In Simcoe v Jacuzzi the issue to be determined was the date from which interest on costs should begin to run. The Court of Appeal judgment was keenly awaited and it fell essentially into two parts:
- Is the normal rule that interest on costs starts from the date of the judgment or order containing the entitlement to costs (known as the ‘incipitur’ rule) or from the date when costs are assessed (known as the ‘allocatur’ rule)?
- Does the presence of a CFA make a difference to the normal rule?
As we now know, save for a sting in the tail about the disproportionate nature of the Claimant’s solicitors’ costs, the judgment was a resounding success for the Claimant.
However, this was a County Court case and the judgment did not definitively deal with the issue of interest in the High Court. Steven Dawson and Simon Denyer examine the implications for High Court cases and advise on steps to be taken from now on. They also consider whether the impact of the decision on interest might be softened in any event with the arrival of the Jackson reforms.
The Claimant brought a personal injury claim in the County Court for damages arising from a repetitive strain injury suffered at work. He entered into a CFA with his solicitors with a success fee of 100%. The claim for damages settled at £12,750 together with costs to be assessed on the standard basis, if not agreed. Those costs were subsequently agreed at £74,000.
The only matter in issue was whether the Defendant was liable to pay interest on costs from the date of the consent order containing the entitlement to costs, or from the date when costs were agreed.
At the heart of the dispute was the provision in CPR 40.8(1) that interest payable on a judgment pursuant to s.17 Judgments Act 1838 or s.74 County Courts Act 1984, runs “from the date that judgment is given”unless another rule or practice direction, or the court provides otherwise.
The key question was the meaning of the word ‘judgment’, with the Claimant arguing that it meant the date of the consent order agreeing the entitlement to costs, so that the normal rule under CPR 40.8 is theincipitur rule.
However, as a fallback argument, the Claimant argued that technically, CPR 40.8 is ineffective in the County Court in any event. Consequently, the applicable rule is contained in the County Court (Interest on Judgments Debts) Order 1991(‘the 1991 Order’) which mandates that interest is payable from the incipitur date.
The Court of Appeal considered that the fallback argument required disposal at the outset given the potential ramifications of a provision of the CPR being ineffective. There were four issues therefore to determine:
Is CPR 40.8(1) valid in the County Court?
Section 74(1) County Courts Act 1984 requires any provision for interest on judgments to be made “with concurrence of the Treasury”. In short, the Treasury did not sanction CPR 40.8(1) and it is therefore invalid.
If it is not valid, does the 1991 Order mean that interest on costs runs from the incipitur date?
Under article 2(1) of the 1991 Order, interest runs on any judgment debt from the date of the ‘judgment’. Under article 2(2) in the case of a judgment, other than costs, where the amount is to be determined at a later date, interest runs from that later date.
The Defendant argued that the effect of these two provisions gave the court the freedom to decide from what date interest on costs runs on the facts of a particular case. This argument was rejected:
“when it comes to an order for costs, the only ‘judgment’ is that reflected in the order for costs to be assessed or agreed: the subsequent quantification of the costs is either an agreement or a certification.”
The effect then of these articles is that interest on costs must run from the date of the judgment which contains an order for costs – i.e. from theincipitur date.
In any event, does 40.8(1) contain a general rule that interest runs from the incipitur date?
Albeit that the case had been decided by answering the first two questions, it was still important to answer this one. The above reasoning which applied to the word ‘judgment’ in the 1991 Order equally applies in CPR 40.8(1) so that the normal rule under CPR 40.8(1) is also the incipitur rule.
Is there any good reason to depart from the general rule?
The presence of a CFA was not a good enough reason to depart from the normal rule. Much of the reasoning of the House of Lords in Hunt v AM Douglas (Roofing) Ltd (1988) was still valid and had not become obsolete by virtue of the introduction of CFAs. In particular, it is still the case that the effect of a claimant not paying anything to his solicitors until after the costs have been recovered from the defendants is that those solicitors have been financing their client’s litigation and they should not be expected to do so.
It is unfortunate from a certainty point of view that the parties in the High Court case of Motto v Trafigura compromised their dispute over interest.Motto was due to be heard by the Court of Appeal at the same time asSimcoe so that the position in both the High Court and County Court could be considered together. Technically then, this judgment only applies to County Court matters.
So what is the position in the High Court?
The High Court and above is governed by section 35A Senior Courts Act 1981 and whilst the incipitur rule is specifically spelt out in article 2 of the 1991 Order there is no similar provision in section 35A. Further there is no provision within the rules requiring concurrence of the Treasury.
In Motto, Senior Costs Judge Master Hurst followed the previous House of Lords authorities on the point in Hunt and Thomas v Bunn (1990) and held that the incipitur rule still applied. However, as CPR 40.8(1)(b) gave him the power to decide the date from which interest starts to run, he ordered that interest should run from the date of any interim or final costs certificate.
The Claimants in Motto were on a CFA Lite whereby a client’s liability for costs is limited to the sums recovered. They would never have to pay anything towards their costs. The judge rejected the Claimants’ argument that any interest ought to be paid to the legal representatives, who have effectively funded the litigation throughout and it was not appropriate to imply into the CFA any term that the Claimants should account to their solicitors for interest.
However, in Simcoe the Master of the Rolls has now decided that the presence of a CFA is not a reason to depart from the incipitur rule.
The position in relation to High Court cases therefore is still unclear but it is likely that claimants and judges will apply the Simcoe judgment, ignoring the non-binding decision in Motto. Defendants should be prepared to proceed on the basis that the judgment applies to High Court cases as well, but as the position is not definitive, it may still be worth using the argument in negotiations with claimant solicitors and at detailed assessment.
How far reaching is the effect of the invalidity of CPR 40.8(1)?
The Master of the Rolls was clear that the decision “does not mean that the provisions of the rule, let alone those of the CPR as a whole, are of no effect”. However, he did allude to the possibility that arguably CPR 40.8(2) might not be valid either. If that were to be the case, then no doubt there would be further scrutiny of other provisions for interest in the rules, for example, CPR 47.8: interest sanctions for the delay in commencing detailed assessment proceedings, or even Part 36 interest consequences.
No doubt one of the purposes of the judgment was to alert the Treasury to the immediate need to validate the CPR. We shall have to see whether anyone raises arguments about the validity of other CPR provisions or the issue of retrospective concurrence in due course.
The way forward – to make interim payments on account of costs or not?
Claimants will undoubtedly use this judgment to seek interim payments and there may be still some narrow scope for resisting them. This involves using argument around the interpretation of CPR 44.3 "Court's discretion and circumstances to be taken into account when exercising discretion as to costs" and in particular 44.3(8) “where the court has ordered a party to pay costs, it may order an amount to be paid on account before the costs are assessed.”
However, a balancing exercise needs to be carried out to decide whether the benefits of refusing to make an interim payment - i.e. the potential to promote a swift and reasonable settlement, especially on high value matters to ease claimant solicitors’ cash flow - outweighs having to pay interest on the full amount at 8% from the date damages were settled.
Ultimately, we cannot see any imminent change ahead on this point, although the Defendant is rumoured to be considering an appeal to the Supreme Court. Further, there is currently no sign of Parliament reviewing the judgment rate of 8%. The safest way then to avoid excessive interest payments is to make an interim payment. Indeed new costs rules have been drafted pending the implementation of the Jackson reforms, so that whenever the court makes an order for costs to be assessed, the court will also order an interim payment on account of costs, unless there is good reason not to do so.
Prior to the rule change, when making an interim payment claimant solicitors should be referred to the Rules 17.2 and 17.4 SRA Solicitors Accounts Rules. These rules provide that the interim payment is client money and therefore must remain in the solicitors’ client account and not utilised for any purpose. The only way the money can be released is if an invoice is delivered or details of the costs incurred are provided to the client. Given that by the time an interim payment is made, details of the costs have been provided to the defendant, any further invoice could have a significant impact on the costs claimed. Therefore, when making the interim payment it should be stipulated that if the money is released from the solicitors’ client account, a copy of the invoice to the client or information provided in relation to the costs incurred should be disclosed.
Further, it should also be made clear that if costs are reduced below the interim payment figure, the additional sums are to be returned together with interest at 8%.
The bigger picture
Although this judgment currently offers no comfort, insurers should look ahead to the bigger picture of the Jackson led changes, and see this argument over interest as a sideshow. There is support again in this judgment for the changes inspired by Jackson. In this case, which did not go to trial, costs were almost six times as much as the value of the claim itself, a disparity the Court of Appeal saw as showing that“something is out of kilter” and providing ample justification for the changes in the pipeline.
With the ending of recoverable additional liabilities and a new rule on proportionality imminent, the real issue of excessively disproportionate costs ought to be addressed so that the fear over interest should be less of an issue.
If you would like to discuss any of the issues raised here in more detail or require advice, please contact:
Steven Dawson, Head of Costs
DD: +44 (0)113 261 6118
Simon Denyer, Head of Occupational Health
DD: +44 (0)161 604 1551