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Civil procedure – interest – costs – CPR
8 October 2015
Mr Justice Leggatt
High Court, Queen’s Bench Division
The claimant had been ordered at a previous hearing to pay 75% of the defendants' costs as well as costs incurred by the second third party, in each case to be the subject of a detailed assessment on the standard basis, if not agreed. The court also ordered the claimant to make interim payments to the defendants and the second third party.
The present proceedings concerned the determination of the date from which interest should run in respect of the remaining costs owed by the claimant under s 17 of the Judgments Act 1838 (‘Judgments Act’). The claimant asked the court to exercise its power under CPR 40.8 to order that the interest payable should begin to run from a date six months after the date of the costs order. The defendants and second third party opposed the application, submitting that interest should run from the date of the costs order, rather than the assessment of costs, in line with the general rule set out in CPR 40.8 and the decision in Hunt v R M Douglas (Roofing) Ltd  1 AC 398.
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The court held that interest should run from three months after the date of the costs order.
Section 17(1) of the Judgments Act 1838 provides that interest runs from such time as the court is satisfied.
The court considered the case of Thomas v Bunn  1AC 362, in which the House of Lords held that interest on damages under s17 runs from the date of the judgment or order assessing the costs payable, rather than the date of the order establishing liability. The case of Hunt was then considered, whereby the House of Lords had adopted the opposite approach in ordering that interest was payable from the date of the judgment establishing liability. The court’s reasoning in Hunt, namely that the balance of justice favoured the payment of interest from the date of judgment, was influenced by the absence at that time of any power to award interest on costs for any period before the date of judgment. This power was given to the court under CPR 44.2(6)(g), and was exercised by the court in the present case. The court held that, given the availability of such orders, the balance of justice no longer favours the approach in Hunt, and that the wording of s17 clearly contemplates a quantified judgment debt for which execution can be levied.
The court then considered CPR 40.8(1), which provides that interest payable under s17 Judgments Act ‘shall begin to run from the date that judgment is given unless ... (b) the court orders otherwise’. Therefore, whilst the default date from which interest is payable is the date on which a costs order is made, the court may order interest to run from a date later. The court confirmed that it is not required to show exceptional circumstances to exercise this power. Further, it was held that Hunt established that an order for payment of costs to be assessed is a ‘judgment’ for the purposes of s 17 Judgments Act. It did not, however, prevent future courts from exercising a discretion to award interest from a later date.
The court held that it would not be just to order interest to run from a date before the paying party could reasonably be expected to pay the debt. Furthermore, where the court has ordered an appropriate interim payment to be made on account of costs, it is not reasonable to expect the paying party to pay the balance of the debt until it has knowledge of what sums are being claimed and has had a fair opportunity to consider which sums it accepts are properly payable. However, the court confirmed that the date from which interest runs should not be deferred simply because the rate is higher than the commercial rate.
The court decided that, in putting this principle into practice, the date on which interest should run from should be based on some objective benchmark, rather than the judge’s ‘general feeling of what length of postponement is fair.’ The court used the period for commencing detailed assessment proceedings under CPR 47.7 being three months after the date of the costs order. The court explained that using this benchmark of three months would generally ensure that the paying party has received the information required to make a realistic assessment of its liability before it begins to incur interest on judgment debts for failing to pay that amount. It further held that, under CPR 47.8(3), if the recipient party fails to commence detailed assessment proceedings within three months of the judgment, the court may disallow all or part of the interest otherwise payable under s 17 Judgments Act.
Following the power given to the court to award interest on costs for any period before the date of judgment, the balance of justice no longer favours the date on which interest begins to run being the date of the costs order. Conversely, where such power has been exercised, it is desirable for interest to run from three months following the judgment. This judgment appears to strike a fair balance between the interests of the paying party, in providing sufficient time for it to make an assessment of its liability, and the recipient party, who is provided with a degree of certainty through the use of an objective benchmark.
Kim Pryce & Victoria Brown, Anthony Gold