whether interest on costs accrues from the date of the liability judgment or from the date of the subsequent quantum judgment. The Judge hearing the issue should make a decision which fits with the justice of the particular case.

 

Case Law

 

The question of interest in a split trial was considered in the case of Powell –v- Herefordshire Health Authority (2003) 2 costs LR 185. Initially, interest was ordered to run from the date of the preliminary issue trial when an order for costs was made. However, the Court of Appeal reversed the decision in respect of interest, on the basis that the Judge had not considered CPR 44.3 (6) (g) which provides the Court with the power to award interest by looking at the dates when the costs were incurred and to award interest that “fitted with the justice of the particular case”.

 

 

The Supreme Court Costs office case of Bollito –v- Arriva London (2009) EWHC 90136 (costs) has provided some guidance on this issue.

The Defendants in this case made an application to disallow interest on costs awarded to the Claimant, on the basis that interest is payable to reimburse a client for costs paid or interest lost on monies, which had been used to pay costs.

The Defendants relied upon the following cases; Powell –v- Herefordshire Health Authority (2003) 2 costs LR 185, Montlake –v- Lambert Smith Hampton Group Limited (2004) 4 Costs LR650, Bim Kemi AB –v- Blackburn Chemicals Limited (2004) 2 Costs LR201, Douglas –v- Hello! Limited (2004) 2 Costs LR304. Their submissions were dismissed because interest in these cases was being sought at a penal rate and not a standard rate  (as was the case in Bollito).

 

Further, a theme which was underlying in the above mentioned cases was that interest was meant to compensate a Claimant for money which he had had to pay or borrow in order to pay his Solicitors.  In the case of Bollito, the Claimant had not had to pay any costs.

 

In the matter of FATTAL & FATTAL v WALBROOK TRUSTESS LTD [2009] EWHC 1674 (Ch) it was re-confirmed that “…interest will run from the date judgment is given…” and “…any order should reflect what justice requires….”.

 

In Fattal, it was confirmed that the Court has the power to award interest from a date prior to judgment (notably where the receiving party has had to pay monies in costs to his solicitors prior to judgment) or subsequent to judgment (in the event there has not been any substantial costs expenditure prior to judgment).

 

Discretion

The Courts have a great deal of discretionary power when awarding interest, specifically CPR 44.3 (6) provides discretion to award interest from any date which “fits the justice of the case”.

 

Conclusion

It is our view that the underlying notion in case law, which suggests that the intention to award interest is generally compensatory, can be refuted if interest is being sought at a standard rate.

At the time of writing, there is not any definitive precedent which dictates that interest cannot run on a Costs Order made at a Preliminary Issue Hearing and according to s17 Judgment Act 1838, such interest would be at a rate of 8% per annum.

 

Reliance to support interest being payable from the liability trial should be placed on CPR 44.3 (6) (g) and interest should therefore be payable provided that the Judge is satisfied that to do so fits with the justice of the case.

 

A Judge is at liberty to rule that a receiving party may only recover interest on his costs if he has had to pay his own legal costs up-front i.e where a receiving party has been deprived of money which otherwise he could have retained and on which interest could have accrued. He is at liberty to make such a rule because of the discretion afforded within the legislation.

 

The Court is faced with a difficult task if they are asked to adjudicate on split-rial interest. Is it just for the receiving party receive a windfall of 8% per annum interest when (at the time of writing this) interest which would only have been earned at an all time low rate ? Are variables such as fluctuating interest rates even a consideration or is the interest something that a receiving party should receive as a matter of right ? If provision of interest is a compensatory concept, in a CFA funded matter where a receiving party has not paid any costs up-front, what is he being compensated for ?

 

Unfortunately this conclusion is inconclusive. Only a small number of cases have addressed the issue and these cases offer little guidance in respect of current day cases in which cases are effectively subsidised by the conducting solicitors until conclusion.