CFA does not justify departure on interest rate, Neuberger rules

Interest on costs should run from the date of an order rather than the point where costs are agreed, the master of the rolls, Lord Neuberger, has ruled. In a landmark judgment in Simcoe v Jacuzzi Group UK, Neuberger yesterday held that interest on the costs runs from the date of the order (the incipitur date).

The claimant, represented by personal injury firm Irwin Mitchell, had appealed a previous judgment that interest of 8% should be added to damages from the date the costs were assessed or agreed (the allocatur date). Neuberger ruled that the fact the claimant’s solicitors were acting under a conditional fee arrangement ‘does not justify’ departing from the general rule of interest from the incipitur date. He noted the solicitors will have done the work which was reflected in the costs awarded to the claimant and will have incurred overheads on which those costs were based.

Neuberger added: ‘The effect of the claimant not paying anything to his solicitors until after the costs have been recovered from the defendant is that those solicitors have been 'financ[ing] their clients' litigation, and they should not be expected to continue to do so until the costs are agreed or assessed.’

Neuberger also used his judgment to call for a more proportionate costs regime after Simcoe’s claim, with agreed damages of £12,750, incurred nearly £75,000 in costs. He said: ‘Unless this is an exceptional case, the fact that, without even incurring the cost of as trial, it cost the claimant nearly six times as much to pursue the claim as it was actually worth suggests that something is out of kilter in at least some parts of the civil justice system.’

Iain Stark, chairman of the Association of Costs Lawyers, welcomed the certainty the judgment would bring, but added that defendants still had an arguable case in the Supreme Court. ‘I was always of the opinion 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 CFA or before-the-event insurance are not out of pocket. So where is the loss to the client?

‘Any loss sustained by a firm of solicitors in effect funding the litigation could and should have been compensated by a deferment element attached to the success fee.’