A growing number of claimant solicitors are taking out disbursement funding loans and seeking to claim the interest of doing so from defendants. These claims should be challenged given that such interest is not usually recoverable.

The first question to consider is whether the claim for interest is as interest on costs or interest as costs.

Interest as costs

Interest cannot be claimed as costs. In Hunt v RM Douglas (Roofing) Limited (1987) TLR, 23, Purchase, LJ confirmed that '…funding costs have never been included in the category of expenses, costs or disbursements envisaged by the statute and RCS O.62' and went on to add that to include them would 'constitute an extension of the existing category of "legal costs"…' .

Although pre-CPR, the case resurfaced in Motto & Ors v Trafigura Ltd & anor [2011] EWCA Civ 1150 where Neuberger affirmed the position that interest is not recoverable as costs under the CPR.

In light of this, interest which is claimed with a served Bill of Costs is not recoverable.

Interest on costs

However, the question arise as to whether interest on disbursement funding loans could be recovered in other ways and, in particular, as interest on costs. The issues here are more complicated and in part it is governed by the way in which the matter concluded and the stage that such interest is being sought by the claimant.

A court does, in principle have the power under CPR r 44.2(6)(g) to award interest in such a way that takes into account the interest paid on a disbursement funding loan and as such has made some small inroads on the prohibition set out in Hunt v Douglas.

However, those inroads are limited. If the matter concludes by way of a Part 36 offer and acceptance, then the claimant is automatically barred from seeking any interest in respect of a disbursement funding loan due to the provisions specifically set out in CPR r 44.9(4) which applies when a Part 36 offer is accepted under CPR r 36.13. The Court therefore has no discretion to make a different order and, in particular, has no power to award pre-judgment interest.

If the matter concludes in any way that then requires a consent order to be filed, under CPR 44.2(6)(g) it would be open to a claimant to request that the final order provides for payment of pre-judgment interest.

This is because the judge making the order at the conclusion of the claim has far wider power than a judge on an assessment of costs and particularly does possess the power in principle to allow pre-judgment interest.

Factors to consider

In the event that a claimant seeks interest at the conclusion of the claim, there are a number of factors the court will consider, including the type of litigation involved, i.e. whether the claim is an RTA, a commercial action or group litigation. There may also be other complex questions concerning whether the agreement is compliant with current Consumer Law and also arguments in respect of the amounts being claimed.

Such arguments, however, will require detailed and specialist costs argument at the trial or application hearing for an order to ensure that the court comes to the correct determination.

Once the Order has been sealed by the court, the claimant is prevented from claiming interest on disbursement funding loans as a court on assessment has no power to award pre-judgment interest; a principle which has become enshrined in the legal psyche since Cope v United Dairies (London) Ltd [1963] Costs LR (Core) 23.

Given the complexities of these issues, arguments must be considered and made as soon as possible to ensure that no unnecessary payments are made.