The date from which interest on costs runs

The judgment in Involnert Management Inc v Aprilgrange Limited & Others[i] means that the date from which interest shall be calculated is 3 months after the date of the order for costs.

The Statutory Background

Section 17 of the Judgments Act 1838 provides that interest shall run on judgment debts from the date of judgment, to the date of satisfaction.

CPR 40.8(1) provides that Where interest is payable on a judgment pursuant… the interest shall begin to run from the date that judgment is given’, but gives the court the discretion to order otherwise.

Development of the law

Over the years since the introduction of the Judgments Act, there has been some debate over the correct date from which interest shall run. The two rules proposed have been the incipitur rule, which is that interest on costs runs from the date on which the order for costs was given, and the allocatur rule, that interest runs from the date on which the costs are quantified.

There are clearly good arguments for both positions, however in general the courts have adopted the incipitur principle, culminating in in Simcoe v Jacuzzi[ii] where it was held that interest on costs runs from the date of the order for costs, notwithstanding that those costs have not yet been quantified.

The case of Involnert

In judgment, Leggatt J held that, on the authorities, it is clear that… the date when an order for costs is made is the date judgment is given… even though the amount of costs payable has still to be assessed’[iii], however he confirmed that the court is not restricted in the date on which it can order costs to run and, importantly, found that it is not necessary to show any ‘exceptional’ circumstances in order to do so[iv]. In effect it was held that the date from which interest shall run is at the sole discretion of the court.

Importantly the judge held that it was, in his view, not just that interest on costs should begin to run until the paying party ‘… has been provided with a detailed statement of the costs claimed so that it can take an informed view of the amount its liability’[v] and therefore interest on costs at the rate prescribed by the Judgments Act until ‘a date three months after the orders for costs were made[vi].

Analysis

The effect of this judgment is that the court has held that interest on costs should not run until 3 months after the order for costs. The date of 3 months was arrived at because CPR 47.7 states that detailed assessment must be commenced (and a bill of costs served) no less than 3 months after the date of the judgment or order.

It should be noted that the court did award interest from the date of judgment, but only at the Bank of England Base Rate (at the time of writing, 0.5%) plus 2%.

Also worthy of note that the court allowed interest from the date mandated as the last date for commencement under CPR 47.7, however this would appear to contradict the ratio of the judgment that interest should not run until a ‘detailed statement of costs’ has been provided. It is quite possible that a bill of costs could be served before the expiry of the 3 months, and it is therefore logical to assume that the date from which interest shall run at the Judgments Act rate is the date on which Notice of Commencement (and the bill of costs) is served.

A further question which may in future arise is whether an earlier date could be prescribed in the event that the receiving party serves a statement or other detailed breakdown, not in the form of a bill of costs or by way of formal commencement, in advance of this date. It would be quite possible to argue that an estimate (so long as it is sufficiently detailed) provided prior to the expiry of the 3 month period or, indeed, prior to the final order itself, is sufficient to satisfy the requirements of paragraph 27 of the judgment, and thus trigger the payment of interest at the Judgments Act rate from the date of that statement or from the date of the order itself.

A further issue which does not appear to have been considered is the effect of a costs management order or Precedent H costs budget in the case. It would certainly be possible to argue that where a costs management order has been made or a budget filed, the court should allow interest on costs in respect of the costs allowed from the date of the order, and interest on costs (if such costs are allowed) above this amount would be allowed for a different period or at a different rate.

Summary

It remains possible to argue that interest at the Judgments Act rate (8%) runs from the date of the order for costs, as the court has discretion to make such award as it considers just on the facts of each case. However in order to support a claim for interest earlier than the date on which notice of commencement is served, or 3 months from the date of the order, parties should seriously consider whether to provide a detailed breakdown of their costs in order to assist in negotiations.

A final word of caution: a party which chooses to serve a breakdown of costs before serving a bill must ensure that it is accurate. It is unlikely that a court will consider that a breakdown which bears no resemblance to the bill ultimately filed is sufficient to trigger the payment of interest, and furthermore may in fact draw an adverse inference. Accordingly receiving parties should ensure, so far as possible, that estimates or breakdowns are drafted properly and not simply ‘plucked from the air’, in order to achieve the best results.

Matthew Rose is a Solicitor in the Costs and Litigation Funding department at Clarion Solicitors. You can contact him at matthew.rose@clarionsolicitors.com, or the Clarion Costs Team on 0113 2460622.

 

[i] [2015] EWHC 2834 (Comm)

[ii] [2012] EWCA Civ 137

[iii] Para 19, Involnert

[iv] Para 20 ibid

[v] Para 27 ibid

[vi] Para 28 ibid

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