Gray v Toner – Interest on costs
Writing the Legal Costs Blog is great fun (so long as you don’t mind the hate mail, death threats and excrement shoved through the letter-box).
However, one of the drawbacks is that readers come to expect absolutely all costs developments to be reported immediately and in full and complain bitterly if they feel I have let them down. Sadly, pesky clients keep sending me work and topics I mean to discuss on the Blog sometimes get overlooked.
Of the various omissions I have made lately, the most unforgivable, of course, is the case of Gray v Toner (11 November 2010, Liverpool County Court) (see link for judgment). This was a decision by His Honour Judge Stewart QC where he held that as a matter of principle interest does not begin to run on costs until they have been assessed, rather than the date of the costs order (eg acceptance of Part 36 offer, Consent Order, etc).
Alternatively, if he was wrong on this point, he held that in CFA funded cases the court should exercise its discretion under CPR 40.8(2) and only allow interest from the date costs are assessed. The judge held that as the primary purpose of interest on costs was to compensate a party for being kept out-of-pocket, and CFA funded parties have not usually paid as the claim has progressed, it would be appropriate that interest should only run from the date of assessment of costs and not from the date of the order for costs to be assessed.
The decision on the point of principle, as to when interest runs as a matter of right, is surprising and certainly contrary to everyone’s previous understanding (which does not of itself mean it is wrong). It also appears to be a different reading of the rules to that which those who drafted the CPR had.
CPR 47.8 deals with the “sanction for delay in commencing detailed assessment proceedings” and at CPR 47.8(3) reads:
“3) If –
(a) the paying party has not made an application in accordance with paragraph (1); and
(b) the receiving party commences the proceedings later than the period specified in rule 47.7,
the court may disallow all or part of the interest otherwise payable to the receiving party under –
(i) section 17 of the Judgments Act 1838; or
(ii) section 74 of the County Courts Act 1984,
but must not impose any other sanction except in accordance with rule 44.14 (powers in relation to misconduct)”
If interest does not begin to run on costs until assessment then interest never was “otherwise payable”, there is nothing to disallow for late service and no “sanction” to apply.
The correctness of this aspect of the decision is highly debateable. However, the argument as to the exercise of the court’s discretion in CFA cases is far more persuasive. This would also be consistent with CPR 44.3B(1):
“Unless the court orders otherwise, a party may not recover as an additional liability –
(a) any proportion of the percentage increase relating to the cost to the legal representative of the postponement of the payment of his fees and expenses”
Permission to appeal this decision to the Court of Appeal was granted but the appeal has been discontinued (due to financial resources, allegedly).
Apparently His Honour Judge Charles Harris QC, in the case of Bridle v Ikhlas on 22nd February 2011 reached a similar conclusion to HHJ Stewart.
An interesting article on the subject appeared in Costs Lawyer magazine and a copy can be read: here.
This issue is likely to be at the forefront of costs disputes, at least in larger cases, until the Court of Appeal (or higher?) has the final word in due course. If, and when, it does, I’ll try to let you know a bit more quickly then I reported this case.