England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Rolls Building Fetter Lane, London, EC4A 1NL
		10 March 2017

MR JUSTICE ARNOLD :

1. On 3 March 2017 I handed down a judgment ( [2017] EWHC 389 (Ch) ) in which I decided that Mr Bailey should be ordered to pay SATV's costs from 4 January 2013. Although the parties were able to agree most of the consequential order, there was a dispute as to one point which I must now determine.
2. As I explained in my judgment of 3 March 2017 at [1], [27] and [59], on 15 July 2015 I made an order which required WPMC to pay SATV's costs, assessed on the indemnity basis from 26 July 2014 on the ground that SATV had obtained a judgment which was at least as advantageous as their Part 36 offer dated 4 July 2014. For the same reason, that order also provided that WPMC should pay interest on SATV's costs from 26 July 2014 at the rate of 8% above base rate. So far as the question of the rate of interest was concerned, counsel for SATV invited me to follow the decision of Leggatt J to award 8% in Thai Airways International Public Co Ltd v KI Holdings Co Ltd [2015] EWHC 1476 (Comm), [2015] 3 Costs LR 545 at [30]. As I recorded in my judgment of 15 July 2015 at [11], no objection to that rate was made by counsel for WPMC, and therefore that was the rate I ordered.
3. Counsel for Mr Bailey contended that Mr Bailey should not be required to pay any interest on SATV's costs at all, and in the alternative that he should not be required to pay interest on SATV's costs from 26 July 2014 at the rate of 8% above base rate, but at a lower rate not exceeding 3% above base rate.
4. Counsel for SATV submitted that, given my finding in my judgment of 3 March 2017 that from 4 January 2013 Mr Bailey was the real party who controlled and partly funded the defence of SATV's claim with a view to his own benefit, it was not open to Mr Bailey to go behind the order dated 15 July 2015. He argued that, if Mr Bailey wanted to contest the award of 8% interest, then he should have instructed counsel for WPMC to do so on that occasion.
5. I do not accept this submission. Counsel for SATV did not go so far as to suggest that the matter was res judicata as between SATV and Mr Bailey, and in my view he was right not to do so. Although it could be argued, in the light of my findings, that Mr Bailey was a privy in interest to WPMC for the purposes of the doctrine of res judicata, it seems to me that the better view is that, as explained by Lewison LJ in Threlfall v ECD at [13] (quoted in my judgment of 3 March 2017 at [8]), in making a non-party costs order, the court is not determining legal rights and obligations, but exercising a statutory discretion. That being so, it is open to the court to decide when exercising that discretion not merely the principle of whether the non-party should be ordered to pay costs, but also the quantum of the costs which it would be just to require the non-party to pay. I consider that this analysis is supported by the decision of the Court of Appeal in Systemcare v Services (cited in my judgment of 3 March 2017 at [7]), in which the Court of Appeal held at [49]-[50] that it was open to Mr Sharif to require Systemcare's costs to be assessed notwithstanding the issuance of a default costs certificate in favour of Systemcare.
6. Given that I have already decided that WPMC should be ordered to pay interest on SATV's costs since 26 July 2014 because SATV obtained a judgment at least as advantageous as SATV's Part 36 offer, however, it seems to me that the onus lies on Mr Bailey to show why it would not be just for the same reason to require Mr Bailey to pay interest at the same rate and for the same period.
7. I turn therefore to counsel for Mr Bailey's primary submission, namely that Mr Bailey should not be required to pay interest at all. The basis for this submission was SATV's delay in bringing the application. I do not accept that SATV have been guilty of any delay which would justify SATV being deprived of interest on their costs, however. SATV were not in position to make the application prior to 1 July 2015. The most they could have done was to warn Mr Bailey that they would or might make such an application. I have already found, however, that Mr Bailey would not have acted any differently if such a warning had been given: see my judgment of 3 March 2017 at [64]-[67]. As for SATV's delay in making the application after that, I have already held this was explicable (and, I would add, excusable): see my judgment of 3 March 2017 at [62].
8. That leaves counsel for Mr Bailey's secondary submission, namely that Mr Bailey should not be required to pay interest at a rate exceeding 3% over base rate. In support of this submission, he relied upon two authorities which were not cited at the hearing on 15 July 2015. The first is McPhilemy v Times Newspapers (No 2) Ltd [2002] 1 WLR 934. In that case, the Court of Appeal held at [19]-[24] that interest on costs under what was then CPR rule 36.21(3)(b) was intended to be compensatory, not penal, and should be at a rate which "reflects (albeit generously) the cost of money". The second is KR v Bryn Alyn Community (Holdings) Ltd [2003] EWCA Civ 383, [2003] PIQR P30. In that case, the Court of Appeal held at [21]-[22] that, whereas enhanced interest on damages under what was then rule 36.21(2) was intended to provide more than mere monetary compensation, as it also reflected the intangible impact of litigation more generally, this was not true of interest on costs under rule 36.21(3)(b), which was intended to be compensatory and not penal.
9. Counsel for SATV's answer to this submission was to contend that the position was now different following the amendments to Part 36 which had been made since those decisions. In support of this submission, he relied upon the decision of Slade J in Cashman v Mid Essex Hospital Services NHS Trust [2015] EWHC 1312 (QB), [2015] 3 Costs LO 411. Counsel for SATV particularly relied upon what Slade J said at [7]-[9]. As counsel for Mr Bailey pointed out, however, that passage was concerned with what was then rule 36.14(3)(d), which was introduced following the Jackson Review of Civil Litigation Costs. More pertinent for present purposes is what Slade J said at [23]:

"It could be said that the provision of interest under CPR 36[.14](3)(a) and (c) is primarily compensatory although the possibility of a higher rate than would be available in the market introduces a penal element. However, as is rightly recognised by Mr Marven, the purpose of CPR 36.14(3)(d) is penal."

10. I conclude that I remain bound by McPhilemy v Times and KR v Bryn Alan to hold that an order for interest on costs under what is now rule 36.17(4)(c) should be primarily compensatory, although I agree with Slade J that it may have a penal element. Thus the rate of interest should reflect, albeit generously, the cost of money. I therefore accept the submission of counsel for Mr Bailey that the appropriate rate to order Mr Bailey to pay is 3% above base rate.