Kerry Underwood

INTEREST ON COSTS IS 8% FROM DATE OF ORIGINAL ORDER

with 4 comments


The matters dealt with in this piece are examined in great detail in my three volume, 1,300 page book Personal Injury Small Claims, Portals and Fixed Costs – price £50 and available from Underwoods Solicitors here.

These principles, and the whole issue of Qualified One-Way Costs Shifting, is dealt with in my book – Qualified One-Way Costs Shifting, Section 57 and Set-Off – Available from me here for £15.

Kerry Underwood offers consultancy services in relation to this and other matters and details are here.

In

Marbrow v Sharpes Garden Services Ltd [2020] EWHC B26 (Costs) 

the Senior Courts Costs Office considered a number of matters arising out of a detailed assessment of costs in a personal injury case, and here I just deal with the issue of the date from when interest runs on costs.

Here the court held that interest should normally run from the date of the original order for costs and at the judgment rate of 8%.

This may seem obvious, but in fact it involved the court disagreeing with the decision of the High Court in

Involnert Management Inc v Aprilgrange Limited & Ors [2015] EWHC 2834 (Comm)

where the court said:

“it seems to me that a reasonable objective benchmark to take is the period prescribed by the rules of court for commencing detailed assessment proceedings. Pursuant to CPR 47.7, where an order is made for payment of costs which are to be the subject of a detailed assessment if not agreed, the time by which detailed assessment proceedings must be commenced (unless otherwise agreed or ordered) is three months after the date of the costs order. In order to commence such proceedings, the receiving party must serve on the paying party a bill of costs giving particulars of the costs claimed. It is then for the paying party to decide which items in the bill of costs it wishes to dispute. Postponing the date from which Judgments Act interest begins to run by three months will therefore generally serve to ensure that the party liable for costs has received the information needed to make a realistic assessment of the amount of its liability before it begins to incur interest at the rate applicable to judgment debts for failing to pay that amount.”

Strictly the court here distinguished that decision on the basis that it was a commercial case in which the court had ordered the payment of interest at 2% over base rate from when the costs were incurred, that is pre-judgment interest, until the date three months after the date of the costs order was made.

Nevertheless, it is clear that the judgment in Involnert was wrong, and so obviously wrong that it need no longer be followed, as it failed properly to take into account a Court of Appeal decision to the contrary, and failed properly to implement an Act of Parliament.

As the court here pointed out the entitlement to interest on costs is automatic under section 17 of the Judgments Act 1838 which provides:

(1) Every judgment debt shall carry interest at the rate of 8 pounds per centum per annum from such time as shall be prescribed by rules of court . . . until the same shall be satisfied, and such interest may be levied under a writ of execution on such judgment.

(2) Rules of court may provide for the court to disallow all or part of any interest otherwise payable under subsection (1).

Rule 40.8 of the Civil Procedure Rules 1998 provides:

(1) Where interest is payable on a judgment pursuant to section 17 of the Judgments Act 1838 or section 74 of the County Courts Act 1984, the interest shall begin to run from the date that judgment is given unless –

(a) a rule in another Part or a practice direction makes different provision; or

(b) the court orders otherwise.

(2) The court may order that interest shall begin to run from a date before the date that judgment is given.

Rule 44.2 provides (in part):

(6) The orders which the court may make under this rule include an order that a party must pay –

….

(g) interest on costs from or until a certain date, including a date before judgment.

Consequently interest is payable on costs at 8% from the date of judgment without the need for an order to that effect, unless the court makes a different order under either CPR 40.8 or CPR 44.2(6)(g) – see Hunt v R.M.Douglas (Roofing) Ltd [1990] 1 AC 398.

The court here quoted from the case of

Simcoe v Jacuzzi UK Group Plc [2012] EWCA Civ 137

which is a Court of Appeal case which pre-dated the Involnert case and the High Court there appears not properly to have considered the judgment in Simcoe.

In Simcoe the Court of Appeal said:

“47. We were referred to Fattal v Walbrook Trustees (Jersey) Ltd [2009] EWHC 1674 (Ch)[2009] 4 Costs LR 591, paras 25-30, in which Christopher Clarke J held, in summary terms, that the effect of CPR 40.8 was that (a) the general rule is that interest on costs runs from the incipitur date, (b) a departure from that general rule is justified if it is ‘what justice requires’; (c) the notion that a departure can only be justified in ‘exceptional’ cases is an unhelpful guide; (d) the primary purpose of an award of interest is ‘to compensate the recipient for [having] been precluded from obtaining a return on [his] money’; (e) ‘[s]ince the payment of solicitors’ costs involves the payment of money which could otherwise have been profitably employed, the overwhelming likelihood is that justice requires some recompense in the form of interest’.

48. I agree with all those observations, but would add two precautionary comments on his observations. First, I would discourage too detailed an approach into the facts of the particular case in hand for the purpose of determining the date from which interest should run. As Lord Ackner’s speech in Hunt [1990] 1 AC 398 implies, when making such a determination, the court should take a broad view of the position. Prolonged argument, let alone detailed evidence, on the issue must be avoided. There will often be no perfect date, and the decision inevitably will, indeed should, be broad brush. Further, if interest was to run from different dates on different components of the costs, it would, in many cases, lead to arguments which would do the legal system no credit. The second observation is that I would not necessarily agree with the suggestion, at [2009] 4 Costs LR 591, para 30, that it may be inappropriate to award interest on costs where the case is being funded by a third party entirely voluntarily or otherwise free of any cost. I would have thought that, following the logic of reason (v) in para 11 above (and see para 46 above), if interest on costs is payable from the incipitur date, the party to whom it is paid may have to account for it to the third party, and, if that is correct, there would seem to me to be a powerful argument for saying that the third party should get interest on costs in the normal way.”

 

This very helpful decision should put this issue to bed. Interest on costs runs at 8% from the date of the original order for costs and Involnert was wrongly decided.

Written by kerryunderwood

July 16, 2020 at 1:00 pm

Posted in Uncategorized

4 Responses

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  1. It probably should run from judgement date, but with some adjustment to reflect the fact that the paying party is disadvantaged by having to wait until the detailed assessment and will therefore incur more interest in the interim.

    The real problem is that the 8% figure is far too high.

    Anonymous

    July 19, 2020 at 11:55 pm

    • Interesting and timely comment, as just four days after this judgment the High Court came to a completely different conclusion in the case of Sharp & Ors v Blank & Ors [2020] EWHC 1870 (Ch) which I wrote up in my blog earlier this week – Pre-Judgment Interest Awarded; Interest On Costs From Four Months After Order; Third Party Funder Jointly And Severally Liable For Costs.

      In the Sharp v Blank case the Chancery Division took exactly your point and ordered interest to run from 4 months after the order, although also awarded pre-judgment interest.

      As to the rate of 8%, I think that that is fair enough on a judgment debt as a punishment on the debtor for not paying and for not complying with the court order, but of course the position is very different in relation to costs due to the long delay between the order and the quantification of those costs by way of detailed assessment.

      Having said that, the paying party can always stop interest running by making a payment on account, and so the delay in detailed assessment does benefit the paying party in that they can hold on to their money.

      Personally I would bring in fixed recoverable costs for everything, which would avoid the problem.

      Kerry

      kerryunderwood

      July 23, 2020 at 11:20 am

      • Yes, the rules on when interest is payable seem to lack consistency sometimes.

        Is the interest on judgement debt intended to be punitive? I thought it was intended to be compensatory other than where enhanced interest applies. I agree that a paying party will benefit to an extent by holding the money (assuming that they have it) but the benefit will most likely be less than 8%.

        Totally agree on fixed recoverable costs, although presumably some element of interest would need to apply to delayed payments.

        Anonymous

        July 23, 2020 at 6:31 pm

      • I do not think interest on a judgment debt was originally intended to be punitive, but at 8% it clearly is given current interest rates, and it has been a policy decision not to cut that rate.

        Interestingly, where the courts award pre-judgment interest on costs, it is normally at a significantly lower rate, as that rate does indeed reflect the current commercial interest rate.

        You are right about there needing to be interest on any delayed payment of fixed recoverable costs, and given that they are fixed, and therefore entirely predictable, the issues that arise on detailed assessment, and the inherent delays, do not arise, and therefore I see no unfairness in having the same rate as for a judgment debt, although it is indeed arguable as to whether that should now be as high as 8%.

        Kerry

        kerryunderwood

        July 24, 2020 at 12:14 pm


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