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Payments on account just got interesting!

July 2011

Senior Costs Judge, Chief Master Hurst has decided in Motto & Others v Trafigura [2011] EWHC 90206 that interest on pre assessed costs should not be awarded to the receiving party in cases funded by Conditional Fee Agreements where clients are only charged what is recovered from the paying party (known as CFA Lites).  This decision begs the question; should payments on account of costs be made if no interest is to be paid?

For many years, following the judgment in Hunt v R M Douglas (Roofing) Limited [1990] 1 AC 398 and Thomas v Bunn [1991] AC 362 it has been accepted that interest on costs ran from the date of judgment.  However the Defendants in this case were being asked to pay more than £100million and there were £8million good reasons per annum to dispute that custom!

To put this matter as succinctly as possible, Chief Master Hurst was asked to decide whether the entitlement to interest on costs ran from the date when judgment is pronounced (the incipitur rule) or from the date when costs are assessed (the allocator rule).

After hearing two days of submissions the Master set out his conclusions in a 46 page judgment that interest at 8% should run from the date when the interim or final costs certificate is issued rather than from the date of the judgment.  This was because the Claimants funded the litigation by CFA Lites and would never have to pay anything in respect of those costs and as a consequence they should not be compensated with interest for that expense.

The incipitur rule had been the accepted practice for many years; however recent County Court judgments in Gray v Toner (11 November 2010) and Bridle v Iklas (22 February 2011) held that interest ran from the date of the assessment of costs.  This appeared to contradict the House of Lords’ decisions in Hunt and Thomas although those cases were decided before the introduction of CFAs or the Civil Procedure Rules that give the courts discretion to allow interest to run from a different date.

The Master handed down a detailed judgment as it was accepted that there was bound to be an appeal, however the judgment is summarised as follows:

·       The incipitur rule still applies and the decisions in Hunt and Thomas are still binding;

·       The court has the power to make an order that interest runs from a date other than the date the judgment is given;

·       Any interest belongs to the Claimant;

·       It is not appropriate to imply into a CFA a term regarding the Claimant accounting any interest recovered to the solicitor;

·       The solicitors could not recover interest on their own behalf even though they funded the litigation.

Although this a High Court decision, it should now be treated that interest is not payable to a receiving party for the period before costs have been assessed/agreed if the receiving party has funded the case by a CFA Lite (or CFA) and is not liable to pay costs in excess of the amount recovered from the paying party.  Therefore should a paying party make a payment on account?

It must be remembered that the Master specifically stated that the incipitur rule still applies and Hunt and Thomas are still binding.  Therefore interest will still run on costs from the date of judgment unless the case was funded under a CFA and more specifically a CFA Lite.  It must also be remembered that payments on account are not made solely to reduce the paying party’s liability to pay interest.  A payment on account of £30 million was made by the Defendants in Motto & Others v Trafigura, yet no decision was made (as yet) as to whether that payment should be returned or what should happen to the interest that is accruing. 

Each case should be treated on its on merits and payments on account made when it is reasonable and proportionate to do so.  As all parties must inform the court and opponents if they are funding a case under a CFA, applications for payments on account in CFA funded cases should be opposed unless it can be shown that the receiving party is out of pocket or has been asked to contribute to the cost of the proceedings and should be compensated for that expense.

Payments on account should be resisted not only in detailed assessment proceedings but also in consent orders and awards from trial judges.  The question should be asked whether the receiving party has personally paid any of the costs claimed or will be required to pay costs beyond those recovered from the paying party.  If the answer to those questions is “no” then a payment on account should not be made as interest is not payable on the costs claimed.

The same questions should be asked if a payment on account is requested during detailed assessment proceedings with the same response.

In cases funded privately or by public funding the incipitur rule remains and the Master’s decision does not alter the position that interest in those cases runs from the judgment.  Reasonable and proportionate payments on account should therefore still be made.

The above sets out the default position.  However, as stated above, all cases should be treated on their own merits and issues may arise in certain cases that will alter the above; for example when extensions in time will only granted upon a payment on account.

The Motto & Others v Trafigura judgment does offer the potential of considerable savings to paying parties through reduced interest and the avoidance of payments on account.  However the judgment should not be used as a “blunt tool” and should be used only when appropriate.

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Date:29 June 2022     Time:11:28:19