Fosse Motor Engineers Ltd & Ors v Conde Nast & National Magazine Distributors Ltd & Ors

In this matter I handed down the substantive judgment on 20^th August 2008. This case was a case which related to a fire which occurred in December 2002 at premises owned by the first claimant and used or occupied by the other claimants. The claim against the first defendant was that it, through its servants or people who might be considered as its servants, had negligently caused the fire. I decided, having heard evidence and argument, that the case on liability and causation was not established and thus the claimants’ case, presented attractively though it was, was dismissed.

We now come to consider the question of costs, and it is agreed in principle by the claimants, wholly properly, that they should pay the first defendant’s costs of the action to be subject to detailed assessment on a standard basis. It is also agreed that there should be a payment on account of costs (£300,000) on or by 28^th October 2008. What is in issue is whether or not the claimants should pay interest on the costs which the first defendant’s insurers have paid to-date from the dates on which invoices for costs and disbursements were paid until the date of this judgment at 1 per cent above the prevailing Bank of England base rate, with interest thereafter running at the Judgment Act rate until payment. There is no issue today about the rate of interest, if interest should be allowed.

There is a witness statement submitted by the first defendant, that of Mr. Barnaby Burton, in which he identifies a total sum of costs incurred of approximately £680,000 from January 2004 to August 2008 and he says that sums have been paid out in effect on account of costs as the proceedings have been pursued. CPR Rule 44.3 (6) says this:

“The orders which the court may make under this rule include an order that a party must pay .....

(g)

interest on costs from or until a certain date, including a date before judgment.”

There has been some authority on this, and it is probably simplest if I quote from a decision of Kitchin J. in Nova Productions Limited v Mazooma Games Limited No. 2 [2006] EWHC 189. Mr. Justice Kitchin, at paragraph 6, says this,

“I was referred to a number of cases in which the jurisdiction has been considered. I will refer to them in chronological order. In Amoco UK Exploration Company v British American Offshore Limited [2002] BLR 135, Langley J. said at (9) and (10):

‘9. The jurisdiction to award interest on costs before judgment derives from and originated with CPR 44.3 (6)(g). There is almost no authority on how it should be exercised. I have been referred to the decision of Ferris J in Sir Elton John and others v Price Waterhouse (unreported 12 July 2001) at paragraphs 36 to 41. Ferris J, at paragraph 40, considered that the fact that the costs involved are large did not carry very great weight. In that case the relevant sum seems to have been about £3m.

Mr. Justice Kitchin then goes on at paragraph 10 to refer to another important case,

“The third case to which I was referred was another decision of the Court of Appeal in Bim Kemi AB v Blackburn Chemicals Limited [2003] EWCA Civ. 889. Here the court was concerned with a number of issues relating to costs following a series of findings in favour of the defendants. One related to a request by Blackburn for interest on costs. Waller L. J. in giving the judgment of the court stated at 18 (c):

‘c) Interest on costs awarded in Blackburn’s favour

Mr. Onslow in his written submission suggested that there should be no order for payment of interest on costs. He suggested this would be a most unusual order and further suggested that such an order is never made. It is clear from CPR 44.3 (6) (g) that the rules intended that the court should have power to award interest on costs and Mr. Onslow did not press these submissions orally. In any event in principle there seems no reason why the court should not do so where a party has had to put up money paying its solicitors and been out of the use of that money in the meanwhile. It furthermore seems to us that Mr. Wilson is right that there is no reason why Blackburn should not have interest at the judgment rate as from 30 January 2002, that being the date of the order of the trial judge. That must be so in our view because if the judge had made the order which we now hold he should have made in Blackburn’s favour, interest would have been payable at the judgment rate from the date of that order down to the date of payment -- see Hunt v R M Douglas (Roofing) [1990] 1 AC 398. That leaves the question of interest on costs incurred prior to that date. It seems to us that once again, 1% over base rate is the appropriate rate of interest, that interest to run from the date of each invoice’.”

In paragraph 11 Kitchin J. says,

“Important in this paragraph of the judgment is the observation that in principle there seemed to be no reason why the court should not order interest on costs where a party has had to put up money paying its solicitors and has been out of the use of the money in the meantime”.

At paragraphs 16 and 17, Kitchen J. went on to deal with the case in question so far as interest was concerned,

“16.

In the light of all these authorities, it seems to me that the court has a broad discretion when deciding whether to award interest on costs from a date before judgment. That discretion must be exercised in accordance with the principles set out in CPR 44.3 and the court must take into account all the circumstances of the case, including such matters as the conduct of the parties and the degree to which a party has succeeded. Further, the discretion must be exercised in accordance with the overriding objective of dealing with the case justly. I am unable to accept the submission that interest on costs should only be awarded in a case which is in some way out of the norm. I find no basis for that in the CPR and I believe it would provide an unwarranted fetter on the court’s discretion. This conclusion is, in my judgment, supported by the decisions of the Court of Appeal in Powell and in Bim Kemi.

17.

In the present case the following matters are to my mind particularly relevant. First, the claimant has wholly failed in these actions. Secondly, I have awarded the defendants all of their costs. Thirdly, those costs are substantial and been incurred over a period of some 15 months. Fourthly, the purpose of making the order for costs was to compensate the defendants for the costs incurred in defending these heavy actions which have failed. Fifthly, the real costs of these actions to the defendant include the costs associated with the defendants having been deprived of the use of their money pending judgment. Finally, no particular circumstances have been drawn to my attention in support of the submission that it would not be just to award the defendants interest on their costs from a date before judgment. As I have indicated, the only matter upon which reliance is placed is that this case is not out of the norm”.

I accept and adopt Mr. Justice Kitchin’s approach in principle.

What has happened in this case, as is not uncommon in commercial or commercial type litigation, is that both active parties in this case were insured and, as might reasonably be expected, it was the insurers who, on the evidence before me, had incurred costs by paying bills on account to solicitors, experts and counsel, and maybe other outgoings as well. The issue arises as to whether, as a matter of principle, initially, and then, alternatively, as a matter of discretion, interest should be awarded on costs in effect to compensate the first defendants and its insurers who have incurred the costs on account to-date.

Mr. Purchas in his written and oral argument has presented attractively an argument, and a perfectly reasonable argument, that it is not the first defendant which has incurred the cost. He argues that the first defendant made a bargain at some stage prior to the fire with its insurers whereby its insurers would be responsible for defending any proceedings and it would be paying the costs of the defence of the action as matters proceeded. That is not challenged as a matter of fact by the first defendant, so the real issue, as a matter of principle initially, is whether or not this is a case in which the court in effect has the right to exercise its discretion under CPR 44.3 (6) (g). It is perhaps of interest that that sub-rule talks in broad terms about the court having a discretion to award interest on costs from or until a certain date. It is interesting for this reason, that it does not limit, at least by words, an award of interest on costs in relation only to the party which has incurred those costs. The wording is broader.

I consider that, as a matter of principle, and as a matter of commercial reality, the court does have a discretion to allow interest on costs for a successful party where those costs have been incurred by the successful defendant’s insurers. It is a facet of modern commercial life, and certainly in connection with buildings and occupation of buildings, that arrangements are made for insurance, and it would be commercially a very odd state of affairs where the court could not take into account the commercial reality, which is that it is the defendants’ insurers in this case which has actually funded the defence of the claim and the court has clearly a wide discretion. It seems to me, in those circumstances, that it is open to the court to allow interest on costs expended by a successful party’s insurers.

When one comes on, however, to the facts of the case, Mr. Purchas points (wholly properly) to the fact that there is no evidence in effect as to how the first defendant’s insurers funded the case. He makes the point in oral argument that the insurers in their business assess risks, that one of the risks they assess is no doubt that if they defend proceedings such as this, they will incur costs, that the cost of funding the defence and litigation will or may have a cost to them and that they can, in effect, protect themselves financially against that by the adjustment of premiums either to the particular defendant or to its insured, or future insured in general, to allow for any shortfall incurred by funding defence costs. He says that there is no evidence before the court as to how the defence and the cost of the defence was funded.

It seems to me the matter is much simpler than that, however. There will have come a time, assuming the evidence before me is correct, when the first defendant’s insurers paid out bills. That will have come out of a fund -- a bank account, possibly, in simple terms -- which would otherwise likely have been earning the insurers some money. It is extremely unlikely that the insurers, so to speak, have kept the costs, or the funding for the costs, under their metaphorical mattress, and it is therefore extremely likely, and I will certainly make the presumption, that there will have been a loss or cost to the insurers of paying out costs bills as they arose during the course of this action. The award of interest on costs, certainly as a matter of principle and discretion, is not,

This was a relatively substantial case involving claims of over £4 million by the claimants and, in effect, serious allegations were made against the first defendants, or, at the very least, against their employees. Substantial costs appear to have been incurred and the very fact that the interim payment of costs has been agreed at £300,000, which is something less than 50 per cent of what is said to be the total costs bill, is evidence of that. These proceedings have been going on for the best part of three years and this is a case, looking at the other cases which have been referred to by the parties, in which it is appropriate to award interest; therefore, as a matter of principle, and then as a matter of discretion, this is an appropriate case in which to award interest at the rate claimed. Having said that, I assume that in effect the interest calculation will be done after the assessment of costs because if the invoices relate to costs expended which are not allowed by the taxing judge then obviously there is no interest on them. The payment on account will doubtless reduce any interest which would otherwise be recoverable if no interim payment had been made.