Case of the week: Civil procedure

As the civil procedure rules (CPR) r.40.8(1) had been enacted without the agreement of the Treasury as required by the County Courts Act 1984 s.74(1), it was ineffective in the county court and the County Courts (Interest on Judgment Debts) Order 1991 applied, which stipulated that interest was to be paid from the date the order for costs was made and not the date on which the costs were subsequently assessed or agreed.

Appeal allowed

Simcoe appealed against a decision regarding the date on which interest became payable on costs that the respondent had been ordered to pay. The appellant instructed solicitors to bring a claim against the defendant and entered into a conditional fee agreement (CFA).

The matter settled and Jacuzzi agreed to pay damages and agreed costs. The judge, basing his decision on Gray v Toner (2010), awarded interest from the date of the assessment of the costs.

The issue for determination was whether the interest ran from the date the order for costs was made – ‘the incipitur date’ – or the date on which the costs were subsequently assessed or agreed – ‘the allocatur date’.

Simcoe contended that the judge had erred in his decision as CPR r.40.8(1) was ineffective so far as the county court was concerned as it was made without the agreement of the Treasury as required under the County Courts Act 1984 s.74(1).

He submitted that as r.40.8(1) was ineffective, the County Courts (Interest on Judgment Debts) Order 1991 still applied, which stipulated that interest was to be paid from the incipitur date.

Appeal allowed

Prior to the enactment of the CPR the position in the county court was governed by s.74(1) of the act whereby the Lord Chancellor was permitted, with the agreement of the Treasury, to make orders with regard to interest on sums awarded by the court.

The Lord Chancellor, with the concurrence of the Treasury, enacted the 1991 order.

When enacting r.40.8(1) the concurrence of the Treasury was not obtained.

If Parliament stated in a statute that regulations had to be made by one government department with the concurrence of a second government department, then without that concurrence the regulations would be ultra vires as the regulations would have failed to comply in a significant and fundamental way with what Parliament had stipulated.

The defect in not obtaining the concurrence of the Treasury was fundamental and r.40.8(1) was ineffective in the county court. That conclusion did not mean that the provisions of the rule, or of the CPR as a whole, were of no effect.

The position under the 1991 order was the same as the general rule under r.40.8(1), so it was unlikely that there had been many cases where an order under r.40.8(1) had been made that would have been different from that which it would have made under the 1991 order, Gray doubted.

If the Treasury was content with r.40.8(1), that could be recorded formally and the rule would then be valid.

Under art.2(1) of the order it was specified that interest was to run on any judgment debt from the date of the judgment. In respect of an order for costs, the only judgment was that reflected in the order for costs to be agreed or assessed.

The subsequent quantification of the costs was either an agreement or a certification. Accordingly, the effect of the 1991 order was that interest on costs ran from the incipitur date.

If r.40.8(1) did apply its effect was that interest ran from the incipitur date as a general rule and the fact that Irwin Mitchell was acting under a CFA did not justify departing from that rule. Accordingly, interest on the costs ran from the incipitur date.

For Adrian Simcoe

John Foy QC, 9 Gough Square

Roger Mallalieu, 4 New Square

Steven Green, partner, Irwin Mitchell

For Jacuzzi UK

Mark Friston and Paul Hughes, Kings Chambers 

Paul Wainwright, associate, Berrymans Lace Mawer

Commentary

Iain Stark

This is an important ruling that settles an issue that has been hotly debated within the costs community over the past couple of years.

It had long been the position that interest on costs ran from the date the order for costs was made. It was His Honour Judge Stewart in Liverpool who set the hare running in 2010 by ruling in Gray v Toner that it should run from the date the costs are assessed or agreed.

The judge has a formidable reputation when it comes to getting costs cases right, having been upheld several times in the Court of Appeal, and so the decision, though obviously of limited precedent value, was much discussed.

Then Senior Costs Judge Hurst ruled along similar lines in the Trafigura litigation. Simcoe and Trafigura were due to be heard together, but the latter settled shortly before Christmas.

So Simcoe takes us back to where we were and is to be welcomed for providing certainty. However, with interest set at 8 per cent, there is much at stake for defendants, particularly in larger cases, and so we could see the point taken to the Supreme Court. In my view, they have an arguable case.

I always understood that interest on costs was due on the basis that the lay client was out of pocket in funding litigation. However, lay clients represented under a conditional fee agreement or legal expenses insurance are not out of pocket.

So where is the loss to the client? Any loss sustained by a firm of solicitors by in effect funding the litigation could and should be compensated by a deferment element attached to the success fee.

Iain Stark, chairman, Association of Costs Lawyers