Kerry Underwood

INTEREST ON COSTS PRE-JUDGMENT. INCREASED HOURLY RATE AND SUCCESS FEE WHERE SOLICITORS FUNDING DISBURSEMENTS.

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In Jones and Ors v Secretary Of State for Energy and Climate Change (2013) EWHC 1023 (QB)

the Queen’s Bench Division of the High Court allowed pre-judgment interest on disbursements where the disbursements had been paid by the claimants’ solicitors as the matter progressed, and where there was a credit agreement between the solicitors and the client.

The interest rate was 4% above base, payable only in the event of success, with the After-the-Event insurer paying the credit charge if unsuccessful.

The paying party conceded that in principle the claimants were entitled to pre-judgment interest on disbursements and here it was the rate of interest that was in dispute.

CPR 44.3(6)(g) allows a court to award interest on costs from or until a certain date, including a date before judgment, and the rate is in the discretion of the court.

This power was introduced by the Civil Procedure Rules and first exercised in

Bim Kemi AB v Blackburn Chemicals Limited [2003] EWCA Civ 889,

where the Court of Appeal said:

“…in principle there seems no reason why the court should not [award interest on costs] where a party has to put up money paying its solicitors and has been out of the use of that money in the meanwhile.”

The judgment here then considers various cases where the rate of interest had been considered, including

Jaura v Ahmed [2002] EWCA Civ 210

which deals with the issue in detail.

In Tate and Lyle Food and Distribution Limited v Greater London Council [1982] 1 WLR 149

the High Court said that it would always be right to look at the rate “at which plaintiffs [claimants] with the general attributes of the actual plaintiff in the case… could borrow money as a guide to the appropriate interest rate.”

Examples of rates allowed include:

Jaura v Ahmed:                                                         3% above base rate

Bim Kemi:                                                                    1% above base rate

Brown v KMR Services:                                           2% above base rate

Denney v Gooda Walker:                                      2% above base rate

Here, given that the claimants were individuals of modest means, the Court of Appeal found that in the open market the interest rate on an unsecured loan “would have been significantly in excess of the 4% above base rate” agreed with the solicitors, and thus allowed that sum.

The case is also of interest in that it takes as a given that the solicitors could have charged a higher hourly rate, and/or a higher success fee to reflect the fact that they were funding disbursements:

In some cases, the claimant’s solicitors might fund the disbursements, either by absorbing the cost as part of their overheads or by providing the funding in return for the payment on increased hourly rates of remuneration or an additional uplift in the success fee under a CFA.” (Paragraph 5)

The Court of Appeal regarded this as a separate and additional risk, beyond that of postponement of receipt of costs, warranting a higher hourly rate and/or success fee.

Given the fact that it is much harder for a client to challenge the hourly rate as compared with the success fee, claimants’ solicitors are advised to reflect funding in the hourly rate.

Also, a success fee is now never recoverable from a losing party, whereas the solicitor and client full rate potentially is, where an indemnity cost order is made, for example because a claimant has matched or beaten its own Part 36 offer at trial, or on judgment being entered.

RECOVERING INTEREST ON THIRD PARTY FUNDER LOANS

In Angela Jade Powell v Shrewsbury and Telford Hospital NHS Trust, 1 April 2016, Case Number O5Y02236

the claimant, a person of limited means, used disbursement funding and sought to recover the interest payments from the losing party.

Here, the paying party conceded that in principle the claimant could recover interest, but disputed the right to claim pre-judgment interest on three grounds:

 

  • the credit agreement was unenforceable as the claimant had not been properly advised;

 

  • the court did not have jurisdiction to re-open the Consent Order and thus changed what had been agreed;

 

  • 3% was an excessive rate of interest.

 

In the end, the defendant conceded on all points and paid £1,600 in interest.

The case that established this principle is

Jones and Ors v The Secretary of State for Energy and Climate Change and Anor [2013] EWHC 1023 (QB).

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Written by kerryunderwood

August 14, 2018 at 8:10 am

Posted in Uncategorized

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