It has been accepted for some years* that interest on costs runs from the date of the judgment at which the order for costs is granted, as opposed to the date when the costs are actually assessed.
The decision of HHJ Stewart QC in Gray v Toner (Liverpool County Court, 11/11/10) has challenged the position, essentially on the basis that Section 17 of the Judgments Act 1838, as amended, and the CPR now give discretion concerning the date from which interest should run and because in many cases it is now the position that costs are not paid by the client to his or her legal team prior to assessment (particularly those funded by way of a CFA). HHJ Stewart QC concluded that interest on costs should run from the date of assessment.
That the above decision goes against the accepted practice is demonstrated by the decision of the Court of Appeal given on 20 January 2011 in Crema v Cenkos (2011) EWCA Civ 10. This was a case funded by way of a CFA and Lord Justice Aikens in his judgment states
“In addition, Mr Crema will be entitled to interest on those costs at 5% above base rate. I have taken that figure because it is probably the rate at which Mr Crema would have borrowed money at that time, although I assume he has not had to pay money to finance the action as it is all subject to a CFA.”
The decision in Gray v Toner did not go to appeal, but the issue remains live and has been addressed recently by Senior Costs Judge Hurst in Motto v Trafigura (SCCO Ref: PTH 1002160 & 1002161) in which it was concluded:
“I find that the incipitur rule still applies…(but)…CPR rule 40.8 gives the court the power to make an order that interest shall begin to run from a date other than the date that the judgment is given……Any interest payable belongs to the Claimants. It is not appropriate to imply into the CFAs any term that the Claimants should account to Leigh Day for any interest recovered. Leigh Day therefore have no entitlement to recover interest on their own behalf, even though they may have effectively funded this litigation throughout”
In this case it was concluded that interest should run from the date when an interim or final costs certificate is issued by the court. Given that the incipitur rule has been endorsed, however, would the outcome have been different if the CFA included a clause to the effect that any interest on costs should be payable to the solicitors by their client?
This is an important point that is likely to go to a higher court for further guidance. In the meantime expect interest on costs to remain a contentious issue.
Whilst considering interest on costs it may be helpful to run through a few further issues by way of reminder:
- The rate of interest on judgment debts currently remains at 8%, which is a very favourable interest rate in the current financial climate. Do not forget to include interest when considering/making offers to settle costs. There may well be issue raised as to whether interest is payable at all prior to assessment, however, in particular where the case is funded by way of a CFA.
- Interest automatically applies to High Court judgments** and applies in the County Court*** unless the judgment is for a sum of less than £5,000. It should be noted, however, that the £5,000 limit is the aggregate of both the damages award and the costs award, so even where the costs alone are less than £5,000 interest may still be applicable to those costs -Twigg Farnell v Wildblood (1998) PNLR 211.
- There are occasions when an enhanced award of interest may be obtained, most commonly where the receiving party has made a Part 36 offer to settle which the paying party has ultimately failed to better. Bear in mind that with interest on judgment debts at 8%, an award of 5% above bank base would, at current rates, give 5.5% so would actually be less than the judgment debt rate!
*The Court of Appeal concluded in Hunt v R M Douglas Roofing (1990) that the incipitur rule (that costs should run from the date of judgment) should prevail over the allocatur rule (that costs should run from the date that they are assessed).
**Judgments Act 1838, section 17
*** Article 2(1) of the County Courts (Interest on Judgment Debts) Order 1991