Can You Recover A Higher Rate Of Interest On Funding Costs?
Recently, Civil & Commercial Costs Lawyers was invited to talk to The Society of Clinical Injury Lawyers (SCIL). We were asked to consider the position of disbursement funding and what can be recovered in relation to the interest.
The idea that interest can be recovered is trite law given the decision in Jeffrey Jones & Ors v The Secretary of State for Energy and Climate Change & Ors  EWCA Civ 363. Revisiting the case 3 years after the event, what Costs Lawyers Tom Mason and Anil Virji found interesting was not the outcome, but the fact that too few people are taking advantage of the case to recover a competitive rate of interest on disbursement funding.
Jones was a multi-party where the claimants were successful. They sought an order that the defendants pay interest on the disbursements from the date of payment to the date of the judgment, i.e. an order for pre-judgment interest on costs.
The claimants in this matter were represented by Stephen Webber of Hugh James and the CFAs entered into contained a provision that the claimant was liable for the payment of any disbursements incurred on their behalf whether or not the claim was successful.
The claimants also entered into a credit arrangement pursuant to which their solicitors provided credit to pay disbursements in return for a credit charge of 4% above the base rate.
The credit agreement provided that if the claim was successful, the credit charge would be paid by the claimants out of the damages, whilst, if the claim was unsuccessful, the credit charge would be paid under the terms of the ATE policy.
The provision for a court to award pre-judgment interest can be found within CPR 44.2.(6)) (at the time of the Judgment CPR 44.3 (6)).
CPR 44.2(6) confirms that:
(6) The orders which the court may make under this rule include an order that a party must pay:
(g) interest on costs from or until a certain date, including a date before judgment.
In the High Court, Mrs Justice Swift confirmed that pre-judgment interest was payable and the rate of 4% above the base rate was considered reasonable against the cost of unsecured borrowing to a private individual.
The Court of Appeal
By the time the matter reached the Court of Appeal it had been accepted, by the Appellants, (following significant disclosure) that:
- The credit agreements were valid;
- The court could make an award for pre-judgment interest in principle; and
- 4% above base rate was not an excessive or unreasonable rate of interest to charge for borrowing by claimants who were private individuals of modest means.
The appellants argued that the reality of the situation was the credit arrangement constituted a device to enable the solicitors (not the claimants) to recover interest on the disbursements which they had funded. In effect the claim for interest was on behalf of the solicitors and not the claimants. The claimants were never at risk of paying either disbursements or interest on those disbursements, therefore the claimants’ circumstances were irrelevant to any consideration of interest.
On that basis the appellants submitted that the solicitors’ means, rather than the claimants’ means, should have been taken into account when determining the rate and there was no evidence to displace the usual presumption applied in the Commercial Court that the appropriate rate of interest was 1% above base rate.
The Court of Appeal confirmed that the interest liability was entirely real. Having succeeded, the claimants were liable to pay the funding advanced to them and the interest charged upon it.
The Court commented that these were personal injury actions brought by claimants of modest means for their own benefit. They needed to fund their claims and they borrowed to finance their disbursements at what was conceded to be a reasonable interest rate for private individuals in their circumstances. Certainly in comparison to what would have been charged on the open market.
The Court of Appeal concluded that the relevant comparator was therefore the claimants rather than the Solicitors and 4% above the base rate was reasonable.
So what does this mean? Since the original judgment we have regularly included claims for pre-judgment interest within our bills. These claims have been accepted by the paying party.
The burning question is does the judgment open the door to a higher rate of interest?
The Court of Appeal stated the purpose of interest was to compensate a party who has been deprived of the use of his money, or who has had to borrow money to pay for his legal costs.
The discretion in respect of pre-judgment interest is not fettered by the statutory rate of interest and a rate of 4% above the base rate was considered by the respondent Counsel to be a “transparently modest one”.
If the figure is lower than an alternative funder can offer and evidence can be produced to prove the rate to be competitive, the answer would appear to be yes.
If you would like to discuss this issue in more detail, or any other Costs matters, contact us on 0207 842 1830, email us or make an online enquiry and we'll get back to you as soon as possible.