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Cite as: [2002] 1 ILRM 450, [2001] IESC 201

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Clarke v. Garda Commissioner [2001] IESC 201; [2002] 1 ILRM 450 (31st July, 2001)

THE SUPREME COURT

Record No. 226/99

Keane, C.J.

Murray, J.

Hardiman, J.

Geoghegan, J.

Fennelly, J.

BETWEEN

BRENDAN CLARKE AND FERGUS McCARTHY

Plaintiffs

AND

THE COMMISSIONER OF AN GARDA SIOCHANA, THE ASSISTANT COMMISSIONER OF AN GARDA SIOCHANA, RICHARD O. WALSH, JOHN GERAGHTY, THE MINISTER FOR FINANCE, THE MINISTER FOR JUSTICE, IRELAND AND THE ATTORNEY GENERAL

Defendants

JUDGMENT delivered the 31 ^st day of July, 2001 by FENNELLY J.

1. A Case Stated from the Circuit Court raises the question of whether interest is payable on costs from the date of the judgment or order awarding them or only from the date of taxation. Surprisingly, the law is far from clear and the authorities are in a state of some confusion.

2. The facts are simple. The plaintiffs are members of An Garda Siochana and were plaintiffs in a High Court action (Record No. 8228P) which was settled on 15th May

1996, on terms one of which was that the defendants “pay to the Plaintiffs their costs of the said action when taxed and ascertained.” Although the Case Stated is silent on the point, it can be assumed that the settlement was made a rule of court and that an order for taxation of costs was made.

3. The Taxing Master of the High Court issued a Certificate of taxation on 20th March 1997 certifying £130,388.27 as the sum due for party and party costs . This was paid on 8th May 1997. No interest was paid . Interest at the prevailing rate of 8% per annum from 15th May 1996 to 8th May 1997 is agreed to amount to £10,215.01 . The plaintiffs claim this sum as due from the date of the settlement . The defendants argued that interest was payable only to the extent that the plaintiffs were out of pocket . The plaintiffs had paid £64,000 to their solicitors on account of fees in February 1996 . His Honour Judge Kevin Haugh at the request of the defendants stated the following question of law to the Supreme Court pursuant to section 16 of the Courts of Justice Act, 1947:

"When costs have been taxed on a party on [sic] party basis, is the party responsible for discharging those costs liable to discharge a sum in respect of interest on those costs, between the date upon which the costs order was made and the date of payment in circumstances where the interest sought does not relate to a sum of money in relation to which the party to whom costs are to be paid is out of pocket, nor in relation to which an agreement exists between the said party and his Solicitor regarding the payment of interest on such costs?"

4. Although this question does not expressly ask whether interest should run from the date of judgment and thus prior to the amount being determined in taxation, it is clear that this is the essential legal issue.

5. The parties have referred principally to the following cases: O’Sullivan v O’Dwyer (No 2) [1973] IR 81; Attorney General (McGarry) v Sligo County Council (No 2) [1991] IR 99 785 (“ McGarry”); Cooke v Walsh and Attorney General [1989] ILRM 322 ( Cooke v Walsh ); Hickey v Norwich Union Fire Insurance Society Ltd (High Court Unreported 23rd October 1987, Murphy J ); Best v Wellcome Foundation Ltd [1995] 2 IR 393 ( “ Best” ). Reference was also made to a number of older Irish cases and to some English ones.

6. The plaintiffs argument is that interest is payable by virtue of the sections. From the moment of the judgment, the successful party is entitled to interest, which represents the price of money which one party has and which is owed to the other. The defendants’ principal argument is that interest should run only from the date or dates upon which the successful party has discharged the costs in respect of which he seeks interest.

7. The point at issue is the extent of the right to interest on costs awarded by an order of the court, not the issue which the court had to determine in some of the cases, namely the exercise of discretion to provide for interest . Self-evidently interest runs from the time when taxation of costs fixes the amount due from the losing party. What is in dispute is whether it runs from the making of the order . This right is governed by statute.

8. The relevant statutory provisions are to be found in two sections ( "the sections" ) of the Debtors Ireland Act 1840 (otherwise 3 and 4 Vict Chapter 105) . They are, so far as relevant:

"26. Every judgment debt due upon any judgment not confessed or recovered for any penal sum for securing principal and interest shall carry interest at the rate of four pounds per cent per annum from the time of entering up the judgment........; and such interest may be levied under a writ of execution on such judgment.

27. All decrees and orders of the Court of Chancery .... and all rules of any of the superior courts of common law ........ whereby any sum of money or costs, charges or expenses shall be payable to any person shall have the effect of judgments of the superior courts of common law ....."

9. The entry of a judgment for the purposes of those provisions is governed by Order 41, rule 6 of the Rules of the Superior Courts which provides:

“Particulars of every judgment or order of the High Court ... shall be entered in proper books to be kept for that purpose and the judgment or order shall be filed in the Central Office .......... Every judgment or order pronounced or made by the High Court ..... when so filed shall be deemed to be duly entered.....”

10. At common law and, therefore, prior to the passing of the Act of 1840 and its equivalent in England, the Judgments Act, 1838, no interest was payable on a judgment as such . A new action at law had to be started . (Gaunt v Taylor 3 Myl. & K. 302)

11. These venerable provisions remain, surprisingly, the key to the question raised in the Case Stated. They have been adapted to the Circuit Court by section 47 of the Courts (Supplemental Provisions ) Act, 1961 and section 21 of the Courts Act, 1981 and as the point of reference for the award of interest on damages in section 22 of the latter act .

12. Unfortunately, as remarked by Murphy J at page 397 of his judgment in Best, "issues with regard to the payment of interest on costs in legal proceedings have been debated in this country and in England over many years and there have been conflicting decisions within both jurisdictions." I might add that there appears to have been variation not only between Irish and English practice but also between the courts of common law and of equity. More confusingly still, some of the decisions turn, not on the terms of the sections buy on versions of footnotes to the forms attached to the Rules of Court.

13. The plaintiff relies on Cooke v Walsh; the defendant relies on McGarry. However, the first of the modern cases is O’Sullivan v O’Dwyer. Where, on appeal, a High Court judgment awarding damages for personal injuries was, in part, upheld, and, for the rest a new trial was ordered, a motion was brought before this Court after judgment to determine the plaintiff’s right to interest on the undisturbed portion of the amount awarded by the original judgment . This Court ruled in the plaintiff’s favour on the basis of the sections and the Rules of Court . It is not clear why this was necessary: the right to interest flows, as is clear from the last phrase of section 26, from a judgment covered by the sections . It may be

levied on execution without the necessity for any further order. In spite of a passing reference, it is not clear that the issue of interest on costs was debated in O'Sullivan v O'Dwyer ; certainly, no issue arose as to the distinction between the dates of judgment and taxation. Nonetheless, it is clear that this decision concerning interest on the judgment is expressly based on the sections.

Cooke v Walsh, because it expressly concerns interest on costs, is more directly in point. The High Court ruled in favour of the Attorney General and against the defendant on a disputed constitutional issue. The High Court decision was reversed on appeal . Consequently, the defendant was awarded costs of the High Court as against the Attorney General, but this dated only from a judgment of this Court . No prior judgment or order of the High Court to that effect had been given. It appears from the report that this Court entertained a request from both parties after judgment to rule as to the date from which interest on those High Court costs should be payable.

14. McCarthy J delivered a judgment with which Walsh, Henchy, Griffin and Hederman JJ agreed, holding that the defendant should have interest from the date of the High Court order, which, when made, was, of course, against the defendant . There was not, therefore, strictly speaking, any judgment or order for costs to which sections 26 and 27 could have applied . For that reason, the decision does not directly govern the present case. Nonetheless, McCarthy J, at page 325, upheld an " argument founded on [an] analogy with the reasoning of Walsh J in O’Sullivan v O’Dwyer" but "with the necessary changes to advert to the Rules of the Superior Courts."

15. The key passage of the reasoning of McCarthy J reads:

"If a litigant has discharged legal costs he is, on being awarded his costs, entitled to interest on the amount from the date of judgment; this may be qualified in vacuo by pointing to the fact if it be the fact, that he did not pay

this sum until a date after the judgment. If they have not been paid, they would appear to have an equitable right to interest on the undischarged amount or amounts; I see nothing wrong in principle in securing that such interest is paid from the earliest date the law permits, to the successful litigant, either by way of direct indemnity for the loss of interest on monies paid out by him, or by way of indirect indemnity to those who have had to await such payment."

16. Even if its application of the sections is analogous only, Cooke v Walsh represents a considered approach to the principle to be applied when the sections are directly applicable. The core principle to be extracted is that “interest [should be] paid from the earliest date the law permits.”

17. It is necessary now to compare this decision with that in McGarry. Residents living near the Carrowmore Passage Grave Cemetery objected to local authority plans to establish a refuse dump in the vicinity . They failed, in the High Court, in their application for injunctions, though they were awarded half costs but succeeded in the Supreme Court, where they were also awarded for the first time the entire costs of the High Court proceedings . To that extent, the situation seems to me to be on all fours with that which

obtained in Cooke v Walsh. However, the plaintiffs asked this Court, unlike the former case, when drawing up its order, to provide for interest on the costs incurred in the High Court from the date of the original High Court order . Walsh J, speaking for himself, Hederman and McCarthy JJ thought that the plaintiffs’ reliance on Cooke v Walsh was to oversimplify the position . He said, at page 119:

"The costs involved in this case are party and party costs. The basis of party and party costs is one of indemnity. It is also important to bear in mind that the costs as between party and party are the client's costs. What can be recovered in party and party taxation is the money paid out or, perhaps in tune with more modern practice, the monies which the successful party had already undertaken with his solicitor and counsel and other persons to pay, such as witnesses etc., even though not yet paid. Nothing can be recovered in party and party taxation unless three conditions are fulfilled namely, (a) that the court has made an order for costs in favour of the party, (b) that the matters claimed had been properly incurred, and (c) that the party in question is under legal liability to pay them.

Where the money has been actually paid out by the client when he is under a liability to pay it and that money qualifies as taxed costs he would be entitled to interest on it if the court awards interest. However if the money has not been paid out the liability is not greater than to pay sums agreed between the client and his legal advisers and the legal liability is no greater than the sum

he has agreed to pay. Primarily that is a matter entirely between the client and his legal advisers. It does not of course follow that everything he has agreed to pay or has in fact paid would be recoverable in party and party taxation because the Taxing Master may properly disallow certain payments as not having been properly incurred or else incurred to a greater amount than would be allowable under taxation.

If in a case where the client has not yet paid anything to his legal advisers and has no agreement with them to pay interest either on what he has agreed to pay them or on the sums taxed he has no right to claim indemnity against the other side in respect of a sum for which he is not legally liable. Indemnity can only arise where there has been loss or expense incurred and where that is not present there is no right to indemnify in respect of any such sum."

18. This passage forms the foundation stone of the position adopted by the defendants in the present case . Liability for interest on costs is accepted to the extent that the claimant can show the costs to have been discharged namely £64,000 . I will return to this point when I discuss the rationale of the rule.

19. Walsh J did not, as he had done in his judgment in O’Sullivan v O’Dwyer, make any reference to the sections . The phrase, "when the court awards interest," is inconsistent with the last phrase in section 26. Walsh J. appears, nonetheless, to have rejected if only implicitly the reasoning underlying the judgment of McCarthy J. in Cooke v Walsh .

20. The latter reasoning was based apparently on attributing an equitable interest on sums which had not been disbursed by the successful party to those entitled to payment. Walsh J.

interpreted the indemnity principle as having the effect that interest would be payable to the successful party only to the extent of disbursement.

21. Counsel for the defendant argued strenuously that, in McGarry, this Court overruled Cooke v Walsh . He drew attention in particular to the fact that all three members of the Court had participated in the judgment in the former case. It is sufficient to state that the Court did not purport to overrule the earlier decision. The judgment contains no mention of the sections which deal with interest on costs. I do not think McGarry is an authority on the interpretation of those sections. I will deal later with the defendants argument that the right to interests on costs should depend upon the discharge of particular items of costs.

In Best, Murphy J. found himself called upon to attempt a reconciliation of these two judgments, where a plaintiff, whose claim was rejected by the High Court, was successful on appeal, again securing from this Court an order for costs of the former . In that case, unlike all the earlier three cases, the plaintiff instituted new proceedings for interest on the High Court costs after they had been taxed . Murphy J. reconciled Cooke v Walsh with McGarry on the basis, now agreed to be mistaken that, in the latter case, the plaintiff was seeking interest in respect of a period prior to either judgment. It is now accepted that this was not so.

22. As I have stated, McGarry is not an authority on the interpretation of the sections. Cooke v Walsh proceeds upon an underlying rationale that interest on costs should in principle run from the date of the judgment awarding them.

23. A considered treatment of the entire history of the matter is to be found in the ex tempore judgment of Murphy J in Hickey v Norwich Union (High Court, unreported 23rd October 1987) . In that judgment, Murphy J points to the Irish case of Lidwell v Lidwell 7 Ir

24. Eq Rep 91, decided in 1844, as showing that, prior to 1883, interest on costs ran from the date of taxation only, known as the allocatur rule. It emerges from this and other cases that (following the passing of the respective Acts of 1838 and 1840 in England and Ireland) the courts of common law and equity differed in their treatment of the issue . In the case of judgments (at common law), as it was put by Blackburne M.R., in Lidwell v Lidwell, “there is but one document .... which admits of no averment that any interval elapsed between the award of the judgment and ... Taxation.” In such cases the incipitur rule applied: interests ran from the date of judgment. In chancery, on the other hand, it was well established that interest ran only from the date when their amount was ascertained by the officer of the court , i.e. allocatur. (Taylor v Roe [1894] 1 Ch 413). The actual issue in Lidwell v Lidwell concerned a discrete decree for costs in a chancery suit. However, I think a careful reading of the judgment of Blackburne M.R. and in particular the passage which I have cited demonstrates that the accepted view was that where liability for costs was fixed in the same originating document as a principal sum, which was the case at common law, then interest on both would run from that date.

25. However, from 1884, the common law practice became general . This can be traced to Pyman & Co v Burt [1884] W.N. 100, where Field J, in an ex tempore judgment, held that interest on costs should run from the date of the decree . He accepted, having noted the differences between the common law and equity practices, that, “if nothing

to the contrary [could] be gathered from the rules, the defendants [were] entitled to say that the equity practice [was] now to prevail” . His conclusion that there was something to the

contrary was based entirely on a note to the form of writ of execution set out in Appendix H to the rules of court which had been newly adopted in 1883. The note accompanied by an asterisk provided for the insertion in the form of the date from which interest was to run in

respect of both judgment and costs . It appeared in identical form in the contemporaneous Irish Rules and read: “Day of judgment or order, or day on which money directed to be paid, or day from which interest is directed by the order to run, as the case may be.” The note to the forms of execution order provided in Appendix F Part II and by Order 42. r 13 of the present Rules of the Superior Courts is, in substance, identical . Field J held that the note meant that, in the absence of a special order, interest on costs as well as on the principal sum ran from the date of the judgment . Thus, the rule of common law, rather than equity prevailed. However, for the first eight years after the passing of the Judicature Act in England, the rule of equity had been applied . In Schroeder v Cleugh [46 L.J. Common Pleas 365] a majority of the Court of Common Pleas relied upon the note to the forms scheduled to the Judicature Act indicating that the date of taxation was to be inserted in the blank space referable to the date from which interest on costs was to run and applied the allocatur rule.

26. In the light of the identical terms of the rules, forms and note, the Irish courts followed Pyman & Co v Burt . ( Alexander v Curragh 1915 1 I.R. 273 ). In effect, therefore, the question of the effect of the sections has been held to depend for over one hundred years on a note to a form provided by the Rules of Court.

27. It appears from the extensive review of the history of the matter by the Court of Appeal in England in K v K [1977] 1 All ER 576, per Denning MR at page 580, that, although the law in that jurisdiction remained unchanged in principle, the practice of seeking

interest on costs from the date of judgment had fallen into disuse . (see Stephenson LJ at pages 584 and 585) . The reason which persuaded the Court of Appeal to depart from the

earlier practice (the disappearance of what Denning M.R. called "the offending note" ) does not apply in this jurisdiction. The note, as I have observed, survives. However, the change in the rule permitted the Court of Appeal to apply what Lord Denning called “a little

commonsense.” As it happened he considered the common law to have adopted a “very technical view typical of those days” whereas “equity took a sensible view.” Fairness required, he believed, that liability for interest should run only from the ascertainment of the costs. This decision was followed in another Court of Appeal decision, Erven Warnink BV v J Townend & Sons [1982] 3 All ER 312, which contains some statements upon which the defendants placed reliance in support of the distinction based on whether or not costs had

been discharged. The story does not even end there. In Hunt v R M Douglas (Roofing) Ltd [1988] All ER 823, the House of Lords overruled K v K, pointing out that the Court of Appeal had misinterpreted the change in the rule made in 1965. This does not concern this Court, since no corresponding change had been made here. The House of Lords reaffirmed Pyman v Burt as a basis for retaining the incipitur rule. However, it is of interest to see that the House of Lords did not consider that the allocatur rule was necessarily more just. I will quote part of what Lord Ackner, speaking for a unanimous House, had to say on the balance of justice:

“I agree with the Court of Appeal that a satisfactory result cannot be achieved in every case, but 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 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 ....... 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......”

28. I am sceptical about the extent to which the English cases place reliance on the footnote to the forms . It seems to me doubtful whether the note upon which, inter alia, Field J. founded his judgment, being no more than an indication of how a form is to be completed, can prevail against the proper interpretation of the statutory provisions. I certainly do not believe that the note to the present rules, read with the corresponding asterisk, and intended to indicate the dates to be inserted in blank spaces in the appendix F forms amounts to a provision of sufficient status or clarity to displace the true interpretation of the law. As it happens, that approach would reinforce, as did Murphy, J. in Hickey -v- Norwich Union , the inciptur rule, which I am proposing on different grounds. I would add that section 21 of the Courts Act, 1981, applies the provisions of section 27 of the Debtors (Ireland) Act to the Circuit Court as if its decrees were “decrees and orders of the Court of Chancery referred to in that section.” The original action in the present case is, of course, a High Court action, but it would be undesirable to have a different interpretation of the sections for the High Court and Circuit Courts, which would follow from basing the interest provision in the High Court on a note to its rules. In the case of the Circuit Court, the sections of the 1840 legislation are applied directly.

29. The matter should be decided on the basis of the correct interpretation of sections 26 and 27 by reference to principle and common sense . In the first instance, it should be remembered that interest on costs, just as much as interest on the amount of the judgment is to be collected by operation of the machinery of execution of judgments . This procedure does not envisage any inquiry as to matters which concern essentially the relationship between a party and his solicitors, counsel or others . Consequently, I would reject the notion, so much advocated by counsel for the defendants, that the extent of the right to interest should depend on the extent to which a party has discharged costs whether comprising the fees of his legal advisers, expert witnesses or others . In the ordinary way, these are matters of which the officer executing the order of the court is necessarily unaware . Presumably it has been possible to disclose such information in the present case, because a separate legal action was brought to recover the interest. I accept the argument of counsel for the plaintiffs that taxation is concerned only with the measure of the costs of the successful party as of the date of judgment and that he has no function to inquire into payments made after that date.

30. On the issue of principle, I am of the view that costs constitute a liability of the unsuccessful party from the moment of the decree or judgment, that they are not payable until quantified but that, from that point the debt relates back to the date of the judgment, with interest running from that earlier date.

31. These views are, I believe, consistent with the wording of sections 26 and 27 of the Debtors (Ireland) Act. Section 26 gives the right to interest from the date of entering up of judgments.

32. In the circumstances, I propose that the question in the Case Stated be answered:

33. Yes. Interest is payable on costs from the date of the judgment which awards them.