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Goodbye Gray v Toner!

Whilst Motto v. Trafigura may have settled resulting in the closing of a door, a window remained open for a higher Court decision on interest claimed on costs in County Court matters as Simcoe v. Jacuzzi UK Group Plc 1 continued to rumble on.

The long awaited decision from the Court of Appeal which deals solely with the issue of interest has finally been handed down 2 and overrules the decision of His Honour Judge Stewart in Gray v Toner 3. Since His Honour Judge Stewart's decision in Gray v Toner it became common for Paying Parties to refer to the Judgment to justify their position in arguing that the Receiving Party could not recover interest on the costs until the date of the Assessment/agreed settlement.

Receiving Parties will undoubtedly be pleased to hear that Simcoe has now returned us to a pre-Gray v Toner position with the general rule being that the incipitur rule applies to interest on costs i.e. that interest runs from the date of the Judgment/Order for costs and not from the date of the Assessment/agreed settlement of the costs 4. The main points to come out of the Judgment are:

  • The right to interest does not arise from the CPR or the Civil Procedure Act 1997 but from the Judgments Act 1838 for the High Court and the County Courts Act 1984 for the County Court 5.
  • The House of Lords case of Hunt v. AM Douglas (Roofing) Ltd 6 is still good law which provided that “the balance of justice favours the incipitur rule”.
  • CPR 40.8(1) is ineffective in the County Court because the Civil Procedure Rules were made without the concurrence of the Treasury 7. The failure to obtain the concurrence of the Treasury was a fundamental defect.
  • CPR 40.8(2) is only arguably valid in the County Court.
  • In the absence of CPR 40.8 applying, the County Court (Interest on Judgments Debts) Order 1991 8 applies.
  • Article 2(2) of the 1991 Order does not provide the Court with discretion to choose the date that interest can run from. Interest runs on costs from the date of the Judgment as per Article 2(1).
  • If CPR 40.8(1) applies then the principles set out by Lord Ackner in Hunt apply equally to cases funded on a CFA basis as cases funded on a private basis. This indicates the general rule as being the incipitur rule.
  • Interest is designed to compensate the successful party for the delay in receiving money from the paying party pursuant to the order for costs and thereby obtaining a return on the money. Success fees, on the other hand, are designed to compensate the Solicitors for taking on a risk and acting on a no win, no fee basis. Thus, receiving parties do not benefit from double recovery.
  • Where hourly rates are calculated to take account of the fact that the solicitors will suffer from delay in payment, the hourly rate ought to be reduced rather than departing from the general rule in CPR 40.8 and changing the date from which interest should run.
  • The fact that a case is funded on a CFA basis is not a sufficient reason in itself to justify departure from the general rule under CPR 40.8.
  • Prolonged arguments over the date from which interest ought to run and a detailed approach to the facts to determine the date from which interest ought to run are to be discouraged.
  • Where a Third Party is involved, if interest on costs is to be payable from the incipitur date and the party to whom the interest is paid has to account for it to the Third Party then there is a powerful argument that the Third Party should get interest in the normal way.
  • It was indicated in the obiter dictum at para 23 that if CPR 40.8 is valid and effective in the County Court (which it could be if the Treasury indicate their concurrence) then it impliedly repeals and replaces the 1991 Order in as far as that order applied to cases which CPR 40.8 would apply.
  • It was indicated in the obiter dictum at para 37 that the incipitur rule applies to costs for High Court matters.

Thus, regardless of whether CPR 40.8 is valid, interest will generally run from the date of Judgment – the clarification and certainty provided by this Judgment is definitely a welcome development for Receiving Parties.

1 [2012] EWCA Civ 137

2 16th February 2012

3 11th November 2010, Liverpool County Court

4 i.e. the allocatur rule

5 Lord Neuberger's view as indicated at para 24

6 [1990] 1 AC 398

7 Although the Judgment indicates that the Treasury could simply formally record agreement to the CPR, although the retrospective applicability of the same was queried.

8 SI 1991/1184