A matter of interest

Kerry Underwood analyses conflicting costs rulings on interest

Costs are always in the discretion of the court; and interest on those costs is an extra layer of discretion. In three decisions this summer, the High Court has come to different conclusions as to how that discretion should be exercised.

In Marbrow v Sharpes Garden Services Ltd [2020] EWHC B26 (Costs), the Senior Courts Costs Office held that the losing defendant in a personal injury case should not be liable for interest on a disbursement funding loan taken out by the claimant.

The agreed rate of interest was 5 per cent and the total interest was £2,484.48, which the claimant sought as an item of costs; and alternatively, by way of allowing interest to run from an earlier period – that is to award pre-judgment interest.

The court disallowed both bases of the claim, setting out the different case law and considerations on the two alternative methods of seeking to recover the cost of disbursement funding.

As a costs item

The court said there was no discretion to allow disbursement funding interest as a costs item, as compared with pre-judgment interest. In Hunt v RM Douglas (Roofing) Ltd [1987] 11 WLUK 221, the Court of Appeal held that funding costs had never been included in the categories of expense recoverable as costs, and to include them would constitute an unwarranted extension.

In F & C Alternative Investments (Holdings) Ltd & Ors v Barthelemy & Anor [2012] EWCA Civ 843, the court approved the submission that “costs of funding litigation by way of bridging loans are not ordinarily recoverable in themselves as costs of litigation”.

The decision in Secretary of State for the Department of Energy and Climate Change & Anor v Jones & Ors [2014] EWCA Civ 363 concerned the rate of interest that could be allowed in costs from a date earlier than judgment rather than claiming it as a separate capital item of costs.

Thus, the fact the court upheld the lower court’s decision to allow interest on pre-judgment disbursements at 4 per cent above base rate, rather than at any lower rate, did not affect the principle that interest of itself cannot be claimed as an item of costs.

Pre-judgment interest

Nevertheless, rule 44.2(6)(g) of the Civil Procedure Rules (CPR) allows the court to order payment of interest on costs from a date before judgment.

Here, the court held that while it had that power, justice did not require a departure from the general rule that interest should only be paid from the date of the costs order. It also pointed out that the high rate of interest (8 per cent) under the Judgment Act 1838 “should go some way to compensating the claimant for the interest that he is liable to pay for funding the disbursement”.

On 14 July 2020 (four days after the Marbrow ruling), the chancery division of the High Court awarded pre-judgment interest on costs in the commercial case of Sharp and others v Blank and others [2020] EWHC 1870. It stated that CPR 44.2(6)(g) allows the court to order interest on costs from a date before judgment; and that it “is common ground that this jurisdiction will generally be exercised where a party has had to put up money to pay its solicitors and has therefore either lost the beneficial use of that money or has had to borrow it”.

Thus, two divisions of the High Court came to different conclusions – so no guidance can be taken from them, save that interest will never be allowed as a costs item in its own right.

Although these decisions are at odds, there is a clear trend that the courts will award pre-judgment interest in commercial cases; but not in ordinary civil litigation and personal injury litigation where the successful claimant is an individual who has had to take out a funding loan; or where the solicitor has funded the matter.

Kerry Underwood is seniorpartner at Underwoods Solicitors underwoods-solicitors.co.uk