The outcome was that interest on costs runs from the date of judgement in all cases whether they be funded under a CFA or otherwise, to include third party funding.
The issue on the appeal concerned the date from which interest should run on an award of costs in favour of a successful claimant, whose legal representatives were retained under a conditional fee agreement (a ‘CFA’), in a personal injury claim brought in the County Court. The background was that the claimant, Mr Simcoe, was employed by the defendant, Bradford Jacuzzi UK, for the purpose of assembling shower cubicles. By 2005, he was suffering pain as a result of the repetitive nature of the work involved. In that connection, he instructed Irwin Mitchell Solicitors LLP to act for him in proceedings for damages against the defendant. Irwin Mitchell agreed to act under a conditional fee (often known as ‘no win no fee’) basis, and in due course the claimant entered into a conditional fee agreement (a ‘CFA’) on 5 October 2007. Following an agreement being reached between the parties regarding costs, District Judge Hill was requested to rule whether interest should run on those costs from the date of the settlement of the damages claim or the date of settlement of the claim for costs. District Judge Hill summarily found that the case of Gray v Toner should apply, and he ruled that the interest should run from the latter date based on the Allocatur Rule.
An appeal was taken and due to its importance, was transferred to the Court of Appeal. On Appeal various points were taken and the The Master of The Rolls found in favour of the Claimant and ruled that the interest runs on costs from the date of judgement – the incipitur rule applies and issued a note of warning to all with regards to continued satellite litigation over costs “which would do the legal system no credit”.
In F&C Alternative Investments (Holdings) Ltd v Francois Barthelemy & Anthony Culligan, parties to a complex litigation had been compelled to take out loans at a high rate of interest to pay for their legal costs, and where their opponent had acted in such a way as to attract an order for costs on the indemnity basis, it was appropriate that they should be paid interest on costs at the actual rate that they had been forced to incur.
Will this have any future role in cases where third party funders are involved? Will be a something to keep an eye in future.
As the tension mounts over whether or not interest will be allowed on costs from the date of judgement or not and with reference to the forthcoming appeal in Motto v Trafigura, a quick look at the poll results suggests the majority of respondents think that interest SHOULD be payable on costs from the date of judgement or order. Another option would be to only allow interest on paid costs from the date of judgement. Those who think interest should not be paid were in the minority.
So lets briefly discuss why interest should be paid:
As a matter of public policy
To encourage swift settlement
To discourage paying parties from delay without penalty.
Particularly on large claims for costs, it is our experience that payment of interest focuses the mind of the sensible paying party more swiftly. Who in their right mind would want a bill escalating at a significant rate? As such, most clients faced with this situation focus not only on an appropriate payment on account to minimise interest, but then ultimately go on to think about settlement generally. With regards to delay, is it fair for the paying party to sit on their nest egg collecting interest whilst the receiving party goes without? As for the public policy argument, years of case law have been established stating that interest should be paid and hence for continuity and sake of certainty, should interest not remain payable, as it is certain that the paying parties next target would be legally aided clients and private paying parties who have only paid nominal amounts on account of costs. This would surely result in a further waive of satellite litigation positively discouraged by the courts.
Option Two is to disallow interest until a final costs certificate has been obtained. If the paying party has been made aware of their liability to pay costs and providing there has been no delay on the part of the receiving party, why should the Defendant be allowed to sit on their nest egg save. The argument gained favour because public authorities like the NHS were paying out small fortunes on account of interest, and so there was a public policy argument to disallow interest, but surely if they were properly represented by experienced costs lawyers, then the interest issue would not have arisen to the extent that it did? Reference is made to points made in favour of paying interest above.
Option Three has merits in our opinion – only pay interest where the client has paid money. The downside is I can foresee this giving rise to satellite litigation over who paid what and how. Reference is also made to F&C Alternative Investments (Holding) Ltd v Francois Barthelemy & Others where interest was to be paid out at a higher rate due to the commercial rates that the receiving parties had been forced to pay.
If you wish to be safe, why not let our experts at Carlisle Legal Costing assess your retainers and ensure that they are as watertight as possible.
In the New Year, the court is set to hear the appeal from Motto v Trafigura as to whether interest should be allowed on costs from the date of judgement or from a later date in cases funded by way of CFAs.
In quick summary of the cases to date, the issue was raised in Gray v Toner where it was adjudged that interest was not recoverable on costs until a final costs certificate has been issued.
In Motto v Trafigura, it was adjudged that the court should use its discretion and apply interest from the date of the costs certificate rather than from the date of the judgement. This is the subject of appeal in January 2012.
However, Master Leonard has now thrown his hat into the legal ring with the case of Kurian v Falzon and ordered that interest should be payable on costs from the date of Judgement.
Which way will the Law Lords go in January? There is significant public policy arguments in favour of both possible outcomes. Probably the worst outcome will be a case specific outcome whereby further satellite litigation will be generated.