Secretary of State for the Department of Energy And Climate Change & Anor v Jones & Ors

When awarding pre-judgment interest on legal costs, the court conducts a general appraisal of what is reasonable for both the paying and receiving parties. The appropriate rate will normally reflect the short-term unsecured borrowing cost of the class of litigant to which the receiving party belongs. The recipient’s actual borrowing rate may be relevant but is not determinative.

A genuine agreement under which solicitors finance a claimant’s disbursements may create a real interest liability even though payment depends upon success. Once the claim succeeds and damages are received, the liability crystallises. The rate may therefore be assessed by reference to the claimant’s circumstances rather than the solicitors’ borrowing position.

Former industrial workers of modest means brought personal injury claims in the Phurnacite Workers Group Litigation. Following judgment on liability, Swift J ordered the defendants to pay 80 per cent of the claimants’ costs. The claimants sought pre-judgment interest on disbursements exceeding £787,500.

The claimants’ solicitors had financed the disbursements under genuine agreements charging interest at four per cent above base rate if the claims succeeded. Swift J ordered interest at that rate in [2013] EWHC 1023 (QB).

The defendants appealed. They argued that the rate should reflect the solicitors’ borrowing position because the claimants’ liability was contingent and effectively notional. The central issue was whether the judge was entitled to assess the rate by reference to the claimants’ circumstances.

1. The appeal was dismissed. Swift J was entitled to award pre-judgment interest on disbursements at four per cent above base rate. Sharp LJ gave the judgment, with which Gloster and Patten LJJ agreed.

2. The discretion under rule 44.2(6)(g) of the Civil Procedure Rules is at large. Its purpose is to compensate a party who has been deprived of the use of money or has had to borrow to meet legal costs. The court must make a general appraisal of what is reasonable for both the paying and receiving parties. It will ordinarily consider the borrowing costs of the relevant class of litigant, rather than conduct a minute and disproportionate investigation into the recipient’s finances. An actual borrowing rate is relevant but not determinative.

3. The appropriate rate may differ between first-class borrowers, small and medium-sized enterprises and private individuals. Although first-class commercial borrowers historically recovered base rate plus one per cent, that figure is not invariably presumed to represent the commercial rate. Private individuals may recover a higher rate reflecting their class’s real borrowing costs.

4. The claimants had genuinely borrowed from their solicitors to finance substantial disbursements. The fact that their obligation to pay interest depended upon success did not make the arrangements unreal or notional. Once they succeeded and received damages, the contingency was satisfied and their contractual liability for principal and interest crystallised. The relevant comparator was therefore the claimants, who were private individuals of modest means, rather than their solicitors. Four per cent above base rate was conceded to be reasonable for borrowers in that class.

5. Arguments that the agreements might be champertous or offend the indemnity principle could not be introduced on appeal. They had not been raised before the judge or included in the grounds of appeal or skeleton argument. The defendants’ separate reliance on correspondence concerning the Consumer Credit Act 1974 also failed: the letter contained an obvious misstatement and did not override the agreements’ proper construction.

1. Court of Appeal (Civil Division): The defendants’ appeal was dismissed. The award of pre-judgment interest at four per cent above base rate was upheld: [2014] EWCA Civ 363.
2. High Court, Queen’s Bench Division: Swift J ordered the defendants to pay pre-judgment interest on the claimants’ disbursements at four per cent above base rate: [2013] EWHC 1023 (QB).