Interest on Legal Costs & Entitlement to the Same
The Judgments Act 1838 and Interest on Legal Costs
Under the Section 17 of the Judgments Act 1838, a receiving party can claim 8% interest on unpaid legal costs. The burden for interest can be reduced by virtue of completing a realistic assessment assessment of the amount of costs payable, and raising a payment on account. Interest will not run on any payment of costs made on account and thus it is worthwhile making such payments to reduce the overall costs payable by a paying party. S17 of the Judgments Act applies to cases settled by way of a Part 36 Offer or a sealed Order, thereby providing for a judgment debt. In many recent cases, there have been questions raised on whether the rate at which interest runs on legal costs should be reduced, and also the date from which interest should run (the principle dispute has often been where interest runs from the date of the Order for costs, or the date of agreement of costs).
This was demonstrated in the case of Hunt v RM Douglas (Roofing) Ltd  1 AC 398 when it was established that interest would be recovered from the date of judgment (Part 36 acceptance or Order providing for detailed assessment), and not when costs are assessed.
CPR 44 and Interest on Legal Costs
Under CPR 44.2(6)(g), there is a provision for interest on legal costs to be claimed pre-judgement. CPR 44.2(6)(g) states:
“The orders which the court may make under this rule include an order that a party must pay interest on costs from or until a certain date, including a date before judgment.”
However, according to the Senior Courts Costs Office Guide;
“The power to order interest to run from a date other than the date of judgment has, as at the date of preparing this guide, been found to be ultra vires in the county court until the Treasury takes certain steps to validate it. For the time being, in county court cases, interest on costs (other than the costs of assessment) will always run from the date of judgment.”
Involnert Management Inc v Aprilgrange Limited & Ors
In the case of Involnert Management Inc v Aprilgrange Limited & Ors  EWHC 2834 (Comm), the paying party wished to have the Court make a costs order with interest on costs running from 6 months after the order for costs. The receiving parties argued that interest should run from the date of Judgment.
Leggatt J determined that, under the Judgments Act, the default date from which interest is payable is the date on which the Costs Order is made. However, he asserted that neither the CPR, nor the Judgments Act restricted the power of the Court to order interest to run from an alternative date. He also referred to the interest rate stated in the Judgment Act and stated:
“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 and OAMPS 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.”
It was therefore held that interest on legal costs should run at 2% above the Bank of England base rate from the date on which judgment for costs was entered, until three months after the costs orders were made. It would then run at the 8% rate as prescribed by the rules after this date on the basis that by this point, the paying party had been provided with a Bill of Costs. This stance should be adopted in any negotiations as it encourages a receiving party to commence detailed assessment proceedings promptly, and expedites the legal costs process/reduces the overall costs burden.
Pre-Judgement Interest on Legal Costs
The Court has power to award pre-judgment interest on costs under CPR CPR 44,2(6). This type of award would usually be used to compensate a party who has had to borrow money for their legal costs, or a party who has been deprived of the use of their money. The Court will usually assess this on a case by case basis to decide what is reasonable in the circumstances.
It was established in the case of Hunt v RM Douglas (Roofing) Limited (1987) TLR, 23, and Motto & Ors v Trafigura Ltd & anor  EWCA Civ 1150 that interest on funding costs could not be recovered as an item within the Bill of Costs however, it was held in the case of Jones & Ors v Secretary of State for Energy and Climate Change, that a pre-judgment award for interest may be permitted in certain circumstances.
In the case of Powell v Herefordshire Health Authority  EWCA Civ 1786, the Court of Appeal held that the Court has discretion to award pre-judgment interest on costs dependant on the circumstances.
In the case of Schuman -v- Veale Wasborough  EWHC 4070 (QB), a Judge refused to award pre-judgment interest on costs to a successful Defendant;
“In this case I have decided not to order interest to be paid on the costs paid to legal representatives before judgment. This is for a number of reasons. First the making of such orders is not usual. This is not necessarily a reason for not making such an order, but it suggests that there might be proper reasons for not making such an order. I consider that there are good reasons for not making such an order, as appears below. Secondly the exercise of the costs jurisdiction has always been rough and ready.”
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 397302.