Fosse Motor Engineers Ltd & Ors v Conde Nast & National Magazine Distributors Ltd & Ors

The court has a broad discretion under Civil Procedure Rules 1998, CPR 44.3(6)(g), to award interest on costs from a date before judgment. The discretion is not confined to unusual cases or to costs personally paid by the successful party. It may extend to costs funded by that party’s insurers, reflecting the commercial reality that insurers are likely to suffer the loss of use of money paid during the litigation. The primary purpose of such interest is compensatory. The court should consider all the circumstances and the overriding objective. Interest may be inappropriate where costs were entirely funded voluntarily by a third party. Interest should be calculated only on costs allowed on assessment, with any payment on account taken into consideration.

The claimants’ substantive claim arose from a fire at premises owned or occupied by them. The claim against the first defendant alleged negligence by the defendant or persons arguably acting as its servants. The claim was dismissed on liability and causation.

The parties agreed that the claimants would pay the first defendant’s costs, subject to detailed assessment, and that £300,000 would be paid on account. The remaining issue was whether interest should be awarded on costs funded by the first defendant’s insurers, at one per cent above Bank of England base rate until judgment and thereafter at the judgment rate.

1. The court had a broad discretion under CPR 44.3(6)(g) to award interest on costs from a date before judgment. The discretion had to be exercised in accordance with the rule, all the circumstances, the conduct of the parties, the degree of success and the overriding objective. It was not confined to cases which were out of the norm. The court approved the approach of Kitchin J in Nova Productions Limited v Mazooma Games Limited No. 2 [2006] EWHC 189.
2. The discretion could be exercised where the costs had been paid by the successful party’s insurers. The wording of CPR 44.3(6)(g) was broad and did not require the successful party itself to have paid the costs. Commercial reality supported taking account of insurance funding.
3. The interest jurisdiction was primarily compensatory. The court could presume that insurers paying costs bills as they fell due suffered a financial loss through being deprived of the use of the money. A minute examination of the insurers’ funding arrangements was unnecessary. A different conclusion might be appropriate where the litigation was entirely funded voluntarily by a third party.
4. This was an appropriate case for interest. The litigation involved claims exceeding £4 million, serious allegations, substantial costs and proceedings lasting nearly three years. Interest was therefore awarded at one per cent above base rate on the relevant invoices, with judgment-rate interest thereafter. The calculation was to follow assessment of costs, so that no interest would be payable on disallowed costs. The payment on account would reduce the interest otherwise recoverable.

The judgment records that the substantive claim had previously been dismissed on liability and causation on 20 August 2008. This judgment determined the consequential issue of interest on the first defendant’s costs.