Interest on Costs

It was accepted for many years (following Hunt v R M Douglas Roofing Ltd [1990] 1 AC 398 HL) that interest on costs ran from the date of the judgment at which the order for costs was granted (the incipitur rule), as opposed to the date when the costs are actually assessed (the allocatur rule.)

The decision of HHJ Stewart QC in Gray v Toner, Liverpool County Court, 11/11/10 challenged this position. It was held that s. 17 of the Judgments Act 1838 (as amended) and CPR gave discretion concerning the date from which interest should run. Because, in many CFA-funded cases, it is the position that costs are not paid by the client to his or her legal team prior to assessment,   HHJ Stewart QC concluded that it would be an appropriate use of the Court’s discretion in such cases to order that interest on costs should run from the date of assessment.

The decision in Gray did not go to appeal. It was, however, considered by Senior Costs Judge Hurst in Motto & Ors v Trafigura [2011] EWHC 90206 (Costs) who concluded 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

Interest was ordered to run from the date when an interim or final costs certificate was issued by the court.

The decision on interest in Motto was due to be considered by the Court of Appeal, however, the parties managed to reach agreement shortly before the appeal. Fortunately, the (at the time) lesser-known case of Simcoe v Jacuzzi (UK) Group Plc [2012] EWCA Civ 137 had been joined to Motto and the parties in Simcoe were unable to reach a compromise.

Simcoe concerned a CFA-funded personal injury case in which the District Judge at the first instance hearing adopted the reasoning in Gray v Toner and held that:

interest on costs runs from the date of assessment of those costs

In Simcoe it was argued by the receiving party that CPR 40.8(1) was ultra vires. This argument was based on the fact that the Rule had been made without the concurrence of the Treasury, as required by s.74(1) of the County Courts Act 1984. As a result, the County Courts (Interest on Judgment Debts) Order 1991 – which stipulated that interest was to be paid from the date of judgement – remained effective and the Court did not have discretion to depart from this position.

The Court of Appeal agreed with the receiving party’s submissions, holding that:

The final, and to my mind most difficult, issue on this first point is whether the absence of the Treasury’s concurrence in the making of CPR 40.8(1) renders it ineffective in the County Court, at least so far as interest on sums after judgment is concerned. As a matter of principle, it seems to me that, if Parliament has stated in a statute that regulations made under that statute have to be made by one Government department with the concurrence of a second Government department, any regulations made by the one department, without the concurrence of the other would be ultra vires. That is simply because such regulations will have been made in such a way as fails to comply, in a significant and fundamental way, with how Parliament has stipulated they should be made. If, for instance, the first department had issued regulations after the second department had been consulted and had refused to agree them, it would seem quite wrong for the court to flout Parliament’s intention, plainly expressed on the face of the empowering statute, by giving effect to such regulations …  I am nonetheless of the view that we should hold that CPR 40.8 is of no effect in the County Court, owing to the absence of any concurrence by the Treasury.

Interest was therefore awarded from the date of the judgement in the substantive matter.

The paying party sought permission to appeal to the Supreme Court. On 13 June 2012 the application for permission to appeal was refused as:

the application does not raise an arguable point of law of general public importance which ought to be considered by the Supreme Court at this time, bearing in mind that the case has already been the subject of judicial decision and reviewed on appeal; this is a point of practice and procedure more suitable for consideration at Court of Appeal level.

As such, the decision in Simcoe remains the binding authority in CFA-funded cases in the County Court.

It is very important to note that the ratio in Simcoe was that CPR 40.8(1) was ultra vires only insofar as it applied to the County Court. It is arguable that the question of whether interest will be recoverable from the date of the authority for assessment or any other date in High Court matters is, presently, untested by a superior Court. However, the Master of the Rolls made the following obiter comments rejecting the reasoning in Gray which are likely to be extremely persuasive should the issue ever come to be tried:

It would be wrong not to refer again, albeit briefly, to Gray v Toner (11 November 2010), the case on which the District Judge relied in this case. In that case, Judge Stewart gave an impressively thorough ex tempore judgment in which he came to a different conclusion. It is apparent that a significant number of the points which have persuaded me that the incipitur rule still applies were not raised before him. I mean no disrespect to his reasoning in saying that I do not think it would be useful if I were to analyse his reasoning in detail: it is sufficient to say that, for the reasons given in thisjudgment, I have reached a different conclusion.