Kelly Barry v Essex County Council

A claimant succeeds in a claim for damages at Trial and beats her own Part 36 offer. The Trial Judge awards the claimant her costs on the indemnity basis after expiry of that offer and interest on those costs at the rate of x% per annum. How is the interest to be calculated? Is it calculated by applying x% per annum to the aggregate of all costs incurred by the Claimant after expiry of the offer, as the Claimant would have it (which I refer to herein as the “Aggregate Costs method”)? Or is the appropriate amount of interest calculated on each individual item of costs incurred after expiry of the offer, based on when that individual item of costs was incurred, as the Defendant contends (which I refer to herein as the “Individual Item method”)? That is the single issue that I have to determine on this application.

The background to this application can be stated relatively briefly. The Claimant claimed damages against the Defendant for personal injuries that she sustained in a highways tripping accident on 18^th March 2018. Liability was denied. On 7^th October 2019, the Claimant made a Part 36 offer to settle the issue of liability on a 70:30 basis in the Claimant’s favour. This offer was rejected. The date of expiry of the offer was 28^th October 2019.

The matter proceeded to Trial on 5^th and 6^th July 2023 before DJ Mills (as he then was). Quantum was partly agreed at £27,031, subject to liability. The judge found in favour of the Claimant on liability and made no deduction for contributory negligence, that is to say, the Claimant recovered damages on a 100% basis. Judgment was thus entered in favour of the Claimant in the sum of £27,031.

The judge awarded the Claimant an additional 10% of the damages awarded (pursuant to CPR 36.17(4)(d) (calculated to be £2,703.10) and additional interest on those damages at the rate of 9% per annum from 28^th October 2019 (the date of expiry of the offer) to the first day of Trial (calculated to be £8,971.33).

With regard to costs, the judge made the following order:-

“4.

Pursuant to Part 36.17(4)(b) the Defendant do pay the Claimant’s costs up to the 28^th October 2019 on the standard basis and costs from the 28^th October 2019 on the indemnity basis to be subject to detailed assessment unless agreed.

5.

Pursuant to Part 36.17(4)(c) the Defendant do also pay additional interest on those costs to be paid to the Claimant from 28^th October 2019 at the rate of 9% per annum.”

It is the meaning of Paragraph 5 of that order which remains in issue between the parties. It will be noted that the time between expiry of the offer (28^th October 2019) and the date that DJ Mills’ Order was made (6^th July 2023) is some 3 years, 8 months, a significant and unusually lengthy period.

A Bill of Costs was served on the Defendant totalling £91,173.92 on 12^th September 2023. This separated costs into the pre- and post-expiry periods. After some negotiations, overall costs were agreed at £75,000, excluding interest and the costs of assessment.

With regard to the costs of assessment, the parties remained opposed in how to calculate interest on post-expiry costs. The Claimant issued her application on 25^th April 2025 requesting the Court to resolve this issue. The application was supported by the Witness Statement of Mr Anthony Neild, Costs Lawyer at the Claimant’s solicitors. This Witness Statement set out the parties’ competing positions, albeit it records the Defendant’s position as being that interest on costs should run from the date that DJ Mills’ Order was made (as I go on to record below, this is not the Defendant’s position).

The matter came before me on 6^th November 2025. It had been given a time estimate of 3 hours. The parties had provided a bundle containing the Application Notice, relevant Court Orders, each party’s skeleton argument and some eight authorities. The Claimant was represented by Mr Meehan, Counsel, and the Defendant by Mr Roderick, Counsel.

I am grateful to both Counsel and to the solicitors instructing them for the work that was undertaken in providing me with the application bundle, skeleton arguments and succinct, helpful submissions. The oral submissions were lengthy (but not inappropriately so) and nuanced. I hope that I can do justice to each Counsel’s submissions by summarising them briefly as follows.

Mr Meehan, for the Claimant, had two arguments in support of his client’s position. The first was that, based on the natural, ordinary meaning of the words used by DJ Mills, the only reasonable way that Paragraph 5 of his order could be construed would be that it employed the Aggregate Costs method. His second argument, which was expressed in the alternative, was that if the interpretation of DJ Mills’ order remained at large, employing the Aggregate Costs method would be consistent with case law, the policy behind CPR Part 36 and the practical reality of calculating interest on costs after expiry of a Part 36 Offer.

This latter argument was more detailed. Mr Meehan submitted that the case of McPhilemy v Times Newspapers Ltd [2001] EWCA Civ 933 (“McPhilemy”) (where the Court of Appeal ordered interest on post-expiry costs from the date upon which the work was done or liability for a disbursement was incurred, and on which the Defendant relied) was not binding on me. In support of that proposition, Mr Meehan relied on the interpretation of McPhilemy in another Court of Appeal case, OMV Petrom SA v Glencore International AG [2017] EWCA Civ 195 (“Petrom”). Mr Meehan further prayed in aid the fact that it was now recognised that the policy behind Part 36 had moved beyond that rule being purely compensatory and that it was now recognised that the Part 36 “enhancements” had a “non-compensatory” or punitive element to them (which he described as being a “carrot and stick-type scheme”). In that sense, it mattered not that using the Aggregate Costs method in this case inevitably resulted in interest being award on, for example, Counsel’s brief fee from a period 3 years before it was actually incurred (in response to Mr Roderick’s argument to that effect) – that was just part and parcel of the rough justice brought about by the Part 36 consequences. Finally, Mr Meehan relied on the fact that the Individual Item method (as clarified by Mr Roderick) would be practically unworkable.

In response, Mr Roderick for the Defendant clarified that the Individual Item method required the appropriate amount of interest to be recalculated each time an item of costs was incurred post-expiry of the Part 36 Offer. He had prepared a spreadsheet demonstrating these calculations and recalculations. He contended that this method was consistent with McPhilemy, which he submitted was binding on me both in terms of the reasoning adopted and the order made by the Court of Appeal. In the absence of any authority supporting the Aggregate Costs method, he submitted that I was bound to apply the order made in McPhilemy (or to read DJ Mills’ order in this case in a way which was consistent with McPhilemy).

He submitted that the reasoning in McPhilemy which was binding on me (and which bound the Court of Appeal in Petrom) was that the power to award indemnity costs or a higher rate of interest was a means to achieve a fairer result for a claimant than might otherwise have been the case. While he accepted that Part 36 now imported a punitive element into its provisions (and accepted Mr Meehan’s characterisation of Part 36 as being a “carrot and stick” type scheme), he contended that the Aggregate Costs method sought by the Claimant went beyond this into absurdity, citing the example given above of interest on Counsel’s brief fee beginning to run some three years before the brief fee was actually incurred. He submitted that the tool used to introduce the element of penalty was the enhanced rate of interest, rather than the method of calculation. He reminded me that in BXB v Watchtower and Bible Tract Society of Pennsylvania [2020] EWHC 656 (QB) (BXB), which was cited with approval in Mate v Mate [2023] EWHC 806, it was held that the enhanced rate of interest fulfilled both private and public functions: the former to compensate a claimant for the loss of use of money and the inconvenience and distress involved in litigating; the latter to promote the public function of encouraging settlement. He submitted that there should be consistency with how interest is awarded on damages, how interest is awarded on costs generally and how interest is awarded on post-expiry costs under CPR Part 36. He submitted that the analogous position with damages would be to award interest to run from the date that the item of loss or expenditure (as the case may be) was incurred. That, he submitted, should equally apply to post-expiry costs under Part 36. Finally, he submitted that the Individual Item method was practical and straightforward to operate using a spreadsheet and electronic bills.

Given the complexity of the arguments deployed and the limited time that I had in my list, I decided to reserve judgment.

Currently, CPR r. 36.17(4) (which applies when a claimant obtains a judgment which is at as least advantageous to them as the proposals contained in their Part 36 offer) provides as follows:-

There is no (or no material) difference between these provisions and those in force when DJ Mills’ order was made or when the Claimant’s Part 36 Offer was made in October 2019.

The Court of Appeal’s decision in McPhilemy, was cited by both Counsel. Given the importance placed upon it by both Counsel, it is necessary to examine the decision in some detail.

The case related to the Claimant’s cross-appeal against the order of the trial judge declining to make an award under what was then CPR 36.21 (again, materially the same as the provisions now in force under CPR 36.17). The claimant in that case had successfully beaten his own Part 36 offer in a libel claim. The trial judge considered that it would be unjust to make such an order. With regard to enhanced interest on damages, he held that it would be unjust to award interest on damages awarded by the jury because traditionally, libel damages do not carry interest (see [6]). He also declined to award post-expiry indemnity costs and interest on those costs, taking into account what he felt were the unusual circumstances of the case and that an order for indemnity costs implied disapproval of the defendant’s conduct.

Chadwick LJ, giving the leading judgment, held that the question of whether or not it was unjust to make orders under CPR 36.21 was a question of discretion. He held (at [7]):-

“There is no doubt that the question whether or not it was unjust to make orders under paragraphs (2) and (3) of CPR 36.21 was a question for the judge to determine in the exercise of his discretion. In exercising that discretion he was obliged to take into account all the circumstances of the case; including, in particular, the specific matters referred to in paragraph (5) of the rule. If the judge took into account the matters which he ought to have taken into account, and left out of account matters which ought not to have taken into account, it would be wrong in principle for this Court to interfere with his decision. It could only do so if satisfied that the decision was so perverse that the judge must have fallen into error. This Court must respect the judge’s exercise of the discretion which has been entrusted to him. The Court must resist the temptation to substitute its own view for that of the judge unless satisfied that his discretion has been exercised on a basis which is wrong in law; or that the conclusion which he has reached is so plainly wrong that his exercise of the discretion entrusted to him must be regarded as flawed.”

Chadwick LJ examined the particular factors considered by the trial judge which led him to conclude that it would be unjust to order the punitive sanction of indemnity costs. He held (at [9]):-

“In my view the judge was wrong to take into account - as, plainly, he did - his belief that an order for the payment of costs on the indemnity basis made under CPR 36.21(3) implied disapproval by the court of a defendant’s conduct; carried some stigma; or could properly be regarded as punitive. It is, to my mind, clear from the structure and language of CPR 36.21 - and, in particular, from paragraph (4) of that rule - that an order for the payment of costs on an indemnity basis (from the latest date when the defendant could have accepted the offer without needing the permission of the court) is the order which the court can be expected to make in a case where a claimant who has made a Part 36 offer is, nevertheless, obliged to proceed to trial - because the defendant does not accept the offer - and then beats his own offer at trial. In those circumstances, it is only where the court considers that such an order would be unjust that it is permitted to refuse an order for the payment of costs on an indemnity basis. To make the order carries no implied disapproval of the defendant’s conduct; nor any stigma. Properly understood, the making of such an order in a case to which CPR 36.21 applies indicates only that the court, when addressing the task which it is set by that rule, has not considered it unjust to make the order for indemnity costs for which the rule provides.”

After considering the decision of Lord Woolf MR in Petrotrade Incorporated v Texaco Ltd (unreported, 23 May 2000) to the effect that an order for indemnity costs under CPR 36.21 should not be regarded as penal, Chadwick LJ went on to hold (at [11]):-

“It follows that this is a case in which the basis on which the judge exercised his discretion can now be seen to have been flawed. The judge thought, wrongly, that the order for indemnity costs which he was invited to make under CPR 36.21 was punitive in nature; and would be seen as indicating some measure of disapproval of the defendants’ conduct which he did not regard as merited and which he did not intend. Those considerations were unfounded and should have been left out of account. This, then, is a case in which this Court is entitled – indeed, bound – to set aside the view reached by the judge; and to form its own view on the question whether it would be unjust to make the orders for which paragraphs (2) and (3) of CPR 36.21 provide.”

Chadwick LJ next considered whether it was unjust to award additional interest on the damages awarded pursuant to CPR 36.21(2) (now CPR 36.17(4)(a)). His Lordship found persuasive the point that it would be unjust to award enhanced interest upon a damages award that would not itself have attracted interest. It was in that context that the following remarks were made (at [18]-[21]):-

“I find that final point persuasive. In order to explain why, it is necessary, I think, to return to an examination of the purposes for which the powers in paragraphs (2) and (3) of CPR 36.21 have been conferred.

It is plain, as Lord Woolf, Master of the Rolls, pointed out in the Petrotrade case, that paragraphs (2) and (3) of CPR 36.21 – in conjunction with paragraph (4) – are intended to provide an incentive to a claimant to make a Part 36 offer. The incentive is that a claimant who has made a Part 36 offer (which is not accepted) and who succeeds at trial in beating his own offer stands to receive more than he would have received if he had not made the offer. Conversely, a defendant who refuses a Part 36 offer made by a claimant and who fails to beat that offer at trial is at risk of being ordered to pay more than he would have been ordered to pay if the offer had not been made. But those incentives have to be set in the context that, as this Court emphasised in the Petrotrade case, CPR 36.21 is not to be regarded as producing penal consequences. The powers conferred by the rule – to order indemnity costs or a higher rate of interest – are intended to provide ‘a means of achieving a fairer result for a claimant’ (see paragraph 64 in Lord Woolf’s judgment, to which I have already referred). Exercise of the powers cannot achieve ‘a fairer result’ if it leads to the claimant receiving more than can properly be regarded as a full and complete recompense for having to resort to, to pursue and to endure the strain and anxiety of, legal proceedings. An exercise of the powers which led to the claimant receiving more than could properly be regarded as compensation, in that enlarged sense, would, necessarily in my view, be penal in nature. It could only be supported on the basis that there was a need to punish the defendant by requiring him to pay an amount which went beyond any amount needed to compensate the claimant. But, subject to the limitation that the powers are intended to be used in order to achieve a fairer result for the claimant and not to punish the defendant, it is plain that they are to be used in order to redress elements, otherwise inherent in the legal process, which can properly be regarded as unfair.

Two of those elements, which many would regard as obviously unfair, were identified by Lord Woolf, Master of the Rolls, in the Petrotrade case. First, an award of costs on the standard basis will, almost invariably, lead to the successful claimant recovering less than the costs which he has to pay to his solicitor.So, although he has been successful, he is out of pocket. Costs on an indemnity basis should avoid that element of unfairness.Second, neither costs on an indemnity basis nor interest awarded under section 35A of the Supreme Court Act 1981 will compensate the successful claimant for the inconvenience, anxiety and distress of proceedings or (where the claimant is a corporation) the disruption caused by the diversion of senior management from their normal duties. Interest at an enhanced rate – that is to say at a rate which is higher than the rate which would otherwise be ordered, under section 35A of the 1981 Act – may redress that element of unfairness. It is pertinent to note that paragraph (6) of CPR 36.21 expressly recognises that the court may make an order for the payment of interest under paragraph (2) notwithstanding that it also orders the payment of interest on the same sum and for the same period under some other power – of which the power under section 35A of the 1981 Act is an obvious example. Paragraph (6) imposes an overall limit of 10% above base rate.

I conclude, therefore, that the power to award interest under paragraph (2) of CPR 36.21 at an enhanced rate – that is to say, at a rate higher than the rate (if any) which would otherwise be chosen under section 35A of the 1981 Act – is conferred in order to enable the court, in a case to which CPR 36.21 applies, to redress the element of perceived unfairness, otherwise inherent in the legal process, which arises from the fact that damages, costs (even costs on an indemnity basis) and statutory interest will not compensate the successful claimant for the inconvenience, anxiety and distress of having to resort to and pursue proceedings which he had sought to avoid by an offer to settle on terms which (as events turned out) were less advantageous to him than the judgment which he achieved. But, if that is the purpose for which the power has been conferred, then it should not be used to award interest in a case where it must be assumed that the anxiety, inconvenience and distress of defamation proceedings have already been taken into account by the jury in reaching their award. To order the payment of interest on the amount of the award – in respect of any period prior to the date of the award – would be to risk introducing an element of double compensation. It would be to risk crossing the boundary which separates compensation from punishment.” (emphasis added)

I note that it is agreed by Counsel that the law has moved on since McPhilemy and now recognises that orders under CPR 36.17 do contain a punitive element. I also note that Chadwick LJ makes reference to indemnity costs under CPR 36.21 as providing some redress to a claimant who would otherwise recover less than the amount that they paid to their solicitor if those costs were assessed on a standard basis. That may be so in cases where a claimant pays a solicitor on account and the claimant has lost the use of that money. That analysis has less relevance in cases such as the present where a claimant instructs a solicitor using a conditional fee agreement and where the claimant has not lost the use of such monies.

Chadwick LJ then considered whether it was unjust to order indemnity costs post-expiry of the claimant’s offer. He considered that it was not unjust, holding (at [22]):-

“An order, under paragraph (3) of CPR 36.21, for the payment of costs on an indemnity basis does not give rise to a risk of double compensation. Thepurpose for which the power to order the payment of costs on an indemnity basis is conferred, as it seems to me, is to enable the court, in a case to which CPR 36.21 applies, to address the element of perceived unfairness which arises from the fact that an award of costs on the standard basis will, almost invariably, lead to the successful claimant recovering less than the costs which he has to pay to his solicitor. The jury, in reaching their award of damages, are not concerned with costs; and there is no reason to think that their award takes any account of the probable shortfall if costs are subsequently ordered on the standard basis. In my view, therefore, there is no injustice in making an order, under paragraph (3)(a) of CPR 36.21, that the claimant is entitled to his costs on the indemnity basis from the latest date when The Times could have accepted his Part 36 offer without needing the permission of the court. In the present case that date is 11 January 2000.” (emphasis added)

Next, Chadwick LJ turned to the question which is most relevant to the present application, namely the question of enhanced interest on costs. His Lordship considered that it was not unjust to award interest on costs. In so holding, he stated this (at [23]):-

“Nor do I see any injustice, in principle, in an order under paragraph (3)(b) of CPR 36.21 for the payment of interest on the costs which are the subject of the order which I would make under paragraph (3)(a). The purpose for which the power to order interest on costs under that paragraph is conferred is, I think, plain. It is to redress, in a case to which CPR 36.21 applies, the element of perceived unfairness which arises from the general rule that interest is not allowed on costs paid before judgment – see Hunt v R M Douglas (Roofing) Ltd [1990] 1 AC 398, 415F. So, in the ordinary case, the successful claimant who has made payments to his own solicitor on account of costs in advance of the trial will be out of pocket even if he obtains, at the trial, an order for costs on an indemnity basis. He will get interest on his costs from the date of the order (whether he has actually paid them or not); but he will get nothing to compensate him for the cost of money (or the loss of the use of money) which he has had to bear before trial in relation to payments which he has made on account of costs. An order under paragraph (3)(b) of CPR 36.21 enables the court to achieve a fairer result in that respect. But, having regard to the point which, as it seems to me, paragraph (3)(b) is intended to meet, I would order payment of interest at a rate which reflects (albeit generously) the cost of money – say, 4% over base rate; and I would direct that interest runs, on the costs to which the order applies, from the date upon which the work was done or liability for disbursements was incurred.”

Two observations can be made at this juncture:-

The Court of Appeal allowed the claimant’s cross appeal. Unusually, the Court of Appeal’s order is recorded in the version of the judgment that I have been provided with. This states that the Court of Appeal ordered that:-

“The appellants shall pay the respondent's costs below on the indemnity basis from 12 January 2000, to be assessed if not agreed. The appellants shall pay interest on those costs incurred by the respondent below before 30 March 2000 at a rate of 4 per cent above the base rate then pertaining (namely at a rate of 9.75 per cent) from the date upon which the work was done (or the liability for disbursements was incurred). The appellants shall pay the costs of the respondent's cross appeal, to be assessed on the standard basis if not agreed.”

In Petrom, the claimant sued the defendant in the tort of deceit for the defendant having sold blends of various crude oils which were misleadingly labelled and which were of a lesser worth than the standard types of oil in terms of their chemical properties and economic value. The claimant was successful at trial with the trial judge holding that the representations made by the defendant in various shipping and other documents were false and that the defendant knew that those representations were false. Judgment in the region of US$40m was entered in favour of the claimant, together with interest. The claimant had beaten its Part 36 offer. Accordingly, the trial judge ordered (amongst other things) interest on post-expiry costs at 4.5% per annum to judgment and at 8% per annum thereafter. The trial judge expressly had regard to the fact that, on his reading, McPhilemy held that the purpose of enhanced interest on damages and costs under Part 36 was compensatory and required the court to consider the cost of money (see [19]-[20]).

The claimant appealed on the basis that the trial judge should have awarded the maximum 10% per annum above base rate on the post-expiry costs under what was then CPR 36.14(3)(c) (the claimant also sought interest on the award of damages at 10% per annum under the then CPR 36.14(3)(a)). The claimant argued that the judge wrongly concluded that the purpose of interest on the award of damages was compensatory. In this case, because of the behaviour of the defendant, there was a clear case to award the maximum level of 10% above base rate.

Counsel for the claimant argued that there was a tension between the existing authorities which pre-dated the Jackson reforms which introduced the penal provision in the then CPR 36.14(3)(d) (the equivalent of which now appears at CPR 36.17(4)(d)). He invited the Court of Appeal to consider the matter afresh, given that the content and policy of the CPR had now moved on (such as in relation to costs sanctions for an unreasonable failure to mediate or the tougher approach to relief from sanctions). He also argued that the decision in McPhilemy was per incuriam given that it was based on a perceived rule that interest was not payable on costs incurred before judgment, whereas CPR 44.2(6)(g) had in fact been in force at the time of that decision.

In response, the defendant argued that the purpose of the Part 36 enhancements was indeed compensatory, as held in McPhilemy. The defendant argued that the provisions in Part 36 were not, generally, meant to be penal but were intended to achieve a fairer result for claimants, as previously held by the Court of Appeal. Whilst the penalty in the then CPR 36.14(3)(d) was penal, it was submitted that that was intended to be the only penal, non-compensatory provision.

Sir Geoffrey Vos C, giving the judgment of the Court, identified that there was a challenge to four orders made by the trial judge (namely enhanced interest on the award, indemnity costs, enhanced interest on the indemnity costs and an additional amount) and that each had to be considered separately. He first had to consider the extent to which McPhilemy was binding on the Court in relation to interest on the award. He held that it was not. He held (at [26]):-

“As regards the McPhilemycase, once again I do not think it is binding on us as regards the basis of awarding enhanced interest on the award. Mr Southern accepts that the court’s comments on this aspect were obiter, but submits that the decision as to interest on costs was ratio. The reasons are a little more complex than in relation to the Petrotradecase, because Chadwick LJ’s judgment is a little confused as between the distinct issues that affected (a) the award of enhanced interest, and (b) the award of indemnity costs…

He characterised Chadwick LJ’s judgment as follows (at [27]):-

“In these circumstances, whilst Chadwick LJ undoubtedly took the view that any order under CPR Part 36.21(2) and (3) was compensatory rather than penal, those views (which I have set out at length above) were obiter, anyway so far as concerned the circumstances in which an award of enhanced interest might be considered unjust. Nonetheless, of course, the views expressed by the Court of Appeal in the McPhilemy case are also entitled to the greatest respect.” (emphasis added)

However, the Chancellor went on to hold (at [28]):-

“As regards Chadwick LJ’s decision on enhanced interest on costs, that was indeed ratio, because it was the decision made on a cross-appeal. Nor do I think that the decision was per incuriam, even if Chadwick LJ’s reference to the reason for the introduction of the provision is a little hard to untangle. The power to award enhanced interest on costs under Part 36 may indeed have been further to redress the perceived unfairness arising from the Hunt v. R M Douglasdecision. The power to award interest on costs before judgment now in CPR Part 44.2(6)(g) was certainly not the same as the power in CPR Part 36.14(3)(c). All Chadwick LJ said, however, as to the exercise of the power to award interest on costs was that it enabled the court to achieve a fairer result in respect of payments of costs made on account, and should generously reflect the cost of money. On this aspect, Mr Matthews submits that one can see that the provision allowing interest on costs is obviously not compensatory so that the provision allowing enhanced interest on the award must not be either. I am not sure that much is gained from what he described as this ‘backwards’ approach.” (emphasis added)

I confess, with great respect, to finding this a little confusing. Although the Chancellor held that Chadwick LJ’s decision on enhanced interest on costs was “indeed ratio”, this does not sit easily with his decision in the previous paragraph that Chadwick LJ’s consideration of CPR 36.21(2) and (3) being compensatory was obiter, given that the then CPR 36.21(3) related to indemnity costs and “enhanced” interest on those costs. On my reading of his judgment, the Chancellor appears to interpret the extent of Chadwick LJ’s decision on enhanced interest on costs as being limited to enabling the court to achieve a fairer result in respect of payments on account of costs and reflecting the cost of money.

In any event, the Chancellor went on to hold that the four possible Part 36 orders were not intended to be compensatory, that the whole thrust of the CPR after the Jackson reforms was to use “both the carrot and the stick” and that the culture of litigation has changed even since the Woolf reforms (at [33]-[34], [38]-[39]).

Specifically, in relation to enhanced interest on costs, the Chancellor held (at [44]):-

“As I have said, I do think that we are bound by the McPhilemycase to decide that the assessment of the rate of interest on costs should be such as to achieve a fairer result for the claimant than would otherwise have been the case. That does not, however, indicate that some of the factors I have already mentioned may not be relevant. Moreover, once again I do not regard the award as purely compensatory. As I have also said, different factors may in practice apply to the enhanced interest under CPR Parts 36.14(3)(a) and (c). That is because account may need to be taken of how the costs, on which an enhanced rate of interest is claimed, were incurred. It could have been, for example, that despite the fact that it was unreasonable to refuse the Part 36 offer, the conduct of the litigation was itself reasonable, so that the costs on which enhanced interest was sought were not incurred in contesting bad points or dishonesty by the defendants. That is not this case – but in some cases, it would be a serious consideration.” (emphasis added)

The Court of Appeal awarded enhanced interest on both the award and on costs at the rate of 10% per annum above base rate.

Having considered McPhilemy and Petrom at length, the remaining cases cited by Counsel can be considered more briefly. I take these in chronological order.

In Andrews v Aylott [2010] 4 Costs LR 568, there was an issue as to what the meaning of an order for enhanced interest under CPR 36.14(3) (as it then was) on “33% of the damages ultimately determined to be payable” meant in a case where primarily liability for a road traffic accident claim was not in issue but where there was a dispute as to contributory negligence. Tugendhat J held that it would be wrong to make an award of interest (enhanced or otherwise) on future losses (at [37], [53]).

In Pankhurst v White [2011] 3 Costs LR 392, it was again reiterated that enhanced Part 36 interest could not be awarded on future losses, Jackson LJ citing McPhilemy and the refusal to award enhanced interest on libel damages in that respect (at [37])

In Simcoe v Jacuzzi UK Group plc [2012] EWCA Civ 137, the Court of Appeal was required to consider the date from which interest should run on an award of costs in favour of a successful claimant whose legal representatives were acting under a conditional fee agreement. The claim for damages was settled. Costs were also agreed at some point thereafter. The claimant contended that interest on costs was payable from the date of the settlement of damages (the incipitur date) whereas the defendant contended that it was payable from the date that costs were agreed (the allocatur date). In holding that the incipitur date applied, Lord Neuberger of Abbotsbury MR counselled against taking too detailed an approach into the facts of a particular case in determining the date from when interest applied. He held (at [48]):-

“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.” (emphasis added)

As previously stated, in Mate, Mr Andrew Sutciffe KC, sitting as a Deputy High Court Judge, cited with approval Chamberlain J’s decision in BXB, where, in relation to the purpose of the enhanced interest rate on damages and costs, the latter held:-

“This enhanced interest rate fulfils two functions: first the private function of compensating the claimant for the cost of money but also for the inconvenience, anxiety and distress involved in litigating (Petrograde v Texaco Ltd [2002] 1 WLR 947 (Note), [63]-[64] (Lord Woolf MR)); second, the public function of encouraging settlement so as to make better use of the court’s resources in the interests of other litigants (OMV Petrom SA v Glencore International AG [2017] 1 WLR 3465, [39] (Sir Geoffrey Vos C)).”

As I have already recorded, Mr Meehan for the Claimant puts the matter in two ways. I must first consider whether, as a matter of construction and using the ordinary meaning of the words used, DJ Mills’ order is capable of meaning that the Aggregate Costs method should be used.

I note Lord Neuberger’s discouragement in Simcoe of prolonged argument on questions of when interest should run from and that broad brush decisions should be accepted. Whilst Mr Roderick is technically correct to state that the only issue to be determined in Simcoe was the date from which interest began to run, I do not think that detracts from or undermines the correctness, good sense and general applicability of Lord Neuberger’s comments. A decision on enhanced interest on costs pursuant to CPR 36.17(4)(c) will inevitably be broad brush.

Against that guidance, standing back and looking at the words used by DJ Mills, it seems clear to me it must have been intended for interest to apply at the rate of 9% per annum on the entirety of the costs incurred after expiry of the Part 36 offer. In the usual way, the order specifies the date from which interest should be calculated at an annual rate of 9% and identifies the period of costs that such interest applies to. Not only does that accord with my own experience of how such orders are made and applied in practice, it is also faithful to Lord Neuberger’s dictum in Simcoe about the broad-brush nature of such orders. I am not persuaded that in making such an order, DJ Mills intended for there to be an item-by-item examination of when each item of costs was incurred for the purposes of calculating interest. Had that been the case, DJ Mills would likely have said so.

Mr Roderick argues that DJ Mills’ order should be read in a manner consistent with the outcome in McPhilemy as that is the only decision on this point. I go on to consider below the extent to which McPhilemy is binding but, aside from the point that that submission asserts what it seeks to demonstrate, I do not, in any event, consider that this point assists the Defendant. It could equally be said that, if it was intended that interest should only run on each item of post-expiry costs from the date on which it was incurred, that should have been stated expressly, just as occurred in McPhilemy. The fact that such express wording was used in McPhilemy may be said to imply that the Court of Appeal was making an order which was different from the usual (and conversely, the fact that such wording was not used by DJ Mills implies that that is not what he intended).

That is sufficient to dispose of the application. However, in case I am wrong about that, I consider Mr Meehan’s alternative argument that the Aggregate Costs method is consistent with authority and the policy behind CPR Part 36.

In that regard, I must first consider whether the two principal cases cited by Counsel, namely McPhilemy and Petrom are binding and if so, to what extent. Mr Roderick contended that, being a decision of the Court of Appeal, the reasoning and result in McPhilemy were binding on me. It was on this basis that he submitted that I was bound to apply the Individual Item method, such being the method that was ultimately used in McPhilemy (albeit the precise mechanics of the calculation contended for by Mr Roderick were slightly different).

In the course of argument, much time was devoted to the question of ascertaining what the ratio of McPhilemy was. It is trite to say that the ratio decidendi of a case is the reason(s) for the Court’s decision. This requires the reader examining the case precedent to distil what was in issue in the case and what the reasons for the Court’s decision were. Whilst the decision reached by the Court may be a reflection of the ratio, the decision itself is not the ratio.

I say this because, notwithstanding that it was a decision of the Court of Appeal, it is in my judgment wrong in principle to hold that the outcome of McPhilemy is binding on lower courts. On the contrary, it is the reasons for the decision which are binding and even then, only insofar as such reasons are relevant to the issues I have to resolve in the present application. Indeed, the ratio of an appellate court’s decision may well lead to a lower court reaching a decision which is different from the outcome of the case that was heard on appeal.

In McPhilemy, the issue for the appeal was whether the trial judge was wrong in not exercising his discretion to award the Part 36 enhancements when the claimant in that case had beaten his own Part 36 offer. Chadwick LJ (with whom the other members of the Court agreed) held that that decision was wrong. His reason for so holding was that the trial judge was wrong to take into account the fact that indemnity costs payable under Part 36 implied disapproval by the court of the defendant’s conduct. In fact, his Lordship held, the wording of CPR 36.21(3) meant that an order for post-expiry indemnity costs is “the order which the court can be expected to make”unless it considers it unjust to do so (at [9]). Further, Chadwick LJ went on to hold that the powers conferred by CPR 36.21 were intended to provide a means of achieving a fairer result for the claimant and were not to be regarded as producing penal consequences (which may result from a claimant receiving more than can properly be regarded as compensation) (at [19]).

The above is which I consider to be the ratio in McPhilemy, (before I turn to how the Court of Appeal dealt with McPhilemy in Petrom). It is noteworthy that in that case, there was no argument recorded, and no extended consideration given, as to whether it would be appropriate to award interest calculated on the aggregate of all post-expiry costs or on each individual item of costs from the date that each item of work was done. (Indeed, there has been no case cited to me where the specific issue that I have to determine what considered by a higher court.)

True it is to say that at [23] of McPhilemy, Chadwick LJ considered that the principle that the enhancements under CPR 36.21 were designed to achieve a fairer result for the claimant was relevant to the question of enhanced interest on costs. However, Chadwick LJ did not go further and say that the only way in which a fairer result would be achieved for the claimant by an order for enhanced interest on post-expiry costs would be by calculating interest on costs from the date that each item of costs was incurred.

What Chadwick LJ said (at [23]) was:-

“An order under paragraph (3)(b) of CPR 36.21 enables the court to achieve a fairer result in that respect. But, having regard to the point which, as it seems to me, paragraph (3)(b) is intended to meet, I would order payment of interest at a rate which reflects (albeit generously) the cost of money – say, 4% over base rate; and I would direct that interest runs, on the costs to which the order applies, from the date upon which the work was done or liability for disbursements was incurred.”

That may well be how Chadwick LJ considered how the point of CPR 36.21(3)(b) was best met. However, given that it was not an issue specifically which required determination in that case, I do not read that as meaning that Chadwick LJ’s formulation of the order in that case was the only way in which the point of CPR 36.21(3)(b) could be met. Put simply, the result in that case was correct on its own facts. The result in McPhilemy was, in effect, a first instance decision, given that the Court of Appeal set aside the trial judge’s decision and exercised its discretion afresh. I do not consider that a lower court is mandated to apply the result in McPhilemy.

Furthermore, the decision in McPhilemy is of limited persuasive authority given that it was decided before the Jackson reforms which specifically introduced more of a “carrot and stick” type regime to Part 36 and to the CPR in general. In addition, an express reason why Chadwick LJ considered that an order for enhanced interest on post-expiry costs should be on a more compensatory basis (to achieve a “fairer result”) is because of the loss of use that the claimant had of the money that he had paid to his solicitor on account (at [23]). That justification is not relevant in a case such as the present one where no monies have been paid on account because the claimant’s solicitor is acting pursuant to a conditional fee agreement. If Chadwick LJ’s dictum were to be followed to its logical extent, it would never be appropriate to award enhanced interest on post-expiry costs because the claimant has suffered no loss of use of money.

In the circumstances, I find the decision in McPhilemy of limited value in determining the issue in this application. That is before I get to the Court of Appeal’s treatment of McPhilemy in Petrom. In Petrom, the issue before the Court of Appeal was whether the trial judge was wrong in failing to award the full 10% over base rate enhanced interest on damages and costs. It is correct that strictly speaking, the issue in that case was the rate of interest to be applied. However, the Court of Appeal necessarily had to consider McPhilemy because the defendant in Petrom argued, pursuant to McPhilemy, that the interest award had to be compensatory because the Part 36 provisions were designed to produce a fairer result for the claimant.

It is because of this context that I consider the Court of Appeal’s treatment of McPhilemy in Petrom either to be binding or of persuasive authority. The Court of Appeal in Petrom held that McPhilemy was not binding in respect of awarding enhanced interest on the damages award and went on to hold that such interest may permissibly include a non-compensatory element (at [26] and [38]). Further, and perhaps more pertinently, although the Chancellor had earlier said that the Court of Appeal’s decision in McPhilemy on enhanced interest on costs was ratio (at [28]), he went on to hold that that decision was not binding (at [43]). He specifically held that they were not bound to assess the rate of interest on costs in such a way as to achieve a fairer result for the claimant than would otherwise be the case.

Mr Roderick submitted that this treatment of McPhilemy is relevant to the rate adopted by the trial judge only. Respectfully, I consider this to be splitting hairs. It is clear on a reading of the entire paragraph that the Chancellor was considering the proper approach to the entire exercise of awarding enhanced interest on costs and not just the selection of the rate. That much is evident where he says:-

“Moreover, once again I do not regard the award as purely compensatory. As I have also said, different factors may in practice apply to the enhanced interest under CPR Parts 36.14(3)(a) and (c).” (emphasis added)

Drawing the threads together, then, I find that:-

The upshot of this is that I do not consider that, in interpreting DJ Mills’ order, I am required to give effect to the principle that such interpretation must produce a “fairer result for the claimant” (i.e. must be purely compensatory). As a result of Petrom, that consideration is no longer applicable.I am entitled to interpret the order in a way that may produce a result for the claimant which is “non-compensatory” or might even be regarded as punitive. That is in keeping with the policy of Part 36 which, as has been expressly adverted to in the post-Jackson case law, implements a “carrot and stick” approach.

In the circumstances, I am not persuaded by Mr Roderick’s submission that adopting the Aggregate Costs method, which would entail the Court awarding interest on counsel’s brief fee some three years before it was incurred, would result in what he described as an “absurdity”. I do not regard that as an absurdity. If that is the outcome of a rule which was designed to encourage early settlement by implementing a carrot and stick approach in Part 36, then that must be taken to be a fair result. A defendant can expect little sympathy from a court in being made to face the consequences of its decision not to accept a settlement offer made some years before a trial, which offer was subsequently beaten. If there were ambiguity about DJ Mills’ order and the Defendant was concerned about the possibility of an “absurd” result flowing from such an order, submissions should have been made either in relation to the method of calculating interest (i.e. the Individual Item method or the Aggregate Cost method) or as to the rate to be used (particularly if it were felt that a high rate over a long period would produce an excessive interest award) or both.

Nor am I persuaded by Mr Roderick’s submission that there should be alignment between the way that interest is awarded on damages and the way that interest is awarded on costs. This is a false analogy. It is true that in some cases, interest on losses is awarded from the date on which the loss is incurred. However, in other cases, interest is awarded on a different basis. For example, in personal injury cases, it is well-known that interest is awarded at half the Special Account Rate from the date of accrual of the cause of action, specifically to avoid complicated interest calculations (see White Book 2025, page 503). Indeed, this latter method perhaps provides a better analogy with the order DJ Mills made in this case, namely that to avoid complicated calculations, a blanket rate has been adopted for the entirety of the Claimant’s post-expiry costs over that period.

Finally, and on a related point, I consider that there is great force in Mr Meehan’s submissions that the Individual Item method is unworkable in practice. Mr Roderick sought to persuade me that the Individual Item method was simple enough to use utilising a spreadsheet. Respectfully, I disagree. It would add greatly to the work done by Costs Judges carrying out detailed assessments if there was disagreement about the calculations used. It runs counter to the dictum of Lord Neuberger in Simcoe that awards of interest on costs should be broad brush and that having different dates from which interest starts to run would “do the legal system no credit”.It also does not apply so easily where there are paper bills.

Perhaps more fundamentally, however, if Mr Roderick is right as a matter of principle that the Individual Item method is the method that is required under CPR 36.17(4)(c), it ought to be applicable in every case where an award under that rule is being contemplated. In the course of argument, I raised the issue of how the Individual Item method could be expected to work at the conclusion of a Fast Track trial (in a case not subject to fixed costs) where a summary assessment of costs was carried out. By its very nature, a summary assessment does not involve a line-by-line examination of the costs incurred by a successful party and it is not possible to ascertain what dates individual items of work were carried out. I did not receive any particularly persuasive answers to this observation. I consider that in such a case, the Individual Item method is not workable at all, which rather demonstrates, in my view, that it is not the correct method to be used to calculate interest under CPR 36.17(4)(c). Indeed, in my experience, it is the Aggregate Costs method that is used when calculating enhanced interest on costs where a claimant has beaten their own Part 36 offer in a Fast Track trial and where the court is required to conduct a summary assessment of costs.

For those reasons, I find that the Aggregate Costs method contended for by the Claimant is the method which is consistent with authority, with the policy behind CPR Part 36 and with the practical reality of calculating awards of enhanced interest on post-expiry costs.

In the circumstances, I hold that interest under paragraph 5 of the Order of DJ Mills is to be calculated at the rate of 9% per annum on the aggregate of all costs incurred from 28^th October 2019 to the date of that Order (6^th July 2023).

I will leave it to Counsel to draw up the necessary orders.