An important reminder to litigators to seek to recover interest on costs

With households and businesses feeling the pinch more than ever in the current financial climate and following the Bank of England’s announcement on 5 May that base interest rates had increased to 1%, the highest level in 13 years, it is important that litigators bear in mind the recovery of interest on their legal costs.

On sums above £5,000, interest is awarded pursuant to s.17 of the Judgments Act 1838 in the High Court. In the County Court, the equivalent powers come from S.74 of the County Courts Act 1984. In the County Court however, generally interest is not payable on sums under £5,000.

Post settlement, the general position is that interest will begin to run from the date an entitlement to costs arises, at a prescribed rate of 8% pursuant to the Judgments Debts (Rate of Recovery) Order 1993, SI 1993/564. Increased awards can be made in certain circumstances however, including when Part 36 offers are beaten at trial.

In addition to interest recoverable post judgment, there is a discretion available to both the High Court and the County Court to award interest at an alternative date. This discretion arises from CPR 40.8 and CPR 44.2(6)(g), and the County Courts (Interest on Judgment Debts) (Amendment) Order 2019, SI 2019/903, art 2.

It is this potential discretionary award for pre-judgment interest which litigators should be most aware of and be armed with submissions to the Court when attending hearings, to recover any losses they may have incurred in financing the litigation.

The date from which any pre-judgment interest will run is again at the Court’s discretion, and it was acknowledged by Lord Neuberger in the Court of Appeal in Simcoe v Jacuzzi UK Group plc[2012] EWCA Civ 137, that there is no ‘perfect date’ for deciding the date from which it should run and a broad brush approach should be taken.

Case law has suggested various starting points as being appropriate, with the date costs were incurred until the date post judgment interest becomes payable, (Richards and Purves v I P Solutions Group Ltd [2016] EWHC 2599 (QB)), the date costs were paid (O’Neill v Avic International Corp (UK) Ltd [2019] EWHC 374 (QB)), and the dates of Solicitor’s invoices were paid, all previously being used as the starting point.

The amount of pre-judgment interest awarded is typically between 1 and 4% above base interest rate, with an increase of 2% being a common award. However, the rate awarded can vary and the amount awarded will depend on the class and type of party involved in the action. For example, first class borrowers with access to capital markets might expect to receive a lower amount of interest.

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