Disbursement funding loans are becoming an increasingly popular method for law firms to assist in funding expensive litigation and maintain cash flow, for instance in clinical negligence claims or commercial disputes. However, such loans come attached with interest payments. The question on whether interest paid on a disbursement funding loan can be recovered by a successful party has cropped up in a number of recent cases.
Recovering Interest as a Cost
It has long been established that costs of funding are not recoverable inter-partes and therefore should not be claimed as an item within the Bill of Costs. This was shown in the cases of Hunt v RM Douglas (Roofing) Limited (1987) TLR, 23, and Motto & Ors v Trafigura Ltd & anor  EWCA Civ 1150. As such, there is a question mark as to whether interest on a disbursement loan would form a part of costs of funding, which would thus not be recoverable inter-partes.
Recovering Interest on Costs
Under CPR 44.2(6)(g), the Court can award interest on costs. Typically, such interest would run from the incipitur date for costs (when any order is made for costs to be assessed, or the date of any Part 36 Offer acceptance). As the interest on any disbursement loan would have accrued prior to this date, this would be at odds as to the usual award for interest, and the question would therefore arise as to whether pre-judgment interest could be recovered.
Jones & Ors v Secretary of State for Energy and Climate Change
In the case of Jones & Ors v Secretary of State for Energy and Climate Change & Anor  EWHC 1023 (QB), it was established that pre-judgement interest was recoverable on a credit agreement. In her Judgment, Mrs Justice Swift stated that the credit agreement obtained by the Claimant to fund the personal injury claim;
“provided a means by which the claimants could obtain funding for their disbursements without being required to advance any monies themselves and without financial risk since the credit agreements provided that, in the event of a claim failing, the disbursements would be paid by the ATE insurers”.
It was held that interest should be paid at an interest rate of 4% above base, which was also upheld by the Court of Appeal.
Can Interest be Recovered on a Disbursement Funding Loan?
Theoretically yes however, this would be wholly dependant upon a pre-judgment award for interest being permitted which is uncommon. It is therefore likely that the client should be made aware of interest on any disbursement loan, and that this may be deducted from damages, to avoid any reduction to costs recovered. Other factors that may also be taken into account were also highlighted in the recent case of Nosworthy v Royal Bournemouth  EWHC B19(Costs), in which it was highlighted that disbursement loan interest may be disallowed due to:
- The availability of any other funding sources, such as BTE, which is commonly considered before entering into a CFA.
- Any other interest recovered. In Nosworthy, in excess of £500 interest was recovered for the general costs, and thus it was stated this could be offset against any disbursement loan interest.
- Similar to Court fees remissions, does the client actually require a disbursement loan or do they have sufficient income/savings to fund the same?
Update – 10 July 2020
In the matter of Marbrow v Sharpes Garden Services Limited  EWHC B26 (Costs) heard in the SCCO, it was reaffirmed that interest should run from the incipitur date. It was considered in principle that pre-Judgment interest on disbursement funding was recoverable, and that there was a powerful argument to allow this if the receiving party had struggled to fund litigation. In the circumstances however, the interest accrued on the loan was not considered so significant as to warrant the award of pre-Judgment interest, and that the standard 8% recovered in interest from the incipitur date was adequate to offset against the disbursement loan interest.
It is therefore important that if a claim is to be made for pre-Judgment interest on a disbursement loan, that the client’s circumstances have been taken into account (and those of the Solicitor in justifying the appropriate rate of interest that should apply). Marbrow also reaffirmed that interest on a loan should not be included as an item in the Bill, and that it should be made alongside the usual claim from interest on agreement of the main costs.
How Can LPS Assist?
The Legal Practice Support team are always happy to help/advise on any costs issues, including the recovery of interest on disbursement funding loans. If you would like to find out more, please feel free to view the legal costs section on our website for further guidance. Our Costs Director, Robert Collington, can be contacted via email on email@example.com or by telephone on 01204 930234.Read More
What is Money Claim Online (MCOL)?
Money Claim Online (MCOL) is a method of settling a dispute or disagreement by initiating a County Court claim for a fixed sum of money. It is a straight forward way to commence Court proceedings for small claims which amount to less than £100,000.
These types of claims should be issued by one Claimant, against no more than two defendants. The HM Courts and Tribunals Service have set out guidance on making a money claim online, including which types of dispute this method can be used for, and how to accurately complete the Claim Form. The guidance also sets out the rules for making a MCOL, such as the requirement to be aged over 18, have a valid email address, and be based in England or Wales.
Proclaim Integration with MCOL
As more and more Solicitors are beginning to offer assistance with MCOL, we have noted an increase in enquiries relating to the integration of the Eclipse Proclaim Claims Management System and Money Claim Online.
The good news is that Proclaim can be integrated seamlessly with the MCOL system as the data is available on an open government licence, giving you the flexibility to manage your money claims, alongside the rest of your case load, all within the one system. The benefit of this type of integration is that processes become more streamlined, and efficiency is improved as a result.
How Can Legal Practice Support Assist?
At LPS, we are skilled in developing and optimising your Eclipse Legal Proclaim system to fit 100% with your business needs. If your law firm uses the Proclaim system, and is offering assistance with MCOL, we are able to develop your Proclaim system to allow for MCOL integration with Proclaim.
If you would like to find out more about Proclaim integration and how a Proclaim Developer from the Legal Practice Support team could assist your firm, please do not hesitate to contact firstname.lastname@example.org for further information.Read More
What is Proclaim Go?
Eclipse Legal have launched a new mobile and tablet friendly app which will help fee earners access important information whilst on the go. Proclaim Go was developed for legal professionals who find themselves travelling often or requiring access to live case information whilst in client meetings.
This innovative new solution allows fee earners to undertake a number of tasks on the go, such as viewing future tasks, logging phone calls, recording time, recording meetings, updating vital information in real time, and creating memos. As long as fee earners have access to the internet, and a smartphone or tablet, users can access history details of any case, including all previous correspondence and documents, whilst away from their computer.
The new solution also offers an optional two-factor authentication to increase accessibility whilst maintaining security. The extra flexibility provided by this app will see an increase in fee earners’ productivity and will help them provide an excellent service to their clients as all information can be accessed instantly.
Proclaim Go may also be of particularly useful during the Coronavirus outbreak as many employers have been forced to adapt to working from home. This new app gives Proclaim users another efficient method of accessing case information remotely. To find out more about how Proclaim can assist your employees in working from home, have a read of our recent article.
Eclipse Proclaim, is the most popular legal case management system which has been endorsed by the law society and is used by many types of legal service providers. The addition of Proclaim Go to Eclipse’s case management solutions will only add to the popularity of the system due to its ease of use and adaptability.
How Can Legal Practice Support Assist?
Legal Practice Support can provide information to law firms on this new app. We also assist law firms in accessing their Proclaim, and other case management systems remotely.
We are experienced in taking out-of -the-box Proclaim legal software and developing it to automate processes and reduce administrative tasks, both of which are of great use when having to work remotely.
Having been active in the Legal IT industry for over seven years, we have valuable experience managing IT systems for firms as small as 30 people all the way up to enterprise clients with over 300. Furthermore, we are accustomed to working with multiple other stakeholders to resolve any IT problems that might arise.Read More
What is a Precedent H Costs Budget?
A Precedent H Costs Budget is used at the beginning of the litigation process and outlines the details of any costs expected to be incurred throughout the case. Practice Direction 3E sets out the rules for case management, including costs budgeting .
A Costs Budget should include all base costs incurred to date, future costs expected to be incurred throughout the case up to and including trial. All solicitor’s fees and disbursements, such as Court fees should be included within the budget.
Deviating from a Budget
In the case of Harrison V University Hospitals it was established that a Costs Judge could only depart from Precedent H if there was good reason to do so. It has since been difficult to establish exactly what would constitute a good reason to depart from a Precedent H costs budget as the Court did not provide any guidance on this.
In the case of RNB v London Borough of Newham it was held that a reduction in hourly rates did amount to a good reason to deviate. In this case, master Campbell stated:
“At the assessment hearing, I made reductions to the hourly rate claimed for the incurred costs to a level which has meant that the overall recovery by the Claimant for the period of work before the Costs Management Order has been reduced by significant amounts. Were that not to be reflected in the budgeted costs, that would mean that the Claimant will appear to recover an hourly rate as set out in Precedent H for the budgeted stage, at a level that significantly exceeds the figure I consider to be reasonable for the pre-budget stage.”
This decision was later decided the other way in the SCCO and ultimately, this guidance has been followed since that a change in hourly rates did not constitute a ‘good reason’ to deviate from a Costs Budget.
Utting V City College Norwich
In the recent case of Utting V City College Norwich there was yet another debate on what would constitute a good reason to depart from an approved Precedent H Costs Budget. In this case it was debated whether an underspend would constitute a good reason.
Master Brown held that, in this case, the underspend could not amount to a good reason to depart from the budget and he therefore refused to reduce the amounts claimed for phases that ‘had not been substantially completed.’ This was contrary to the decision made in Barts Health NHS Trust v Salmon.
Master Brown stated in Utting that:
“even if ‘underspend’ were a “good reason” for the purpose of CPR 3.18 it does not follow that there should be a deduction from the sums claimed. Plainly, the fact that a party has spent less than its budget for a phase does not mean there is therefore in fact a good or appropriate reason for any further reduction and I was not satisfied that there was any additional “good reason” for any such reduction.”
As such, unless it can be demonstrated that the expenditure in an incomplete phase of Precedent H Costs Budget is unreasonable, then there is no ‘good reason’ to reduce the costs claimed as under the approved expenditure of the phase.
How Can Legal Practice Support Assist?
The Legal Practice Support team are always happy to help with any budgeting issues. If you would like to find out more about best practice in preparing your Cost Budget, please feel free to view the section on our website for further guidance. Our Costs Director, Robert Collington, can be contacted via email on email@example.com or by telephone on 01204 930234.Read More
What is a Fee Challenge Under the Solicitors Act 1974?
Part III of the Solicitors Act 1974 regulates the amount of disbursements and costs which a Solicitor can invoice within their bill to their client. Under this Act, the client has the ability to dispute the fees, such as success fee deductions, and disbursements within the Solicitor’s bill. This act applies to a large range of practice areas, including personal injury cases, conveyancing cases and contentious business litigation.
With many companies now offering services to clients to assist in disputing their legal fees, these types of challenges are becoming more commonplace in the legal industry, which is why it is important that solicitors are aware of their duties under the Act, when opening and closing files. It is also important that they know how to defend this type of claim, if and when they arise.
What Should a Solicitor do When Opening a File?
If the case is based on a Conditional Fee Agreement, it is important that the Conditional Fee Agreement is drafted properly, and does not just routinely charge a 100% success fee. In the case of Herbert v HH Law  EWCA Civ 527, it was shown that solicitors should undertake a proper and bespoke risk assessment at the start of every case, instead of applying a 100% success fee as standard across all cases. The success fee calculated will determine what deductions can be taken, if any, from the client’s damages.
It should also be noted that any retainer must make clear that the client may be charged more than they recover from the other side, as otherwise the Solicitor risks being limited to calculating any success fee as against any fixed costs recovered, in Fast Track personal injury litigation.
What Should a Solicitor Do When Closing a File?
The most important step which a Solicitor should routinely take when closing a file, is serving a signed statute bill. A Solicitor cannot enforce their fees to a client unless a statute bill has been properly delivered to the client, but equally, the timescale for a client to contest any deductions from their damages runs from the date of service of a statute bill. If enforcing a Bill, the Solicitor has several options open to them to collect payment, including the obtaining of a charging order.
If you serve a statute bill, this starts the clock ticking on any timescale for the client to contest any deductions. This timescale is limited to one month if the statute bill is paid (which in the event of damages deductions, payment is immediate). If the bill is not discharged, the same can be contested for up to twelve months post-service of the document.
The statute bill should include a description of all work done on the file, and should be delivered to the client via post, in person, or via e-mail, if the client has requested.
It is also imperative that you make sure any success fee deductions from damages is calculated correctly. This must comply with the retainer, in that the correct success fee is used, and charges calculated against the WIP incurred at the hourly rates detailed in the CFA (presuming it states that the client may be charged in excess of any amounts recoverable from a paying party).
Deductions must also comply with statute, and can only be calculated based on past damages (not future losses), and be capped at 25% of the same.
When Should a Statute Bill be Served on a Client?
- At the end of the case, when all of the work agreed under the retainer or CFA has been completed.
- Interim statute bills can be served when there is an express agreement for the solicitor to do so, and the client has been made aware of their entitlement to assessment under the Solicitors Act 1974.
- Following a natural break within the litigation process, which allows each portion of the work being done to be treated as a distinct and separate part of the litigation.
- Following the termination of a retainer or CFA, for example, if the solicitor has a good reason to terminate the CFA or retainer.
Defending a Challenge Under the Solicitors Act 1974
Proceedings for a challenge under this act can be held in the High Court or the County Court, and are dealt with under Part 8 of the CPR. The Solicitor can contest the Claimants entitlement to assessment, if there is sufficient reason to do so. If the Solicitor does not, or cannot contest the entitlement to assessment, section 46.10 of the CPR will apply for the costs to be assessed, in a similar procedure to that of detailed assessment.
How Can LPS Assist?
The Legal Practice Support team are always happy to help with any costs issues, including defending costs challenges under the Solicitors Act 1974. Our Costs Director and Costs Lawyer, Robert Collington, can be contacted via email on firstname.lastname@example.org or by telephone on 01204 930234.
If you would like to find out more information on preparing your Cost Budget, Bill of Costs, or the process of detailed assessment, have a look at these sections on our website. Feel free to have a look at our legal costs section to find out more about out legal costs services.Read More