The defendant costs specialists

When should interest run on costs?

By on Jan 4, 2016 | 6 comments

Interest on costs usually runs from the date of the order for costs. CPR 47.7 provides that detailed assessment proceedings should be commenced within 3 months of the final order/judgment.

CPR 47.8 provides that where a receiving party fails to commence detailed assessment proceedings within the period specified, the paying party may apply for an order requiring the receiving party to commence detailed assessment proceedings within such time as the court may specify. By virtue of CPR 47.8 (3), if the paying party has not made such an application and the receiving party commences detailed assessment proceedings late, the court may disallow all or part of the interest otherwise payable to the receiving party but will not impose any other sanction.

I would suggest it has therefore been generally accepted that a receiving party will have a three month period to commence detailed assessment proceedings and will recover interest for that three month period in any event. If they commence detailed assessment proceedings after three months, the court may will disallow interest for the period of any subsequent delay.

Given interest currently runs at 8%, for firms with a good cash-flow there is a positive incentive to delay commencement until the end of the three month period and it is certainly common to see some firms delay until very close to the three month period before providing details of their costs.

The decision of Mr Justice Leggatt in Involnert Management Inc v Aprilgrange Limited & Ors [2015] EWHC 2834 (Comm) is therefore a potentially important development. As with all such decisions, the full judgment should be read to properly appreciate the reasoning and specific facts of the case but, in essence, he held that it would be unreasonable to order interest to run until the paying party knows what costs are being claimed and has had a reasonable opportunity to consider what sums are properly payable. He therefore ruled that interest should start to run from three months after the order for costs.

In summary:

“it seems to me that a reasonable objective benchmark to take is the period prescribed by the rules of court for commencing detailed assessment proceedings. Pursuant to CPR 47.7, where an order is made for payment of costs which are to be the subject of a detailed assessment if not agreed, the time by which detailed assessment proceedings must be commenced (unless otherwise agreed or ordered) is three months after the date of the costs order. In order to commence such proceedings, the receiving party must serve on the paying party a bill of costs giving particulars of the costs claimed. It is then for the paying party to decide which items in the bill of costs it wishes to dispute. Postponing the date from which Judgments Act interest begins to run by three months will therefore generally serve to ensure that the party liable for costs has received the information needed to make a realistic assessment of the amount of its liability before it begins to incur interest at the rate applicable to judgment debts for failing to pay that amount.”

It will be interesting to see whether this becomes the new “norm”.

    6 Comments

  1. This would assume paying parties make reasonable assessments as to the costs reasonably payable. They may well assess their risks reasonably but they rarely make realistic opening offers. As with anything in costs, it is complicated by the people who do it not by the actual issues involved. Most receiving parties probably wouldn’t bother about interest in bills less than £300,000 or £400,000 if they got good offers in early on.

    I am speaking in general terms. There are those that know what they are doing and those that don’t. Those that know what they are doing wouldn’t ever let this kind of thing become a problem in the first place.

    Chris

    4th January 2016

  2. perhaps this will stop claimant draftsmen firms issuing premature, cost building Applications within weeks of serving bills – I must admit, I do enjoy defeating those and getting costs, but what a waste of valuable Court time and resource

    Anonymous

    5th January 2016

  3. It is rather amusing when people say ‘a waste of valuable Court time and resource’, get a grip! The Courts need us as much as we need them!

    Anyway, are we still busy out there dealing with costs or is it all over for us?

    King of Costs

    5th January 2016

  4. @ king of costs

    plainly, you do not know or ignore, your first duty in litigation, which is to the Court. Many involved in costs would do well to remember that

    Anonymous

    6th January 2016

  5. I would think budgets dull the impact of this decision.

    Rob Pettitt

    6th January 2016

  6. Having read the judgment in full, I note that the last paragraph of the judgment states “I have accordingly ordered interest on the costs payable by the claimant to the defendants and to OAMPS to run at the Bank of England Base Rate plus 2% from the dates when the costs were incurred until a date three months after the orders for costs were made, and at the rate prescribed by section 17 of the Judgments Act 1838 thereafter.”

    Therefore interest was payable from the date of the costs order, just not at the rate prescribed by the Judgment Act and it appears to be incorrect to state that no interest would be payable until three months after the Costs Order

    Tracey Costello

    25th January 2016

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