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

Under CPR Rule 44.3(6)(g), the court has a broad discretion to award interest on costs from a date before judgment. The discretion is not confined to costs paid by the successful party personally. It may extend to costs funded by the successful party’s insurers, reflecting the commercial reality that insurers are likely to suffer the loss of use of money used to fund the defence. The award remains compensatory and discretionary. The court should consider all the circumstances, including the parties’ conduct, the degree of success, the amount and duration of the costs, and whether any circumstances make an award unjust. Interest should ordinarily be calculated only on costs allowed on assessment, with appropriate credit for payments on account.

The claimants brought proceedings concerning a fire at premises owned by the first claimant and occupied or used by the other claimants. They alleged that the first defendant, through its servants or alleged servants, had negligently caused the fire. In a substantive judgment handed down on 20 August 2008, the claim on liability and causation failed and was dismissed.

The parties agreed that the claimants would pay the first defendant’s costs, subject to detailed assessment, and make a payment on account of £300,000. The remaining issue was whether interest should be awarded on costs paid by the first defendant’s insurers before judgment, and, if so, at what rate.

1. Jurisdiction. The court accepted that CPR Rule 44.3(6)(g) confers a broad discretion to award interest on costs from a date before judgment. The rule does not, in terms, restrict the discretion to costs incurred personally by the successful party.
2. Insurer-funded costs. As a matter of principle and commercial reality, interest may be awarded where the successful party’s insurers funded the defence. The purpose of the award is compensatory: it reflects the financial burden of paying costs as the litigation proceeds and being deprived of the use of that money. The court need not undertake a detailed examination of the insurers’ precise funding arrangements. It was appropriate to presume that money paid from the insurers’ funds involved a financial loss or cost. A case funded entirely voluntarily by a third party might justify a different conclusion.
3. Exercise of discretion. The discretion must be exercised in accordance with the principles in Rule 44.3, the overriding objective and all the circumstances. Relevant considerations included the claimants’ complete failure, the substantial costs, the nearly three-year duration of the proceedings, the seriousness and value of the allegations, and the compensatory purpose of the costs order.
4. The court ordered interest at 1 per cent above the prevailing Bank of England base rate on appropriate costs incurred before judgment, with judgment-rate interest thereafter. The calculation was to follow assessment of costs, so that interest would not be payable on invoices for costs disallowed on assessment. The agreed payment on account would reduce the interest otherwise recoverable.