Interest on Costs

The case of MacInnes v Hans Thomas Gross [2017] is a very useful case to read as it covers a number of topics including indemnity basis costs awards, interest, proportionality, costs budgeting and payments on account. The focus of this article is the useful contents from the Judgment in relation to interest on legal costs. Pages 3, 4 and 5 are the relevant aspects of the Judgment to consider in this regard and I set out below the key points:

• The court awarded pre-judgment interest at a rate of 4% above base rate and relied heavily on the Judgments in McPhilemy v Times Newspapers Limited [2002] and KR v Bryn Alyn Community (Holdings) Limited [2003] EWCA Civ 383 when making its decision.
• In relation to post-judgment interest the court ruled that it should not start to accrue until 27 April 2017 (which was 3 months after the date of the Judgment). The reason for this was because the court awarded a very substantial payment on account and followed the logic of Leggatt J in the case of Involnert Management Inc v Aprilgrange Limited and Others [2015] which provided some very useful guidance in relation to post-judgement interest. The logic behind the deferral of 3 months was the fact that by that time Detailed Assessment Proceedings should have been commenced, and therefore the paying party would have had sight of the bill and could start to make a realistic assessment of the amount of their liability. Without sight of the Bill of Costs, it could not do that.
• It is important to note that in relation to the post-judgement interest point, the deferral of interest for 3 months was primarily due to the fact that a Costs Management Order was in place and the court made an order for a substantial payment on account. If a Costs Management Order was in place, but a substantial payment on account was not made then one would expect the court not to make such an Order in relation to post-judgment interest i.e. interest would run in the traditional way (8% from the date of Judgment).
• The position in relation to pre-judgment interest should be considered by any law firm acting for a client on a private fee paying retainer. When it comes to the issue of interest on costs, the court has a wide discretion as to when interest starts to run under CPR 44.2 (6) (g).

Therefore, where appropriate, law firms should be seeking interest from before the date of Judgment as it will be beneficial to the client given that the rate is likely to be 4% above base rate from when the law firm’s invoices were paid (invoices could date back a number of years).

This blog was prepared by Andrew McAulay who is a Partner at Clarion and the Head of the Costs and Litigation Funding team. Andrew can be contacted on 0113 336 3334 or at andrew.mcaulay@clarionsolicitors.com.