When does interest start to run when costs are to be assessed?
Clyde & Co (Andrew Blair and Richard Edwards) for second third party
The claimant was ordered to pay the second third party's costs, to be assessed if not agreed. The basic rule is that interest runs from the date judgment is given. Where damages are to be assessed, interest begins to run from the date when damages are finally assessed or agreed. However, prior caselaw has held that where costs are to be assessed, interest will run from the date of the costs order and not the later assessment date. CPR r 40.8(1), though, gives the court a discretion to order interest to run from a later date than the date of the costs order. Given that interest on judgment debts is still 8% per annum, and so well above the commercial rate of interest which is generally 2.5%, this is a matter of some importance where large sums have been spent on costs.
Leggatt J ruled in this case that interest on costs should run from three months after the date of the costs order. He held as follows:
- The default position is that interest on costs runs from the date of the costs order.
- The discretion to order interest to run from a different date should be exercised in accordance with the overriding objective of dealing with costs justly. There is no requirement that the case have unusual features in order to justify a later date.
- The date from which interest runs should not be deferred just because the statutory rate of interest is higher than commercial rates of interest.
- However, it is not just to make an order under which interest begins to run before the paying party could reasonably be expected to pay the debt. Where, as here, the court has ordered a suitable interim payment to be made on account of costs, it is not reasonable to expect the paying party to pay the balance of the debt until it has had a fair opportunity to decide what sums it accepts are properly payable.
- In order to provide certainty, the court should apply a reasonable objective benchmark – namely, the period prescribed by the rules of court for commencing detailed assessment proceedings, ie 3 months after the date of the costs order. Accordingly, interest on costs should generally start to run from that date (here, the judge also ordered the claimant to pay the second third party interest at the rate of Bank of England base rate plus 2% from the dates when the costs were incurred up until three months after the costs order was made).