SCCO Reference: CL 1100594
SENIOR COURTS COSTS OFFICE
London, EC4A 1DQ
B e f o r e :
| MRS ANNIAMMA PAILY KURIAN
|- and -
|MRS BRENDA FALZON
Mr White (instructed by Keelys LLP) for the Defendant
Hearing date: 30 August 2011
Crown Copyright ©
THE CONDITIONAL FEE AGREEMENTS
"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."
The High Court
'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.'
'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).'
The County Court
'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…'
'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 Civil Procedure Rules
'40.8 Time from which interest begins to run
(1) Where interest is payable on a judgment pursuant to section 17 of the Judgments Act 1838 or section 74 of the County Courts Act 1984, the interest shall begin to run from the date that judgment is given unless –
(a) a rule in another Part or a practice direction makes different provision; or
(b) the court orders otherwise.
(2) The court may order that interest shall begin to run from a date before the date that judgment is given.
44.3 Court's discretion and circumstances to be taken into account when exercising its discretion as to costs
…(6) 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.
44.12 Cases where costs orders deemed to have been made
(1) Where a right to costs arises under-
(a) rule 3.7 (defendant's right to costs where claim struck out for non-payment of fees);
(b) rule 36.10(1) or (2) (claimant's entitlement to costs where a Part 36 offer is accepted)…
(d) rule 38.6 (defendant's right to costs where claimant discontinues),
a costs order will be deemed to have been made on the standard basis…
(2) Interest payable pursuant to section 17 of the Judgments Act 1838 or section 74 of the County Courts Act 1984 on the costs deemed to have been ordered under paragraph (1) shall begin to run from the date on which the event which gave rise to the entitlement to costs occurred.
47.8 Sanction for delay in commencing detailed assessment proceedings
(3) If…the receiving party commences the proceedings later than the period specified…the court may disallow all or part of the interest otherwise payable to the receiving party under-
(i) section 17 of the Judgments Act 1838 ; or
(ii) section 74 of the County Courts Act 1984…
47.14 Detailed assessment hearing
(1) Where points of dispute are served…the receiving party may file a request for a detailed assessment hearing.
(2) He must file a request within 3 months of the expiry of the period for commencing detailed assessment proceedings…
(5) If…the receiving party files a request for a detailed assessment hearing later than the period specified…the court may disallow all or part of the interest otherwise payable to the receiving party under-
(i) section 17 of the Judgments Act 1838 ; or
(ii) section 74 of the County Courts Act 1984 …'
The Meaning of 'Judgment' Before the Introduction of the Civil Procedure Rules
'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"…'
'…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  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.'
'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."'
The Meaning of 'Judgment' After the Introduction of the Civil procedure Rules
'… 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.
The Proper Exercise of the Court's Discretion
'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.'
'The answer, in my view, is that the law clearly requires that each case be considered on its own merits so as to reach a conclusion which fits the justice of the circumstances of the particular case (see Powell supra). In Thomas v Bunn  1 AC 362, at 380F, Lord Ackner referred to the "balance of justice". CFA cases are a particular type of case in which the claimant does not have to stand out of his money because he does not have to finance the costs of bringing the case to court. It is therefore necessary and proper to look to see what is just and appropriate for that sort of situation and to see whether it justifies a different date from what might be the norm. Since the claimant has not had to finance costs, he has not been (to use Christopher Clarke J's words in Fattal) "precluded from obtaining a return on the money he has had to expend on costs"'.
Motto v Trafigura
THE DEFENDANT'S SUBMISSIONS
THE CLAIMANT'S SUBMISSIONS
The Incipitur Rule
The Civil Procedure Rules
The County Court
Gray v Toner
The Distinction between Damages and Costs
The Courts' Approach to the Incipitur Rule
The Proper Exercise of Discretion
The Compensatory approach
Examples of the Judicial Approach
The Incipitur Rule
'It would be a brave Costs Judge who decided that the decisions of the House of Lords in Hunt v Douglas and Thomas v Bunn were no longer binding. There are, no doubt, many cases where the circumstances envisaged by Lord Ackner exist, ie, that clients have paid costs to their legal representatives as litigation has progressed. What distinguishes this case, in addition to the introduction of new Rules of Court, is that these proceedings were conducted under a so called CFA lite which ensured that the individual Claimant would never, in any circumstances, have to pay anything towards his or her costs. Conditional and contingency fee agreements were, of course, not permitted at the time of the House of Lords decisions. Thus, in my judgment, the incipitur rule still applies, but the court has the power to order that the date from which interest shall begin to run shall be a different date'.
The Court's Discretion
The Compensatory Approach
Interim Payments and Settlement
Counsel's Fees and Disbursements
'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…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'.