The entitlement to statutory interest on costs in High Court arises from Section 17(1) of the Judgements Act 1838 which provides that every judgment debt will carry interest at a rate prescribed by rules of Court until such time as the debt is paid. Section 74(1) of the County Courts Act 1984 provides that interest will be payable on “relevant judgments” where relevant judgment means judgment for not less than £5,000.
The dispute as to the date when the interest starts accruing on costs went all the way to the House of Lords where in the case of Hunt v R M Douglas (Roofing) Ltd [1990] 1 AC 398 it was held that interest on costs is a judgement debt and interest therefore runs from the date when the judgment was pronounced and not from the date of the order. The decision in Hunt v R M Douglas (Roofing) Ltd had been preserved in CPR 40.8(1) which provides that interest would be payable on any judgement pursuant to Section 17 of the Judgments Act 1838 or Section 74 of the County Courts Act 1984 from the date when the judgment was given unless the Court orders otherwise.
In accordance with the decision in Hunt the date from when interest starts running on costs is crystal clear. However, the recent High Court decision of Involnert Management Inc v Aprilgrange Limited & Others [2015] EWHC 2834 (Comm) Mr Justice Leggatt was asked to depart from the general rule as set out in CPR 40.8(1) and order that interest on the remaining costs payable by the claimant should begin to run from the date six months after the date of the costs order as it was unjust to order interest from the date of the judgment. Mr Justice Leggatt exercised his discretion under CPR 40.8(1)(b) and ordered that interest should run from 22 December 2015 which was three months after the date when costs order was made.
Before making his decision Mr Justice Leggat referred to the overriding objective and considered what decision would be just in this specific case. He considered that in no case it would be just to make an order under which interest began to run for unpaid judgment debt before the paying party could reasonably be expected to pay the debt; the paying party could not pay the debt until it knew exactly what sums were being claimed by the receiving party. As a result when delivering his decision Mr Justice stated that:
“I do not think it just in these circumstances that interest on whatever further sums the claimant is ultimately found liable to pay to the defendants should begin to run at the rate applicable to judgment debts before the claimant has been provided with a detailed statement of the costs claimed so that it can take an informed view of the amount its liability".
He also considered that the decision of the House of Lords in Hunt v R M Douglas (Roofing) Ltd could not prevent the court from ordering that interest should run from the date when the amount of costs payable was assessed, if that what the justice required.
Finally Mr Justice elaborated on when the interest on costs should start running in general. He referred to CPR 47.7 and the period specified for the commencement of detailed assessment proceedings as a benchmark. In his opinion the interest on costs should begin to run three months after the order for costs is made as by that time the paying party would have received all the information they might require to make an informed decision regarding their liability for costs. Mr Justice therefore stated:
“it seems to me that a reasonable objective benchmark to take is the period prescribed by the rules of court for commencing detailed assessment proceedings. Pursuant to CPR 47.7, where an order is made for payment of costs which are to be the subject of a detailed assessment if not agreed, the time by which detailed assessment proceedings must be commenced (unless otherwise agreed or ordered) is three months after the date of the costs order. In order to commence such proceedings, the receiving party must serve on the paying party a bill of costs giving particulars of the costs claimed. It is then for the paying party to decide which items in the bill of costs it wishes to dispute. Postponing the date from which Judgments Act interest begins to run by three months will therefore generally serve to ensure that the party liable for costs has received the information needed to make a realistic assessment of the amount of its liability before it begins to incur interest at the rate applicable to judgment debts for failing to pay that amount.”
Author’s comments
The above case highlights the importance of the overriding objective and specifically the court’s duty to deal with cases justly. It would also seem that in light of the overriding objective the courts are exercising their discretionary powers more.
The concerning part of the above judgment, although it is not binding, is that there is a potential for more satellite litigation on the issue of when the interest begins to run on costs.
Please refer to the article by Mr Nicholas Lee dated 26 January 2016 if you would like more information about entitlement to interest before the order for costs is made
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