Kurian v Falzon

This is the detailed assessment of costs payable by the Defendant to the Claimant following a successful claim for injury sustained in a road traffic accident on 19 December 2005. The action was conducted in the Queens Bench Division of the High Court. The Defendant must pay the Claimant’s costs of the action under the terms of consent orders dated 6 May 2010, which settled apportionment of liability and provided for the Defendant to pay ‘the Claimant’s costs to be assessed if not agreed’, and 14 July 2010, which settled quantum and provided for the Defendant to pay ‘the Claimant’s reasonable costs of and incidental to the action on the standard basis, to be subject to a detailed assessment if not agreed”.

All other issues having been resolved, I have heard the parties’ submissions on the Claimant’s entitlement to interest on her costs (excluding the costs of assessment): specifically, whether as the Claimant contends she should receive such interest from the date of judgment or, as the Defendant contends, from the date of quantification.

This issue has been regularly raised in assessment proceedings since the judgments of His Honour Judge Stewart QC in Gray v Toner (Liverpool County Court, 11th November 2010) and His Honour Judge Harris QC in Bridle v Ikhlas (Oxford County Court, 20th May 2011). Paying parties object in particular to paying interest on costs from the date of judgment or order where the receiving party, under a conditional fee agreement with his or her legal representatives, may not have to pay anything at all until costs are assessed or agreed. Following the judgment of the Senior Costs Judge in Motto & Ors v Trafigura Ltd [2011] EWHC 90206 (Costs), the issue will be before the Court of Appeal in (I understand) January 2012. In the meantime I must address it on the facts of this particular case.

My understanding is that the Claimant seeks interest on costs from 14 July 2010, not for the short period between 6 May and 14 July. I say that because the bill is not drawn in accordance with section 4.1(6) of the Costs Practice Direction, so as to enable such interest to be calculated, and because I have heard no submission to the contrary.

The Claimant’s case was funded by conditional fee agreements under which success fees of 12.5% have been claimed by solicitors and counsel in accordance with Section III of CPR 45. Counsel’s conditional fee agreement incorporated standard PIBA terms.

Under the terms of the Claimant’s conditional fee agreement with her solicitors she becomes liable to pay in the event of a “win”, defined by reference to the claim for damages being decided in the Claimant’s favour. The agreement includes the following paragraph:

“You agree that any cheque received from your opponent relating to basic charges, success fee, disbursements, VAT, insurance premium and interest on costs will be paid into a designated account. We are allowed to take all basic charges, success fee, disbursements, VAT, insurance premium and interest on costs. We are also allowed to keep any interest on the designated account.”

Accordingly, payment of costs and disbursements by the Claimant to her solicitors is deferred pending the outcome of her claim. If she wins, her contractual liability to pay will arise but her solicitors will await receipt of payment from her opponent, and will then retain any interest received on her costs.

The relevant statutory provisions and case law have already been subjected to a very thorough analysis by the Senior Costs Judge in Motto v Trafigura. I shall at this point set out, for ease of reference, the key provisions and decisions referred to by the parties in this case.

Interest on High Court Judgments is governed by the Judgments Act 1838. Section 17 originally read:

‘Judgment Debts to Carry Interest

Every judgment debt shall carry interest…from the time of entering up the judgment…until the same shall be satisfied, and such interest may be levied under a writ of execution on such judgment.’

Section 17 was amended with effect from 26 April 1999 to read:

‘Judgment Debts to Carry Interest

(1)

Every judgment debt shall carry interest…from such time as shall be prescribed by Rules of Court until the same shall be satisfied....

(2)

Rules of Court may provide for the court to disallow all or part of any interest otherwise payable under sub-section (1).’

Section 18 gives an order for costs the effect of a judgment for these purposes.

Interest on County Court Judgments is governed by Section 74 of the County Courts Act 1984 and the County Courts (Interest on Judgment Debts) Order 1991. Section 74 reads:

‘74. Interest on judgment debts etc

(1)

The Lord Chancellor may by order made with the concurrence of the Treasury provide that any sums to which this sub-section applies shall carry interest at such rate and between such times as may be prescribed by the order.

(2)

The sums to which sub-section (1) applies are—

(a)

sums payable under judgments or orders given or made in a County Court …

(3)

The payment of interest due under subsection (1) shall be enforceable as a sum payable under the judgment or order…’

The County Courts (Interest on Judgment Debts) Order 1991 reads:

‘2. The General Rule

(1)

Subject to the following provisions of this Order, every judgment debt under a relevant judgment shall, to the extent that it remains unsatisfied, carry interest under this Order from the date on which the relevant judgment was given.

(2)

In the case of a judgment or order for the payment of a judgment debt, other than costs, the amount of which has to be determined at a later date, the judgment debt shall carry interest from that later date…’

The following provisions of the Civil Procedure Rules, common to both jurisdictions, have been referred to by the parties.

Sub-paragraph (4) of CPR 44.3 requires the court, when exercising its jurisdiction under CPR 44.3, to have regard to all the circumstances.

Lord Ackner In Hunt v R M Douglas (Roofing) Ltd [1990] 1 AC 398 considered the application of the incipitur rule to interest on costs under section 17 of the 1838 Act at a time when the court had no discretion to vary the starting date. He set out, in his leading judgment, the principles which until relatively recently had generally been accepted as governing the position today. He said (at 404B and 405G):

‘My Lords, this appeal raises an important issue with regard to costs - namely whether a litigant who has been awarded costs, is entitled to interest on the amount of the costs from the date on which judgment is pronounced (referred to hereafter as “the incipitur rule”) or from the date on which the taxation of costs is completed by the issue of the taxing master’s certificate (the “allocatur rule”)…The…(1838)… Act nowhere defines the vital words in section 17 “entering up the Judgment”…’

Referring to K v K (Divorce Costs: Interest) [1977] Fam 3, in which Lord Denning MR had (in a case in which the receiving party had not paid costs or disbursements prior to assessment) decided that it was appropriate that interest should run from the certificate of taxation, rather than from the initial judgment, Lord Ackner continued (at 415E):

‘…I respectfully agree with the observations of the Court of Appeal that a satisfactory result cannot be achieved in every case, but in my judgment the balance of justice favours the incipitur rule for the following reasons. (1) It is the unsuccessful party to the litigation who, ex hypothesi, has caused the costs unnecessarily to be incurred. Hence the order made against him. Since interest is not awarded on costs incurred and paid by the successful party before judgment, why should he suffer the added loss of interest on costs incurred and paid after judgment but before the taxing master gives his certificate? (2) Since, as the Court of Appeal rightly said in the Erven Warnink case [1982] 3 All ER 312 payments of costs are likely nowadays to be made to lawyers prior to taxation, then the application of the allocatur rule would generally speaking do greater injustice than the operation of the incipitur rule. Moreover, the incipitur rule provides a further necessary stimulus for payments to be made on account of costs and disbursements prior to taxation, for costs to be more readily agreed and for taxation, when necessary, to be expedited, all of which are desirable developments. Barristers, solicitors and expert witnesses should not be expected to finance their clients’ litigation until it is completed and the taxing master’s certificate obtained. If interest is not payable on costs between judgment and the completion of taxation, then there is an incentive to delay payment, delay disbursements and taxation. (3) It is common ground between the parties that the unsatisfactory situation illustrated in K v K can be simply dealt with by an express agreement between the solicitor and his client that any interest recovered on costs and disbursements after judgment is pronounced but before the taxing master’s certificate is obtained, which costs and disbursements have not in fact been paid prior to taxation, shall as to the interest on the costs belong to the solicitor and as to the interest on disbursements be held by him for and on behalf of the person or persons to whom the disbursements are ultimately paid.’

Lord Ackner then indicated that a judgment for costs to be assessed was to be treated in the same way as a judgment for damages to be assessed.

However in Thomas v Bunn [1991] AC 362 the House of Lords declined to extend the incipitur rule to a judgment for damages to be assessed. Lord Ackner, revising his previous view, found (at 374C) that ‘the judgment’ referred to in section 17, considered in isolation, was a final judgment for a quantified sum and added (at 380E):

‘I accept that it is an anomaly that an order for payment of costs to be taxed is construed for the purpose of section 17 as a judgment debt, even though, before taxation has been completed, there is no sum for which execution can be levied. However the courts have accepted since its enactment that section 17 does apply to such an order and … the balance of justice favours continuing so to treat such an order. The short question is - was I right in concluding that this acceptance is because “a judgment for costs to be taxed is to be treated in the same way as a judgment for damages to be assessed, where the amount ultimately ascertained is treated as if it was mentioned in the judgment - no further order being required.” The answer is in the negative.

The wording of section 17 clearly envisages a single judgment which constitutes the “judgment debt.” This “judgment debt” can only arise where the judgment itself quantifies the sum which the judgment debtor owes to his judgment creditor. The language of the section does not envisage an interlocutory judgment, but only a final judgment...

I accordingly take the view the judgment referred to in section 17 of the Judgments Act 1838 does not relate to an interlocutory or interim order or judgment establishing only the defendant’s liability. The judgment contemplated by that section is the judgment which quantifies the defendant’s liability, the judgment which has been referred to in the course of these appeals as “the damages judgment.”’

In Powell v Herefordshire Health Authority [2002] EWCA Civ 1786 the Court of Appeal found that the court’s power under CPR 44.3(6)(g), in providing a Costs Judge with the power to vary the date from which interest should run under section 17 so as to achieve a fair result, made it unnecessary to consider whether interest ran (in accordance with the incipitur rule) from the date of an order for costs made some seven years before the final conclusion of the action, and before a significant proportion of the relevant costs had actually been incurred.

However in Gray v Toner, at paragraph 21, HH Judge Stewart concluded that the incipitur rule no longer applies to interest on costs:

‘… A new section 17 has repealed the words “from the time of entering up the judgment” and replaced them with, “such time as shall be prescribed by rules of court”. Rule 40.8(1) says interest “shall begin to run from the date that judgment is given”. I have not found this an easy point but, in my judgment, the old dichotomy between damages and interest has gone, as a result of those provisions. Judgment for damages and costs now means the same, ie where the judgment itself quantifies the sum which the debtor owes to the creditor. Not only has the statute changed but also the justification for the old anomaly (apart from precedent) has largely been superceded…

(i)

Interest now can be awarded as a matter of discretion on costs incurred and paid by a party before judgment.

(ii)

It can no longer be said that payments of costs are likely to be made to lawyers prior to detailed assessment. There are many cases where they will but thousands where they will not; the scenery has changed and on CFAs solicitors and barristers often expressly agree to “finance their client’s litigation until it is completed”. Indeed, they can allow a proportion of the success fee to compensate for delay in payment. Nowadays also interim payments of costs are regularly awarded.

In Fattal v Walbrook Trustees (Jersey) Ltd [2009] EWHC 1674 (Ch) the incipitur rule was not challenged. As to the proper exercise of the court’s discretion, Sir Christopher Clarke J found that it reflected commercial reality to allow post-judgment, pre-assessment interest on trustees’ costs, as funded by the trusts they represented. Although funding had been provided indirectly, through an interest-free loan from a corporate vehicle, it had nonetheless deprived the trusts of the use of the money advanced. He set out, at paragraphs 25 to 27, the following principles:

‘The combined effect of the…’ (1838 Act, as amended) ‘…and the Rules is that save where a rule or Practice Direction otherwise provides, interest will run from the date the judgment is given unless the Court orders otherwise. There is nothing in the statute as amended or in the Rules, which indicates that a different order is only to be made in exceptional circumstances. No doubt there must be a good reason to make such an order, but the Court must not, in my judgment, need to be able to label the circumstances as exceptional. The Rules expressly indicate that the court may order interest to begin from the date before judgment and the circumstances in which it is likely to do so include cases where substantial sums have been paid in costs before the judgment is given - a not exceptional occurrence.

The most important criterion is that any order should reflect what justice requires. The primary purpose of an award of interest on a debt, damages or costs is to compensate the recipient for the fact that he has been precluded from obtaining a return on the money which he has had to expend on costs and has thus been out of pocket...

The ability of the High Court to depart from the incipitur rule was conferred in order that the court could take account of the fact that money would often be expended before any judgment. Conversely, where money has not been expended, for example where the bulk of the costs have been paid at a date long after the relevant judgment, justice requires that the date for the commencement of the interest is postponed beyond the date of that judgment.’

In Bridle v Ikhlas, HH Judge Harris QC was similarly concerned not with a challenge to the incipitur rule but with the proper exercise of the court’s discretion on the basis that the rule continues to apply. In that case there was no evidence either that the successful claimant had had to pay his solicitors prior to assessment or that he had any liability to account to his solicitors for interest received on costs.

The learned judge indicated (obiter, at paragraph 12) that there might be good reason for concluding that interest on costs in CFA cases, where a party’s solicitors had through their success fee already achieved remuneration beyond the normal fee level, represents either an extra benefit to the client or an extra source of income to the solicitor. At paragraph 19 he observed:

He concluded that in the circumstances of that case interest should run from the date of assessment.

In Gray v Toner, the claimant was represented under a conditional fee agreement. There was no evidence that any payment had been made towards costs. The claimant’s obligation to pay interest was limited to accounting for such interest as was actually received. HH Judge Stewart QC (at paragraph 25) considered that there would, even if the incipitur rule still applied, be good reason to depart from it because the primary compensatory purpose of an interest award had no application in those circumstances.

In Motto v Trafigura the Senior Costs Judge found that the incipitur rule continues to apply but that in the circumstances of that particular case, interest on costs should run from the date of the costs certificate. The facts of the case and his conclusions are considered in more detail below.

Mr White for the Defendant relies upon the conclusions of HH Judge Stewart QC and upon the submissions of the defendant's counsel in Motto v Trafigura (as set out at paragraphs 43 - 56 of the Senior Costs Judge’s judgment) in support of the argument that the allocatur rule now applies. I would summarise his primary submissions as follows.

Hunt v Douglas (Roofing) Ltd and Thomas v Bunn both pre-date the amendment of section 17 of the Judgments Act 1838, so the court is not bound by them. The court is now concerned with the meaning of the words ‘judgment is given’ in the Civil Procedure Rules, under which the court now has a wide discretion as to whether interest should be awarded on costs and if so from what date.

Lord Ackner confirmed that the anomaly between interest on a judgment for costs and on a judgment for damages was founded on policy reasons. Those policy reasons no longer apply, and the allocatur rule should apply to costs as it does to damages. There is no further justification for the anomaly. Funding arrangements have changed since Hunt v Douglas (Roofing) Ltd. Under CFAs, many clients do not pay money on account to their legal representatives.

"Judgment", as Lord Ackner found in Thomas v Bunn, means "quantified judgment". Accordingly the "judgment" referred to in CPR 40.8(1) CPR is the same for damages as for costs. Judgment is given when costs are assessed, not when judgment is obtained for damages or costs to be assessed.

If that is not accepted, Mr White makes these alternative submissions. Pursuant to section 17 of the Judgments Act 1838 (as amended), CPR 40.8 and 44.3(6)(g), the Court, exercising the jurisdiction considered in Fattal v Walbrook Trustees, has a discretion as to whether and from what date interest on costs should be payable. The Court, instead of awarding interest from the date of judgment, should in this CFA-funded case "order otherwise" under CPR 40.8(1)(b).

In exercising its discretion the Court needs to consider each case on its facts. The Court needs to bear in mind that the primary purpose of an award of interest on a debt, judgment or costs is to compensate the recipient for the fact that he has been precluded from obtaining a return on the money which he has had to expend on costs.

Accordingly the Court should look at how the litigation has been funded and whether the receiving party has made any payments on account of costs. Given that the present case is funded by a CFA and that there is no evidence of the Claimant having made any payments on account of costs to her solicitors, the Claimant has not been kept out of her money and it is inappropriate to award interest from the date of the consent order. The date of the judgment giving the entitlement to costs is the correct starting point.

That must be right, submits Mr White, in the absence of evidence of any primary obligation on the part of Claimant to pay interest to her solicitors - which is not the same as any obligation in the CFA to account to her solicitors for interest recovered. The payment of interest will be either a windfall to the Claimant or, if she is to pass the interest on to them, to her lawyers; in effect, a second success fee.

It is not submitted by the Claimant (as it was, unsuccessfully, by the receiving party in Motto v Trafigura) that a costs judge has no jurisdiction under CPR 40.8 or CPR 44.3(6)(g).

Mr Mallalieu for the Claimant makes a number of other submissions which do not appear to have been made (or, where similar, to have been put in quite the same terms) in Gray v Toner, Bridle v Ikhlas or Motto v Trafigura. For that reason I shall set his submissions out in some detail.

In summary, the Claimant submits that the incipitur rule continues to apply. Hunt v Douglas (Roofing) Ltd and Thomas v Bunn are still binding. Interest on costs therefore runs from the date of the order for costs, subject only to the discretion of the court under the Civil Procedure Rules. Nor is there good reason for the court to exercise its discretion to depart from that starting point.

CPR 40.8 came into force on the 26th April 1999 with the introduction of the Civil Procedure Rules. It was, says Mr Mallalieu, introduced against the background of binding House of Lords authority in Hunt v Douglas (Roofing) Ltd and Thomas v Bunn to the effect that the incipitur principle applied to interest on costs. The amendment to s.17 of the 1838 Act provided the necessary statutory foundation for the High Court’s new discretion, under the CPR, as to the date from which interest may run.

That amendment was made in anticipation of the general introduction of the CPR and, Mr Mallalieu submits, served two other key purposes; to allow for the proposed CPR Part 36, whereby a claimant might be awarded interest on his costs from a date earlier than the costs order, and to allow the court to award interest on costs from a date later than the costs order under CPR 47.8(3) and CPR 47.14(5) should a receiving party delay detailed assessment proceedings.

Mr Mallalieu argues that neither the amendment to section 17 nor the introduction of the CPR required any amendment to the meaning of ‘judgment’ for costs purposes. Nor did they purport in any way to alter what ‘judgment’ means. They merely allowed the time from which interest runs to be prescribed by rules of court, and for those rules to confer discretion to depart from the date from which interest would otherwise run.

Absent any departure, or even any indication of an intention to depart from, the established meaning of ‘judgment’ by the amendment to the 1838 Act and the introduction of CPR 40.8, the Claimant’s case is that the court remains conclusively bound by House of Lords authority and therefore the continued application of the incipitur rule. Any attempt to invite the court to reinterpret the meaning of ‘judgment’ in this context is flawed, and an invitation to the court to act contrary to binding legal precedent.

Other provisions of the CPR, it is submitted, illustrate that the introduction of the CPR 40.8 discretion was against the background of an accepted and established definition of judgment by reference to the “incipitur” rule. Mr Mallalieu offers the following examples.

CPR 44.12(2), expressly providing for interest to run from date of entitlement, not assessment, is he submits only consistent with the amendments to the CPR being predicated on the basis of the continuing application of the incipitur principle. CPR 47.8(3) and 47.15(ii), whilst not as express as CPR 44.12(2), again appear to be predicated on the assumption that interest will run from costs order, not assessment.

As for CPR 44.3(6)(g), its wording he suggests reflects a primary intention to allow the court to consider awarding interest from an earlier date than the costs order, consistent with a continuing presumption that date of the costs order will normally be the starting point.

Mr Mallalieu submits that the only logical reading of the County Courts (Interest on Judgment Debts) Order 1991 is that interest on costs runs from the date of the order for costs, not any later date of determination. Sections 2(1) and 2(2), which pre-date the Civil Procedure Rules and the amendment to section 17 of the 1838 Act, reflect he submits the decisions in Hunt v Douglas (Roofing) Ltd and Thomas v Bunn. Section 2, described as ‘the general rule’, is on its face simply inconsistent with the proposition that the allocatur rule now applies to costs, which are specifically excepted from section 2’s general provisions to that effect.

Both the existence of the 1991 order and its continued general applicability at the time of the introduction of CPR 40.8 itself, submits Mr Mallalieu, are only consistent with an absence of any intention on the part of the rule makers to depart from the established construction of ‘judgment’, in the context of costs orders, as meaning the date of the order.

Mr Mallalieu submits that the effect of the County Courts (Interest on Judgment Debts) Order 1991 may in fact be that the County Court, notwithstanding the provisions of the CPR, has no discretion to order that interest run from a date other than the date of judgment. At the least, he submits, given the express provisions of the order there is or should be a strong presumption in favour of interest applying from the date of a costs order.

Alternatively, if and in so far as CPR 40.8 can be read as a variation of the 1991 order, that variation must be read as consistently as possible with its continued application in the County Courts. Either way, any discretion to award interest from a different date would be discretion only to depart from the ‘general rule’ that interest runs from the date of the costs order.

As to the specific matters summarised by HH Judge Harris QC at paragraph 21 of his judgment in Gray v Toner in support of his conclusion that the incipitur rule no longer applies, Mr Mallalieu makes the following submissions.

Interest, as the learned judge pointed out, can now be awarded as a matter of discretion on costs incurred and paid by a party before judgment. However, Mr Mallalieu submits, the introduction of discretion to depart from an established position in and of itself cannot mean that the established position should be regarded as having changed. If anything it indicates that such change was not necessary.

Nor is there any need to read such a change into the introduction of CPR 40.8 or the amendment to s.17. The factors cited by HHJ Stewart QC as justifying a departure from the accepted and established meaning of ‘judgment’ are those which should properly be considered in relation to the court’s discretion to depart from the ‘usual rule’.

CFAs are now common. It follows that it is more common than it would have been in 1990 for clients not to pay their solicitors until the end of the case. Whilst this might in a given case (subject to Mr Mallalieu’s submissions on the proper exercise of discretion) furnish a reason for the existence of discretion to depart from the rule, again he submits it does not in itself justify the conclusion that the established starting point has changed. The conclusion that it does furnish such justification necessarily rests on a proposition that cannot be sustained: that the existence of a class of cases where the client will not pay legal representatives as the case proceeds justifies redefining ‘judgment’ for all cases, whether they fall into that class or not.

Given that it is now common for barristers and solicitors to, in effect, ‘...finance their clients’ litigation until it is completed and the taxing master’s certificate obtained’ under a Conditional Fee Agreement, there is still no reason why a legal representative should be expected to finance a matter following success and pending assessment.

As at the date of a final costs order the receiving party will have won the case, the costs will all have been incurred, expenses will have been paid and either the receiving party or his solicitor will be awaiting money they are entitled to and which, post-costs order, is now being retained to the benefit of the ‘wrong’ party.

Solicitors may charge a client an element of a success fee to reflect the postponement of payment of fees. That postponement, and the element of the success fee, if any, charged in respect of it, is intended to reflect the delay in payment arising from the fact that the client is not contractually liable to pay until the case is ‘won’. Once the case is won (or liability accrues for some other reason under the agreement), and certainly by the date of the costs order, the client is liable to pay. The increase to the success fee is not then intended to cater for a further delay in payment by the paying party after the date that the contingency has occurred and payment is due.

Even if it were, that element of the success fee, payable by the client, would be irrecoverable from the paying party. It would therefore be right and proper that the receiving party be entitled to interest to compensate for that loss.

HH Judge Stewart QC referred to the fact that interim payments of costs are now regularly awarded. This reflects the importance the court now places on prompt payment of costs, whether CFA funded or not, and the fundamental point that a receiving party and that party’s solicitors are entitled to be paid as at the date of the costs order. In principle, a paying party should be able to make a proper payment on account very shortly post costs order, thereby minimising interest and if it does not, should expect to pay interest on the shortfall. The increasing emphasis on making such payments on account highlights, if anything, the increased importance of the policy reasons highlighted by Lord Ackner as supporting the application of the incipitur principle.

As to the suggestion that the principles governing interest on damages and interest on costs are now the same, Mr Mallalieu makes these submissions. As at the date of a costs order, all that is required is an assessment of costs, all of which have been incurred. The receiving party is therefore entitled to a specific sum, payable on that date, the amount of which will be unaffected by the date of determination. There is no general presumption (CPR 44.3(6)(g) notwithstanding) that where sums have been paid prior to that date, interest will be awarded on those sums.

With an award of damages, the position is quite different. Judgment for damages to be assessed entitles a claimant to a sum which may relate to both losses already incurred and future losses (some of which will then be past losses by the date of any assessment). The precise quantum of that sum may be affected not merely by the date of assessment, but by developments between the date of judgment and the date of assessment. Interest will normally be paid on past losses (and, in personal injury cases, general damages) under section 35A of the Senior Courts Act 1981 or section 69 of the County Courts Act 1984, up to date of assessment and final order.

Mr Mallalieu referred me to a number of reported cases which, he suggests, illustrate the proper approach to interest on costs before and after the introduction of the Civil Procedure Rules.

Before the introduction of the amendment of s.17 and the introduction of CPR 40.8, in Electricity Supply Nominees Ltd v Farrell [1997] 1 WLR 1149 at 1158, the Court of Appeal rejected an attempt to argue that in light of Thomas v Bunn and the ‘anomaly’ between the approach in relation to costs and that in relation to damages, the decision in Hunt v Douglas (Roofing) Ltd should be revisited.

The continued application of the incipitur rule as starting point has, says Mr Mallalieu, been expressly acknowledged after the amendment of s.17 and the introduction of CPR 40.8, albeit apparently without argument to the contrary; apart from Fattal, I am referred to Mann J in Schlumberger Holdings Ltd v Electromagnetic Services [2009] EWHC 773 at paragraphs 9 and 10 and Chadwick LJ in McPhilemy v Times Newspapers Ltd (No.2) CA [2002] 1 WLR 934 at 945.

Powell v Herefordshire Health Authority [2002] EWCA Civ 1786 also, says Mr Mallalieu, supports his argument that the introduction of discretion to depart from the rule runs contrary to the suggestion that the change was to the rule itself.

The benefits of a general presumption that interest will run from a given date include, says Mr Mallalieu, the fact that a court will not in every case find itself having to inquire as to the precise dates costs were incurred and/or paid, and the terms of retainer.

Where such a presumption applies, as stated by Sir Christopher Clarke J in Fattal at paragraph 25, the court should have good reason to depart from it. Mr Mallalieu submits that there is no good reason to so depart either in this case or in the generality of CFA cases.

Sir Christopher Clarke J in Fattal found (paragraph 26) that the primary purpose of an award of interest on “a debt, damages or costs” is compensatory. The Claimant accepts that compensation is a purpose, but submits that it is important not only to draw a distinction between interest on costs and interest on damages but also between interest on judgment debts and, for example, discretionary interest under section 35A of the Senior Courts Act 1981.

Interest on a judgment debt is not, Mr Mallalieu submits, merely compensatory in the same sense in which that term is used in relation to pre-judgment interest, for example on damages, but serves, inter alia, the other purposes highlighted by Lord Ackner in Hunt v Douglas (Roofing) Ltd. The prime purposes of Judgment Act interest are to encourage prompt payment of the debt and to compensate a judgment creditor, not for being out of pocket, but for being denied receipt of the judgment debt.

A paying party is in a good position to make an accurate payment on account of costs at the earliest stage. If it does so, no interest will be payable. It has, in its own hands, the main remedy to prevent the payment of undue interest.

If it does not do so, there is a clear benefit to the administration of justice generally and a clear justice in the paying party paying interest for ‘withholding’ that money and instead having the benefit itself of money which ought to be in another’s hands.

It is can be agreed on making an interim payment that if a paying party overpays, the receiving party will repay any overpayment with interest at the Judgments Act rate. The paying party need not lose out in any way which requires justice to intervene by altering the date form which interest shall run.

Mr Mallalieu offers examples of judicial recognition of the absence of any need for a receiving party to be ‘out of pocket’, or to have paid costs, to receive interest.

In Crema v Cenkos Securities PLC [2011] EWCA Civ 10 the Court of Appeal awarded a claimant enhanced Part 36 interest, at 5% above base rate, from a date when he ‘would’ have borrowed money, despite expressly assuming that he had not paid any money to finance the action ‘as it is all subject to a CFA’ (Aikens LJ at paragraph 11).

In Fosse Motor Engineers Ltd v Conde Nast & Others [2008] EWHC 2527 (QB), the defendant sought interest of costs that had been paid by the defendant’s insurer. Whilst recognising (paragraph 13 ) that there may be cases, such as those of entirely voluntary funding by a third party, where the payment of interest on costs was not warranted, Akenhead J focused on the ‘commercial reality’ (paragraph 10 ) and awarded interest on costs from the date paid by the insurers. The decision was not based on any right of subrogation but rather apparently on a broad combination of fairness and justice in light of the commercial reality.

Mr Mallalieu submits that whilst neither of these cases (being concerned with pre-judgement interest) is directly on point, they support the broad principle which formed part of the original adoption of the incipitur rule and which should continue to form part of the interpretation of any discretion to depart from that rule: that the award of interest should reflect the commercial reality.

Even under the ‘compensatory’ approach, there could be little room for dispute as to a CFA-funded client’s entitlement to interest on costs between judgment and assessment should that client bear a contractual liability for interest on costs to his representatives during that period.

Given that CFAs limiting a client’s liability to sums recovered inter partes are now an acceptable form of funding, it should in principle be unobjectionable for such an interest clause to be phrased so that the client’s interest liability is limited to that recovered inter partes.

There is accordingly, says Mr Mallalieu, no injustice in the Defendant being required to pay interest in relation to sums which have all been incurred at the date of judgment (subject to any issues of delay) and which the Claimant’s solicitors have been kept out of. There will be no windfall to the Claimant and the sums paid will be paid over to the solicitor, as Lord Ackner recognised to be right and proper. There would be an injustice in such interest not being awarded.

In Motto v Trafigura the Senior Costs Judge, at paragraph 117, summarised his conclusion on the incipitur rule in these terms:

That is a conclusion with which I respectfully agree. I am unable to identify any material distinction between the terms ‘entering up the judgment’, as incorporated in section 17 of the 1838 Act before its amendment, the words ‘judgment was given’ in the 1991 order and the words ‘judgment is given’ in CPR 40.8.

As to whether ‘judgment’ in CPR 40.8 must, as in the unamended section 17, mean judgment for a quantified sum, that was Lord Ackner’s interpretation, in Thomas v Bunn, of the words of the section ‘in isolation’; one cannot have regard to that and disregard his conclusions in Hunt v Douglas (Roofing) Ltd regarding the application of section 17 to interest on costs.

In 2011, given the existence of conditional fee agreements, more solicitors are likely to go unpaid before assessment than was the case in 1990. There may well be a case for arguing that the policy considerations behind Hunt v Douglas (Roofing) Ltd have been superseded. That cannot however furnish a Costs Judge with any sound basis for concluding that Hunt v Douglas (Roofing) Ltd and Thomas v Bunn are no longer binding in their entirety.

I am not convinced that the principles governing the exercise of the court’s discretion under the Civil Procedure Rules can be distinguished from the principles behind the application of the incipitur rule as neatly as Mr Mallalieu suggests. However in my view there is much force in his submission to the effect that the introduction of discretion to depart from the established starting point does not in itself justify the conclusion that the starting point has changed.

It is not evident to me that there is any real difficulty in reconciling the County Courts (Interest on Judgment Debts) Order 1991, which merely excludes costs from the general rule that interest on judgment debts will run from the date of quantification, with the court’s discretion to determine the date from which interest on costs shall run. Nor are the other provisions of the Civil Procedure Rules cited by Mr Mallalieu, taken individually, necessarily inconsistent with the conclusion that the incipitur rule no longer applies.

However, Mr Mallalieu seems to me to be right in saying that the wording of section 2 of the 1991 order appears inconsistent with the proposition that the allocatur rule now applies to costs in the County Court. It has not been suggested to me that normal starting point for the accrual of interest on costs in the High Court and in the County Courts is now different. Nor is that an attractive proposition.

Further, if the statutory provisions and the Civil Procedure Rules are viewed as a whole, as I believe they should be, then the very clear impression is as Mr Mallalieu submits that they are predicated upon the continued application of the incipitur rule. If the intention behind those provisions were to displace that rule, one would really expect to see some specific provision to that effect (as, for example, paragraph 45.5(1) of the Costs Practice Direction provides for interest on the costs of assessment to run from the date of a costs certificate).

Given that the starting point, in this case, is that interest runs from the date of the consent order of 14 July 2010 should I, having regard to all the circumstances as CPR 44.3(4) requires, exercise the court’s undisputed discretion to depart from it?

The advantage of an established starting point is, as Mr Mallalieu submits, that it creates simplicity and uniformity. As Sir Christopher Clarke J in Fattal observed, there must be good reason to depart from it.

Sir Christopher Clarke J also indicated (obiter) that where costs are paid at a date long after the relevant judgment, justice would require that the date for the commencement of the interest is postponed beyond the date of that judgment. By his reference to a date “long after” judgment, he would appear to have been contemplating circumstances such as those that arose in Powell: this is not such a case. The learned judge did not give any specific indication of his likely view where, for example, a client would have a contractual liability to his legal representatives for interest on costs pending payment. Given his emphasis on the compensatory approach he would seem to have been addressing the position where no such liability existed, and an award of interest would represent a windfall.

In Motto v Trafigura the claimants as receiving parties were not liable to account to their solicitors for interest on costs (an attempt to argue that such a term must be implied into their Conditional Fee Agreements failed). It followed that any recovery of interest on costs would be a pure windfall to the claimants. The Senior Costs Judge declined to award interest from the date of judgment in those circumstances. That seems to me to be very much in line with the principles stated by Sir Christopher Clarke J, and to furnish an example of good reason to depart from the incipitur rule.

In my view, there is insufficient reason to depart from the normal starting point in this case. Interest on costs should run from the date of the consent order of 14 July 2010. I have reached that conclusion for these reasons.

Mr Mallalieu’s emphasis on the non-compensatory purposes of judgment interest loses some force in respect of unquantified amounts, given that (costs excepted) the general rule is that such interest will not accrue until quantification. Nor, I suspect, would many judgment creditors appreciate the fine distinction between compensation for being out of pocket and compensation for the fact that a judgment debt remains unpaid. The authorities relied on by him in relation to the compensatory approach are of limited assistance to me, referring as they do to pre-judgment costs: it seems to me that the weight of authority indicates that interest on post-judgment, pre- quantification costs is primarily compensatory in nature.

That said, an award of interest in this case will not represent a windfall to the Claimant, because her solicitors will retain any interest awarded. Accordingly the question is whether the receipt of post-judgement, pre-quantification interest by her solicitors in this case is so at odds with the compensatory approach as to justify, in the exercise of the court’s discretion, departure from the incipitur rule.

If the Claimant had an unqualified contractual obligation to pay interest on outstanding post-judgment costs, it would in my view be entirely consistent with the compensatory approach to award interest on costs between the parties from 14 July 2010. The fact that her only obligation is to account for such interest as is received, is not in my view sufficient reason to depart from the established starting point. If anything the limiting of a client’s interest liability in this way should not be discouraged. The award of interest in such circumstances does not in my view depart from the compensatory approach; it simply reflects the commercial reality.

Most solicitors’ conditional fee agreements will extend to the conclusion of assessment. They may extend to enforcement proceedings. Nonetheless, by the time that a final order is made for the payment of a successful party’s costs of an action, normally that party (as in this case) will be contractually liable to pay his or her representatives. From the date of that order, the receiving party’s costs can at any time be quantified and settled. Any interest payable on such costs can be reduced or eliminated by timely settlement or the making of a suitable interim payment, as the paying party sees fit. If for any reason a receiving party’s conduct hinders a paying party’s efforts in that respect, there might be a reason to disallow interest for a given period, but that has not been suggested here.

Any danger of an interim overpayment can, as Mr Mallalieu suggests, be addressed by an agreement to refund overpayments with interest at the appropriate rate (or for that matter by the exercise of the court’s powers under CPR 44.3(6)(g)).

I do not accept that the Claimant’s representatives’ entitlement to a success fee in itself furnishes sufficient reason to depart from the established rule. I am unable to accept Mr White’s submission that recovery of interest in such circumstances represents an additional success fee, or to conclude that justice requires interest to be disallowed where a success fee is payable. To my mind that is to assume that recoverable success fees are already formulated so as to compensate for delayed payment post-judgment.

Success fees, insofar as they are (absent a specific order to the contrary under CPR 44.3B) recoverable from paying parties, are not formulated on that basis. They reflect primarily the risk to the legal representative of going unpaid as at the date the relevant agreement was signed. They will on that basis be agreed between the parties, subjected to independent assessment or (as in this case) fixed by reference to the provisions of CPR 45. It follows that they should be taken to be reasonable by reference to criteria that do not include delay in payment post-judgment. Compensation which ultimately passes to legal representatives for such delay does not create injustice and does not represent an additional reward.

In Hunt v Douglas (Roofing) Ltd, both parties thought a solicitor-client agreement in the following terms sufficient to redress any potential injustice by the application of the incipitur rule where a receiving party had paid nothing to her representatives prior to assessment:

In this case, the contractual provision relied upon by the Claimant refers only to the retention of interest by her solicitors. However counsel’s standard PIBA terms require the Claimant’s solicitors to account for any interest received on counsel’s fees. Accordingly the Claimant should receive interest from 14 July 2010 on solicitors’ costs, on counsel’s fees and on disbursements paid before that date or in respect of which the Claimant or her solicitors have a contractual obligation to account for interest. Interest may be recovered on other paid disbursements from the date of payment.

Subject only to that qualification my conclusions, in summary, are that the incipitur rule continues to apply and that there is no good reason to depart from that rule in this case.