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What is your entitlement to interest?

  • United Kingdom
  • Financial services disputes and investigations
  • Litigation and dispute management

02-04-2020

Louise Hoyle considers the Court’s current approach to interest on costs and how parties can maximise and mitigate interest payments.

At a time when interest rates continue to be low, receiving interest on unpaid legal costs at 8%, the rate set down in section 17 of the Judgments Act 1838 (the “Act”), is both: very attractive for a receiving party; and something a paying party will want to avoid. However, does this rate of interest still run automatically from the date that the costs order is made, or some other date?

Historically the court could not award interest on costs for any period before the date of judgment.In Thomas v Bunn [1991] 1 AC 362, 380, the House of Lords held that, where a defendant is ordered to pay ‘damages to be assessed’, interest on the damages under the act ran from the date of the judgment or order assessing the damages payable, and not from the date of the order establishing liability. Prior to that date of course, contractual interest can still apply.

However, two years earlier, when considering interest on legal costs in Hunt v RM Douglas (Roofing) Ltd [1990] 1 AC 398, the opposite approach was taken and interest was awarded from the date of the order establishing a liability to pay costs, not from the date that the costs are ultimately assessed. Lord Ackner gave the lead judgment in both cases and said in Thomas that treating such a costs order as a judgment debt for the purpose of the Act was “an anomaly”, but justified on the balance of justice. In return for not being able to recoup interest on any historical spend on legal costs, receiving parties were provided with the bonus, or balance, of an enhanced rate of interest between the order for costs and ultimate assessment.

It is also worth mentioning at this point that the procedure for assessing costs at this time, “taxation”, was a very different process to the current “detailed assessment” route. Often, the first notice that a paying party would receive of the amount of costs due was when they received a copy of the bill from the court with a date for the taxation hearing. Hearings were often conducted without points of dispute or replies, both of which were optional, and the court fee was 5% of the bill as lodged, and payable by the paying party. Pre taxation negotiations did take place but were not the norm and rarely if ever before a bill was lodged for taxation. As such, by the time you received the bill, interest could be considerable.

The powers of the court in relation to interest on costs changed with the implementation of the CPR[1] under which, judges were given the power to award interest from any point in time, including prior to judgment. Interest prior to date of judgment should be at a commercial rate from the dates when the costs were incurred, and from the date of the costs order, interest becomes payable under the act. As such, the balance potentially shifts unfairly in the receiving party’s favour receiving compensatory interest to the point of the costs order, and then interest at a penal rate thereafter.

This issue was considered by Leggatt in Involnert Management Inc v Aprilgrange Limited & Ors [2015] EWHC 2834:

“This power is now routinely exercised when an order for costs is made following a trial to award interest at a commercial rate from the dates when the costs were incurred until the date when interest becomes payable under the Judgments Act…..Now that such orders can be made, it is hard to see that the balance of justice still favours continuing – anomalously – to treat an order for payment of costs to be assessed as a judgment for the purpose of section 17 of the Judgments Act 1838…….however, the decision in Hunt remains binding authority.”

The claimant had asked the court to exercise its power under CPR 40.8 to order interest under the act be delayed for a six month period after the costs order. The defendants said that it should run from the date that judgment was given – meaning, in light of Hunt, the date when the order for costs was made. Leggatt J went on to conclude:

“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…..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……..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.”

So the position is that whilst a receiving party can be awarded interest from the point of payment of invoices at the commercial rate, usually 1% or 2% above base rate, it is then open to be argued that it is the lower rate which should apply through to service of the bill of costs. Surprisingly this point is not often taken by a paying party.

Of course, should the receiving party begin detailed assessment proceedings later than three months after the date of the order for costs, then the court can disallow the interest for that period of delay[2].

Given that interest may not be payable under the Act, and therefore at 8%, until service of the bill of costs, it is therefore clearly in the receiving party’s interest to obtain a payment on account at the conclusion of the matter.

What is clear is that even though the provisions and powers of the court in relation to interest on costs were revised some 21 years ago, parties, paying and receiving, have been slow to recognise and take advantage of the changes.

Suffice to say once the order has been made, it is too late to seek our advice. If you are about to attend a final hearing or handing down of a judgment, please speak to a member of the costs team prior to the hearing, and we can help you maximise (or minimise) your client’s interest liability.


[1] CPR 44.2(6)(g)

[2] CPR 47.8(3)