Disbursement funding interest recoverability – as clear as mud?


Posted by Matthew Best, senior underwriting manager at Litigation Futures Associate Temple Legal Protection

Best: Interest ought to be recoverable

An article I wrote in June 2019 entitled ‘Is disbursement funding interest recoverable?’ attracted, forgive the pun, a lot of interest – but the subject itself has remained a very grey area with clarity in short supply.

The Senior Courts Costs Office has, unhelpfully, recently ruled that a claimant is not entitled to recover interest on a loan taken out to fund a medical report prior to a part 8 order.

In Nosworthy v Royal Bournemouth & Christchurch Hospitals NHS Foundation Trust [2020] EWHC B19 (Costs), Master Brown said that costs recovery “is not intended to be a complete indemnity” – Parliament would have allowed for the recovery of such costs had it wanted to – “but I do not read the scheme for provisional assessments under CPR 47.15 (or indeed generally in respect of the assessment of costs) as providing any such mechanism”.

In this case, costs could not be agreed and so part 8 proceedings were commenced in respect of the costs only (sought for £25,328, including both pre- and post-judgment interest) and settled for £20,000. At the hearing, the claimant sought interest for the period prior to the part 8 order, specifically £235 in interest for the cost of the medical report (the loan was provided at a 15% rate).

Master Brown said that, contrary to the claimant’s contention, he did not understand an order for interest on costs before judgment to be considered normal, or that the general rule was that pre-judgment interest on costs should be awarded.

There was perhaps a crumb of comfort from his comments in relation to large commercial claims or multi-party actions, where “it is much more likely to be proportionate for the court to undertake the sort of enquiry into interest which is anticipated by this claim”.

Continuing on this theme, Master Brown went on: “The making of an order of the sort which is requested by the claimant would introduce an unnecessary level of sophistication into the process for assessing costs… The complications which would arise would, to my mind, be substantial even in a modest case; and they would exist even assuming that the rates and the principle of payment were agreed.

“Further, paying parties might legitimately question whether they should be paying any interest if the receiving party had, for instance, the means, by way of insurance or otherwise, to pay up front for disbursements without taking out a loan. The potential for yet further legitimate disagreement would be substantial in the context of ordinary litigation (which may involve litigants in person).”

Cutting to the chase

In very basic terms, the costs judge thought it too complicated to decide whether or not to award interest and if so, how much, in respect of disbursement funding and other pre-judgment costs – save where the amount involved was likely to be significant.

Master Brown accepted there was a discretion to award interest on costs before the date of the judgment but that it wasn’t a sensible exercise of that discretion to allow such interest in modest cases for disbursement funding.

He did observe that, as interest is awarded on costs as a whole from the date of judgment, claimants could look to that interest to repay the interest owed on disbursement funding without having to draw on their damages.

In light of the decision in Nosworthy, it certainly appears that the fight to recover interest goes on; the pendulum is certainly swinging in favour of the opponent – interest is not currently going to be recoverable from the opponent, certainly pre-judgment.

The Temple perspective

Returning to the original 2014 case of Secretary of State for Energy & Climate Change v Jones cited in my first article, the Court of Appeal did not have to consider if the interest due under a funding agreement was recoverable in principle because that point had been conceded by counsel in the court below.

So Master Brown did not feel bound to follow Jones. We think he was right. Jones was only concerned with the rate of interest because that was the only issue before the court.

Unfortunately, we cannot expect to see interest due under a disbursement funding Consumer Credit Act agreement being awarded in future detailed assessments.

Ultimately, the advice to our customers has to be clear. We still await a decision on the recoverability of interest.

Whilst we believe it ought to be recoverable, it is only fair and proper that the client knows they are ultimately responsible for its payment.

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