Interest on Costs where Client funded under a CFA
The case of Motto –v- Trafigura Limited is proceeding on appeal in the Court of Appeal. It is expected to be heard in the window December 2011 to April 2012.
By way of reminder, in this case there were three categories of CFA used:
Category 1 referred to the Law Society document “WHAT YOU NEED TO KNOW ABOUT A CFA”. That document states that the Solicitors can retain any interest in costs. In the absence of any evidence that the contents of the Law Society document or its import was brought to the attention of the Claimants, Master Hurst found, on the balance of probabilities, that the question of interest was never discussed in relation to that category of CFA. Accordingly, the Claimants had no obligation as to interest.
NOTE: It is hardly surprising that Master Hurst found, on the balance of probability, that the question of interest was never discussed because the Claimants were all on the Ivory Coast.
The remaining categories of CFA contain no express terms as to interest. It was submitted that there was an implied obligation upon the Claimants to account to legal representatives for any interest recovered. Master Hurst held that applying the general law of contract to implying terms, there was no necessity for any term to be implied into the CFAs. The CFAs operated satisfactorily in their present form.
The result was:
The incipitur rule still applies, but the Court has the power to order that the date from which interest shall begin to run shall be a different date. This departs from the two unreported County Court decisions, that are taken to have applied the allocator rule to CFAs – Gray –v- Toner [11 November 2010, His Honour Judge Stewart QC] and Bridle –v- Ikhlas [22 February 2011, HHJ Harris QC].
The appropriate order was that interest at the judgment rate should run from the date when an interim or final costs certificate is issued by the Court.
COMMENT: So, if the CFA had said that interest belonged to the Solicitor, would it have been ordered to run from the date of judgment or only from the date of an interim or final costs certificate?
The implication perhaps is that yes, interest would be awarded from judgment. That would mean because the CFA made the Client liable for such interest, it would go to off-set the costs of the Solicitor waiting for payment, even though the Client is not out of pocket because they only pay costs once recovered from their opponents.
At Paragraph 121 of the judgment, Master Hurst accepts that the position of a third party (here the Solicitor) in funding the case may be relevant.
There is a further recent decision on interest on costs incurred before a CFA was entered into: Southern Counties Fresh Foods Limited, sub nom Cobden Investments Limited –v- RWM Langport Limited (that’s all the information I have).
It was held that, as a general rule, a receiving party is entitled to interest on his costs from the date of judgment for costs, interest being paid at the judgment rate. A Court has discretion to allow the receiving party interest on costs, prior to the date of the costs order, in order to compensate for being out of pocket when they had paid costs as the case ran along. See Fosse Motor Engineers Limited and Others –v- Conde Naste and National Magazine Distributors and Others [2008] EWHC 2527 (QB), in which reference is made to Bim Kemi AB –v- Blackburn Chemicals Limited [2003, EWCA-Civ 889]. Although the Claimant’s case had been run pursuant to CFAs since 19 June 2007, the Claimant incurred and paid substantial costs prior to that date (and after that date in respect of some of the experts’ fees). Throughout that time, the Claimant had been deprived of the use of that money. Having awarded 50% of the Claimant’s costs, Warren J awarded interest on that 50%.
COMMENT: This is a useful decision, where a case is part-funded privately and part CFA.
