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Motto & Others v Trafigura Ltd & Another, Senior Courts Costs Office, 29 June 2011

8 July 2011
The issues

Costs – Interest on Costs – Gray v Toner – Bridle v Ikhlas

The facts

The costs claimed from the Defendant exceeded £100 million. The amount of interest payable on those costs was therefore considerable, amounting to something in the order of £800,000 per annum. The Defendant argued that interest did not run until assessment. The Claimant argued that the incipitur rule applied and that interest at 8% should run in respect of costs from the date of the compromise agreement embodied in a Tomlin Order dated 23rd September 2009.

The decision

Since Hunt v Douglas, the incipitur rule had been taken to apply to costs, namely, that interest on costs would run from the date of the order in respect of those costs, not the (later) date on which the amount of costs is assessed. It had not been challenged or apparently even argued to the contrary since that case until the recent decisions in Gray v Toner and Bridle v Ikhlas. The Defendant’s case was that there was a critical difference between the wording of Section 17 of the 1838 Act as originally formulated and the form of words now used by rules of Court pursuant to the 1999 Amendment to Section 17, CPR 40.8 (1). The Defendant argued for a modern interpretation, which approach persuaded His Honour Judge Stewart QC that awards for both damages and costs should be treated in the same way so that interest should run only once the figure for damages or costs had been quantified. In particular, the Defendant argued the rule needed to be reconsidered having regard to the changes that CFAs have brought to the funding of civil litigation.

It would be a brave Costs Judge who decided that the decisions of the House of Lords in Hunt v Douglas and Thomas v Bunn were no longer binding. There might be, no doubt, many cases where clients had paid costs to their legal representatives as litigation had progressed as envisaged by Lord Ackner in Hunt. What distinguished this case was that the proceedings were conducted under a CFA lite ensuring that the individual Claimant would never in any circumstances have to pay anything towards his or her costs. Contingency and Conditional Fee Agreements were not permitted at the time of the House of Lords decisions. The incipitur rule still applied therefore but the Court had the power to order that the date from which interest should begin to run should be a different date.

It was clear that this was the case from CPR 40.8 (1) (b). It was less clear that that power should be used in order to reduce the rate of interest payable. The Court would prefer the view taken by Mann J in Schlumberger v Electro Magnetics that it was not an appropriate use of the power. Although the judgment rated 8% was very high in present circumstances, that was the rate decided by Parliament and until Parliament decided otherwise that was the rate which should be payable. On the basis of interest belonging to the Claimants rather than their legal advisors, there was a good argument for saying that since they were not out of pocket and were never going to be asked to contribute to costs, that it would be unjust and inappropriate to decide that interest on those costs should run from the date of the order until payment rather than from the date of assessment.

It was necessary to consider however whether interest ought to be paid to the legal representatives who had effectively funded the litigation throughout.

The solicitors had taken the commercial decision to take on the litigation and had chosen to do so using CFAs which were designed to recognise the risk involved in such litigation by means of a success fee. In other words, their investment was made in the hope of making a profit. It had proved a successful one. The argument advanced on their behalf that the litigation was analogous to litigation funded by insurance companies was to be rejected. The insurer after indemnifying an assured had a right to sue the wrongdoer in the name of the assured in order to recover the amount of the loss. The solicitors had no such contractual right. No such right should be implied under the CFA. In those circumstances, as Lord Mustill had found in Giles v Thompson, although there might be superficial resemblance to a right to subrogation, it was no more than superficial because the subrogated insurer did have an interest in the insured’s cause of action and its fruits of a kind which the legal representatives did not possess.

The appropriate order was that interest at the judgment rate should run from the date when an interim or final Costs Certificate was issued by the Court.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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