The defendant costs specialists

Gray v Toner – Interest on costs

By on Mar 28, 2011 | 11 comments

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. 

    11 Comments

  1. When I posted asking why the case had not been commented on, my question was general – why had defendants made so little of it? It was not intended to be personal! But one would have thought that defendants would be trumpeting this about, especially given Judge Stewart’s record. Yet the judgment is not on Lawtel, and even most “costs counsel” appear only to have learned of the judgment in the last few weeks.

    I would be surprised if it gets followed in the SCCO.

    Jacques Hughes

    28th March 2011

  2. I didn’t really take it personally Jacques, but to be honest I did need a kick up the backside to finally get around to posting on this. (Of course, if you followed me on Twitter you would have seen me mention this already.) I suspect the majority working in costs are still not aware of this decision. How many requests are people getting for a copy of the judgment?

    Simon Gibbs

    28th March 2011

  3. I am not sure that you are right about CPR 47.8. Your observation pre-supposes that at the point that detailed assessment proceedings are commenced, the solicitor has not been paid. This is true of claimant PI, but it is not true of most other areas of litigation.

    Jacques Hughes

    28th March 2011

  4. Defendants are raising it. The ones I advise (some of the biggest liability insurers in the country) are raising it on every case. The big PI firms are challenging it.

    Defendant Solicitor

    28th March 2011

  5. Did Hunt v R M Douglas Roofing[Ltd] [1990]1 AC398 get cited in GRAY v TONER? It was, after all, a House of Lords decision

    Functus Officio

    28th March 2011

  6. Having now read the judgment,I have answered my own question!!

    Functus Officio

    28th March 2011

  7. The whole issue in the case was that Hunt v Douglas came from a time when the court had no discretion as to when interest ran from. There was a choice between two dates: the date of judgment and the date of taxation, and the latter was chosen as the lesser of two evils. The court now has a discretion. So, the argument goes, as with damages, interest can now be awarded for a period which compensates a client for being out of pocket.

    In damages, it is established at House of Lords level that a claimant cannot recover interest where he is not personally out of pocket, because he has been given credit by a third party – see Giles v Thompson, a 1994 decision cited by Judge Stewart, confirmed post CPR by the C of A in Burdis v Livsey, a case also known as Clark v Ardington.

    Just because Judge Stewart’s decision is novel, it can’t be dicounted (as Simon says). Costs professionals out there who perhaps don’t know much about the approach to interest in other contexts need to be aware that this is a serious argument. Of course, there are policy arguments to the contrary. I think they are powerful ones, and I hope they prevail. But if anyone thinks one can be blase about a radical judgment of Judge Stewart, just look at Garrett v Halton! Most costs professionals wrote that off an aberration in the light of Hollins v Russell – and then look what happened. (I notice that the same counsel acted for the defendant in Gray as in Garrett – he and Judge Stewart must like upsetting my clients’ apple carts…)

    Jacques Hughes

    28th March 2011

  8. Sorry, in that post, para 1 should have said that the former was chosen, not the latter.

    Jacques Hughes

    28th March 2011

  9. Further to a comment made above about ‘being surprised if the decision was followed in the SCCO’. You are quite correct, the decision is not being followed in the SCCO (at least in every case I have been involved in so far).

    JM

    25th June 2011

  10. It certainly appears that Defendants are making reference to Gray-v Toner.

    Sadly for them it is often a shot in the foot. Receiving parties are now being encouraged by their cost draftsmen to write to Defendants on settlement enquiring as to whether they will rely on this authority. If they confirm they will, then a Notice of Commencement is served rather than an informal schedule.

    Claimant’s cannot be open to criticism for failing to negotiate in circumstances where they will be denied interest if they do.

    Peter Trowell

    15th August 2011

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