What does Interest on Unpaid Legal Costs Relate to?

Interest on unpaid legal costs is governed by the Judgments Act 1838  and Section 74 of the County Courts Act 1984.  Therein it is stated that the rate applicable which a receiving party can reasonably be charging interest at, is 8% on any unpaid legal costs owed by the paying party. Interest will not run on any payments of costs made on account as interim payments.

S17 of the Judgments Act provides for a judgment debt in that it applies to cases settled by Part 36 offers or a sealed order from the Court.

Cases have recently dealt with the issue of when interest should run from. Interest runs from the date of judgment, being the date of acceptance of a Part 36 Offer of the date of the costs order. This was established in the case of Hunt v RM Douglas (Roofing) Ltd [1990].

Other Legislation Relating to Interest on Unpaid Legal Costs

Alongside the Judgments Act 1838, interest provisions in relation to unpaid legal costs also arise from CPR 44.2 (6).

CPR 44.2(6)(g) states:

“The orders which the court may make under this rule include an order that a party must pay interest on costs from or until a certain date, including a date before judgment.”

It should be noted that the Senior Courts Costs Office (SCCO) guide provides supporting guidance on the issue, and previously identified that:

“The power to order interest to run from a date other than the date of judgment has, as at the date of preparing this guide, been found to be ultra vires in the county court until the Treasury takes certain steps to validate it. For the time being, in county court cases, interest on costs (other than the costs of assessment) will always run from the date of judgment.

in order to rectify this, the County Courts (Interest on Judgment Debts) (Amendment) Order 2019 came into force on 27 May 2019 in order to align the provisions set out in CPR 40.8 for the County Court and High Courts. Under this Order, it is now within the power of the County Court to award interest on costs from a date which is different than the date of judgment. This means that the Court can use its flexibility to back date interest on costs.  

The Court also has the power to award interest on pre judgment costs under CPR 44.2(6). This provision is usually used where a party has had to obtain debt in order to finance their legal costs or where a party has not been able to use their money during a case. This is usually determined by the individual circumstances of each case.

Under the aforementioned named case of Hunt v RM Douglas (Roofing) Ltd [1990], interest should not be included as an item in the receiving party’s Bill of Costs. However, the case of Jones & Ors v Secretary of State for Energy and Climate Change held that a pre judgment award for interest can be permitted in some circumstances. This position was further confirmed in the case of Powell v Herefordshire Health Authority [2002] as per the Court of Appeal judgment. However, in other cases a pre judgment award for costs may not be awarded, such as in the case of Schuman v Veale Wasborough [2013]. This goes to show that this type of award for interest on unpaid costs can vary and will be based on the individual circumstances of the case.  By way of example, if disbursement funding has been taken out, questions would likely be raised as to the receiving party’s financial circumstances and requirements for such funding, reasonableness of the interest rate charged, and amounts claimed.  In cases of relatively minor additional interest, it is unlikely that a pre-judgment interest award will be made, particularly when post-judgment interest recovered provides satisfactory compensation.  Such were the conclusions in Nosworthy v Royal Bournemouth [2020] EWHC B19(Costs), that a pre-judgment interest award was rejected.

Can the Onset of Interest Accrual be Delayed?

In the case of Involnert Management Inc v Aprilgrange Limited & Ors [2015] EWHC 2834 (Comm), the paying party sought interest to be awarded by the Court running from 6 months after the order for costs. The receiving party argued that interest should run from the date of the judgment. 

Leggatt J found that though it was within the powers of the Court to deviate the date from which interest could apply (for instance pre-judgment, or from the date on which costs had been assessed) the default date for charging interest should run from the date of the order for the liability for costs. However, he went on to comment that the interest rate stated in the Judgment Act was not fixed, and found in the subject case it more appropriate to charge interest on unpaid legal costs at 2% above the base rates of the Bank of England, from the date of judgment until three months had expired (allowing for service of the Bill).  Thereafter interest was to be charged at the base rate of 8% as per the Judgment Act on the basis that a Bill of Costs had by this point been provided by the receiving party.

How Can ARC Costs Assist?

ARC Costs are a specialist practice of experienced Costs Draftsman and Costs Lawyers.  As independent costs experts, we regularly assist both paying and receiving parties in resolving costs disputes. We adhere to strict turn arounds of all instructions in order to ensure detailed assessment proceedings are started/defended promptly.  For receiving parties, this ensures cashflow is improved and it also allows us to take steps to recover the outstanding interest on unpaid legal costs in line with the provisions of the Judgment Act.

We can prepare Bills  of Costs on your behalf, undertake legal costs negotiations with the opposing party and prepare detailed and legally compliant Points of Disputes/ Replies to any issues raised between the parties. As Costs Lawyers, we can also provide assistance and representation at Detailed Assessment Proceedings and at any CCMC in respect of Costs Budgets.

Should you wish to discuss your costs query further, please do not hesitate to contact us on 01204 397302 or email one of our costs experts at info@arccosts.co.uk. Alternatively, please complete our online enquiry form and one of our customer service team will contact you to discuss your query further.

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