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Cite as: [2011] EWHC 90206 (Costs)

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Neutral Citation Number: [2011] EWHC 90206 (Costs)
Case No: HQ06X03370
SCCO Ref: PTH 1002160 & 1002161
Application No: 10.A.3914

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
SENIOR COURTS COSTS OFFICE

Clifford's Inn, Fetter Lane
London, EC4A 1DQ
29 June 2011

B e f o r e :

THE SENIOR COSTS JUDGE
____________________

Between:
YAO ESSAIE MOTTO & ORS
Claimants
- and -

(1) TRAFIGURA LTD
(2) TRAFIGURA BEHEER BV

Defendants

____________________

Mr Benjamin Williams (instructed by Leigh Day & Co) for the Claimants
Mr Nicholas Bacon QC and Mr Daniel Saoul (instructed by Macfarlanes LLP) for the Defendants

Hearing dates: 10 & 12 May 2011

____________________

HTML VERSION OF JUDGMENT
On the Claimants' Application in Respect of Interest on Costs
____________________

Crown Copyright ©

    Table of Contents

    Paragragh

    Number

      Paragragh
    INTRODUCTION 1
    THE LAW 10
    THE JURISDICTION OF THE COURT 21
        Deemed Orders 33
    THE INCIPITUR RULE OR THE ALLOCATUR RULE? 38
    THE POWERS OF THE COURT WITH REGARD TO THE STARTING POINT 58
    WHAT IS THE POSITION OF FUNDING THIRD PARTIES? 69
        Implied Terms in the CFAs 70
        Subrogation 100
        The ATE Premium 106
    CONCLUSIONS 109
        The Jurisdiction of the Court 109
            Deemed Orders 111
        The Incipitur Rule or the Allocatur Rule? 112
        Powers of the Court With Regard to the Starting Point 118
        What is the Position of Funding Third Parties? 121
            Implied Terms in CFAs 121
            Subrogation 128
            The ATE Premium 130
        Summary 131

    Senior Costs Judge:

    INTRODUCTION

  1. The Claimants have made an application in these terms:
  2. "This application is in relation to interest in order for the court to address, as a supplementary preliminary issue, whether interest is recoverable on costs incurred under CFAs.
    Two recent Circuit Court decisions conclude that such interest is not recoverable, and the Defendants have adopted these decisions."
  3. The two decisions referred to are Gray v Toner (11 November 2010, His Honour Judge Stewart QC), and Bridle v Ikhlas (22 February 2011, His Honour Judge Charles Harris QC). Although those decisions are persuasive only, I do recognise that both Judges are Designated Civil Judges of great experience, who are well versed in dealing with issues relating to costs. It is clear from his judgment that HHJ Harris QC was not aware of the decision in Gray v Toner, until after he had written his decision. It is, however, necessary to bear in mind that the statutory background for both those cases is Section 74 of the County Courts Act 1984, whereas the statutory background for the issue before me is Section 17 of the Judgments Act 1838, as amended. The relevant provisions of the CPR are, of course, the same in the High Court and the County Court.
  4. Mr Williams, having successfully argued before HHJ Stewart QC that no interest should be payable, now finds himself in the position of having to argue that the opposite is the case, and says that he overlooked a particular aspect (see paragraph 33ff below), which, had he brought it to the Judge's attention, could well have resulted in a different decision. He explained that in Gray v Toner the incipitur question (i.e. the question of whether Hunt v Douglas had been reversed by the 1999 amendment to the Judgments Act) in fact emerged only on the day of the appeal, in oral argument.  It was not raised in the lower court or in his skeleton for the appeal.
  5. Both parties agreed, that, whatever the outcome of this hearing, there would be bound to be an application for permission to appeal. I accept that the issues raised are difficult, and any decision from a higher Court will have ramifications far beyond this particular case. It is also clear that authoritative guidance needs to be given as to how interest on costs is to be treated in the future. For those reasons I have set out in considerable detail, both the arguments relied on, and the authorities called in aid to support those arguments. This has inevitably resulted in a lengthy judgment.
  6. Put simply, the Claimants' case is that the Incipitur Rule, as explained by Lord Ackner in Hunt v RM Douglas (Roofing) Ltd [1990] 1 AC 398 applies, and that interest at 8% should run in respect of costs (the judgment debt) from the date of the compromise agreement. The Tomlin Order embodying the compromise was approved by MacDuff J, in respect of claims by children on 23 September 2009.
  7. Given that the costs claimed from the Defendants exceed £100 million, it will be seen that the amount of interest payable would be very substantial, being on the figures claimed, in the order of £800,000 plus per annum, less an allowance for the £30 million paid on account by the defendants.
  8. In civil litigation, save where a party is legally aided, any costs recoverable from the paying party belong to the receiving party, not to the legal representatives. Thus, in this case, on the face of it, any interest recovered would have to be paid to the individual claimants. Mr Williams seeks to overcome this difficulty by suggesting that implied terms should be inserted into the conditional fee agreements, entitling Leigh Day & Co and counsel to retain any interest covered.
  9. The Defendants for their part suggest that, since the amendment of Section 17 of the Judgments Act 1838, in 1999, and the introduction of the Civil Procedure Rules, the decisions of the House of Lords in Hunt v Douglas Roofing Ltd and Thomas v Bunn [1991] AC 362 are no longer binding, and that the allocatur rule should apply, ie, that no interest should run until the costs have been assessed and quantified, and an interim or final certificate issued by the court.
  10. The background facts of this case are set out at paragraphs 1 to 20 of my judgment, dated 15 February 2011, to which reference should be made.
  11. THE LAW

  12. It is necessary to consider the Judgments Act 1838, the relevant Civil Procedure Rules, and the numerous authorities in some detail.
  13. As originally drafted, Section 17 of the 1838 Act read:
  14. "Judgment Debts to Carry Interest
    Every judgment debt shall carry interest at the rate of [8] pounds per centum per annum from the time of entering up the judgment […] until the same shall be satisfied, and such interest may be levied under a writ of execution on such judgment."
  15. Section 17 was amended, with effect from 26 April 1999, by the Civil Procedure (Modification of Enactments) Order 1998 (SI 1998/2940) Article 3. The amended section reads:
  16. "Judgment Debts to Carry Interest
    (1) Every judgment debt shall carry interest at the rate of 8 pounds per centum per annum from such time as shall be prescribed by Rules of Court until the same shall be satisfied, and such interest may be levied under a writ of execution on such judgment.
    (2) Rules of Court may provide for the court to disallow all or part of any interest otherwise payable under sub-section (1)."
  17. Section 18 of the 1838 Act remained unchanged throughout:
  18. "Decrees and Orders of Courts of Equity, etc, to have Effect of Judgments
    All decrees and orders of courts of equity, and all rules of courts of common law […] whereby any sum of money, or any costs, charges, or expences, shall be payable to any person, shall have the effect of judgments in the superior courts of common law, and the persons to whom any such monies, or costs, charges or expences, shall be payable, shall be deemed judgment creditors within the meaning of this act; and all powers hereby given to the Judges of the superior courts of common law with respect to matters depending in the same courts shall and may be exercised by courts of equity with respect to matters therein depending […] and all remedies hereby given to judgment creditors are in like manner given to persons to whom any monies, or costs, charges, or expences, are by such orders or rules respectively directed to be paid."
  19. The relevant Civil Procedure Rules are:
  20. "40.8 Time from which interest begins to run
    (1) Where interest is payable on a judgment pursuant to section 17 of the Judgments Act 1838 or section 74 of the County Courts Act 1984, the interest shall begin to run from the date that judgment is given unless –
    (a) a rule in another Part or a practice direction makes different provision; or
    (b) the court orders otherwise.
    (2) The court may order that interest shall begin to run from a date before the date that judgment is given.
    44.3 Court's discretion and circumstances to be taken into account when exercising its discretion as to costs
    …
    (6) The orders which the court may make under this rule include an order that a party must pay –
    …
    (g) interest on costs from or until a certain date, including a date before judgment."
  21. For completeness I set out the County Court provisions. Section 74 of the 1984 Act reads:
  22. "74. Interest on judgment debts etc
    (1)     The Lord Chancellor may by order made with the concurrence of the Treasury provide that any sums to which this sub-section applies shall carry interest at such rate and between such times as may be prescribed by the order.
    (2)     The sums to which sub-section (1) applies are—
    (a) sums payable under judgments or orders given or made in a county court …"
  23. The relevant part of the County Courts (Interest on Judgment Debts) Order 1991 provides:
  24. "2. The General Rule
    (1)     Subject to the following provisions of this Order, every judgment debt under a relevant judgment shall, to the extent that it remains unsatisfied, carry interest under this Order from the date on which the relevant judgment was given.
    (2)     In the case of a judgment or order for the payment of a judgment debt, other than costs, the amount of which has to be determined at a later date, the judgment debt shall carry interest from that later date.
    …"
  25. It is necessary to look in some detail at the judgments in Hunt v Douglas and Thomas v Bunn, both of which are variously relied on by each party in support of their case. I shall set out the basic principles stated in each judgment, but will have to return to more specific areas when examining the submissions of each side. In Hunt v R M Douglas (Roofing) Ltd, the plaintiff applied to the Taxing Master for an order that pursuant to Section 17 of the 1938 Act, interest on the taxed costs should run from the date of pronouncement of the stay of the action. That application failed, and the Judge in Chambers dismissed the plaintiff's appeal. Lord Ackner gave the leading opinion, with which the remaining Law Lords agreed (page 404B):
  26. "My Lords, this appeal raises an important issue with regard to costs - namely whether a litigant who has been awarded costs, is entitled to interest on the amount of the costs from the date on which judgment is pronounced (referred to hereafter as "the incipitur rule") or from the date on which the taxation of costs is completed by the issue of the taxing master's certificate (the "allocatur rule").
    …"
  27. Lord Ackner then set out the relevant provisions of the 1838 Act, and continued (page 405G):
  28. "The Act nowhere defines the vital words in section 17 "entering up the Judgment". A different view was taken by the Common Law Courts as opposed to the Chancery Courts as to when the judgment could be said to have been entered up and section 20 was apparently relied on as giving a power to the courts to regulate their practice in accordance with the view they took. The Court of Common Pleas awarded interest on costs from the date of the incipitur …
    …
    (page 406G) That decision [Fisher v Dudding [1841] 9 Dowl 872] was approved in Newton v Grand Junction Rly Co (1846) 16 M & W 139, a decision of the Court of Exchequer, where Alderson B observed in the course of argument, at page 141:
    "Then, as to the interest, there is an uncertain amount, which is in the wrong pocket, and is there bearing interest; I see no injustice in saying, that as soon as it is reduced to certainty, that interest should be paid. Whatever be the sum, it is fructifying in the wrong pocket."
    However the Court of Chancery apparently took a different view, its practice being referred to in Boswell v Coaks (1887) 57 LJ Ch 101 at 105 by Lindley LJ, who said:
    "The right to interest on costs depends on the statutory enactment 1 & 2 Vict. c. 110 ss. 17 and 18, and by section 20 of that Act the Court is empowered to make orders framing new rules, and under that section the Court of Chancery by consolidated orders issued a form of writ of fi. fa. according to which interest on costs was to run from the date of the Taxing Master's certificate. There was no similar practice at common law, where the interest ran always from the date of the judgment."
    …
    (page 409D)
    From 1884 to 1965 the principle that interest on costs ran from the date of judgment became firmly established. Throughout this period The Annual Practice contained a note to the effect that interest on costs ran from the date of judgment and not from the date of the taxing master's certificate.
    In 1965 new writs of execution were introduced by the Rules of the Supreme Court (Revision) 1965, SI 1965/1776: see RSC Ord 45, r 12 and App A, Forms 53 and 54, which replace the old Forms 1 and 2 respectively. The footnote to Form 1 was omitted altogether. The note in The Annual Practice, subsequently The Supreme Court Practice, continued in the same form until after the decision of the Court of Appeal in K v K (Divorce Costs: Interest) [1977] Fam 39 …"
  29. In that case Lord Denning MR had decided that it was appropriate that interest should run from the certificate of taxation, rather than from the initial judgment:
  30. "(415E) Conclusion
    The Court of Appeal in K v K … misapprehended the nature of the amendment made to the new form by the Rules of the Supreme Court (Revision) 1965, for the reasons already stated. The decision in Pyman's case [1884] WN 100 as to the effect of the 1883 rules, as approved by the Court of Appeal in Boswell's case 57 LJ Ch 101, was correct. Accordingly the incipitur rule prevails. I respectfully agree with the observations of the Court of Appeal that a satisfactory result cannot be achieved in every case, but in my judgment the balance of justice favours the incipitur rule for the following reasons. (1) It is the unsuccessful party to the litigation who, ex hypothesi, has caused the costs unnecessarily to be incurred. Hence the order made against him. Since interest is not awarded on costs incurred and paid by the successful party before judgment, why should he suffer the added loss of interest on costs incurred and paid after judgment but before the taxing master gives his certificate? (2) Since, as the Court of Appeal rightly said in the Erven Warnink case [1982] 3 All ER 312, payments of costs are likely nowadays to be made to lawyers prior to taxation, then the application of the allocatur rule would generally speaking do greater injustice than the operation of the incipitur rule. Moreover, the incipitur rule provides a further necessary stimulus for payments to be made on account of costs and disbursements prior to taxation, for costs to be more readily agreed and for taxation, when necessary, to be expedited, all of which are desirable developments. Barristers, solicitors and expert witnesses should not be expected to finance their clients' litigation until it is completed and the taxing master's certificate obtained. If interest is not payable on costs between judgment and the completion of taxation, then there is an incentive to delay payment, delay disbursements and taxation. (3) It is common ground between the parties that the unsatisfactory situation illustrated in K v K can be simply dealt with by an express agreement between the solicitor and his client that any interest recovered on costs and disbursements after judgment is pronounced but before the taxing master's certificate is obtained, which costs and disbursements have not in fact been paid prior to taxation, shall as to the interest on the costs belong to the solicitor and as to the interest on disbursements be held by him for and on behalf of the person or persons to whom the disbursements are ultimately paid."
  31. In Thomas v Bunn [1991] AC 362, the successful claimant obtained judgment, with damages to be assessed. At first instance interest was awarded from the date of the interlocutory judgment, but on appeal the House of Lords held that Section 17 of the 1838 Act clearly contemplated a single final judgment for a quantified sum, rather than an interlocutory judgment or order, which merely established the defendant's liability. Lord Ackner again gave the leading opinion, in which he reviewed the law and the earlier cases, including Hunt v Douglas Roofing. He stated (page 379H):
  32. "Put shortly, the respondents argue that since it is accepted on all sides that Hunt's case establishes, and rightly establishes, that the liability to pay interest on costs does not have to await the quantification of those costs, but dates back to the date of the judgment awarding those costs, the same principle should apply to damages. If quantification is not necessary for the completion of the obligation to pay costs, the same principle should apply to damages. Sections 17 and 18 of the Judgments Act 1838 make no distinction between costs and damages, treating each as a judgment debt. Since interest on costs runs from the date the judgment was pronounced, then logically interest on damages awarded by that judgment should run from the same date. Further, the respondents contend that the decision in Borthwick's case [1905] 2 K.B. 516, as explained by Eve J. in Ashover's case [1911] 2 Ch. 355, even though its application is limited, has stood the test of time and is good law.
    In answer to these contentions the appellants argue that there is no logical reason why the same rules should apply to damages as apply to costs, the assessment of damages being a different exercise from the taxation of costs. All that the taxing master is required to do is from his own experience to decide whether costs, which have already been incurred, have been reasonably incurred and then to put a reasonable figure on such costs as at the date of the incipitur or earlier. The costs having all been incurred by the date of the incipitur, the amount at which they will be taxed will be the same whenever the taxation takes place. In contra-distinction, a judge in assessing damages has to assess, not merely the damages suffered before the date of the interlocutory order or interim judgment, but also the damages suffered between then and the date of assessment and the further damages to be suffered in the future. There is no warrant for the fine distinctions arising out of the Borthwick and the Ashover decisions.
    I accept that it is an anomaly that an order for payment of costs to be taxed is construed for the purpose of section 17 as a judgment debt, even though, before taxation has been completed, there is no sum for which execution can be levied. However the courts have accepted since its enactment that section 17 does apply to such an order and, for the reasons set out in my speech in Hunt's case … the balance of justice favours continuing so to treat such an order. The short question is - was I right in concluding that this acceptance is because "a judgment for costs to be taxed is to be treated in the same way as a judgment for damages to be assessed, where the amount ultimately ascertained is treated as if it was mentioned in the judgment - no further order being required." The answer is in the negative.
    The wording of section 17 clearly envisages a single judgment which constitutes the "judgment debt." This "judgment debt" can only arise where the judgment itself quantifies the sum which the judgment debtor owes to his judgment creditor. The language of the section does not envisage an interlocutory judgment, but only a final judgment. This was clearly the view of Kindersley V.-C. in Garner v. Briggs (1858) 27 L.J. Ch. 483, which was not cited in the Borthwick case or the Ashover case. ...
    I accordingly take the view the judgment referred to in section 17 of the Judgments Act 1838 does not relate to an interlocutory or interim order or judgment establishing only the defendant's liability. The judgment contemplated by that section is the judgment which quantifies the defendant's liability, the judgment which has been referred to in the course of these appeals as "the damages judgment." The artificial distinction drawn in the Borthwick case … based on the precise terms in which damages are ordered to be assessed can no longer stand."

    THE JURISDICTION OF THE COURT

  33. Mr Williams argues that the powers of the court under CPR 44.3 are directed to the trial Judge dealing with the substantive hearing, rather than the Costs Judge on detailed assessment, who is governed by the factors set out in rule 44.5. In his submission, in the circumstances of this case, I simply do not have any of the powers set out under 44.3. He suggests that whilst under the earlier version of the 1838 Act there might have been controversy about the meaning of the words "entering up the judgment", there has never been any controversy about what the word "judgment" itself meant, so that the judgment in respect of costs did not refer to the costs certificate, but to the substantive judgment itself. He submits that what carries interest is the judgment itself, not the costs certificate, and in spite of the amendment to Section 17 of the 1838 Act, the meaning of "judgment" has remained the same to this day.
  34. In Mr Williams' submission the jurisdiction under CPR 40.8 for the court to order otherwise must be exercised at the time of the substantive judgment, ie, by the trial Judge or the Judge approving the compromise, and not by a Costs Judge on detailed assessment. This is borne out by the wording of CPR 44.3, which clearly refers to a Judge making the final costs order, rather than carrying out an assessment. Although CPR 47.8 and 48.14 give a Costs Judge powers to deal with interest for delay, this does not in his submission import any power to deal with the incidence of interest under CPR 44.3. Even if the key issues had been heard by MacDuff J, Mr Williams argues that the position would be the same, since the Judge would be sitting as what he called a 44.5 Judge, ie, hearing a detailed assessment, rather than a 44.3 Judge, dealing with the substantive issues.
  35. In relation to his argument that CPR 44.3(6)(g) bestows power on the trial Judge, but not on the Costs Judge, Mr Williams makes the point that any application in respect of interest should have been made at the time the compromise agreement was being considered.
  36. Mr Williams further submits that there are only two provisions which give express power to a Costs Judge to deduct interest, namely rule 47.8(3):
  37. "If –
    (a) the paying party has not made an application in accordance with paragraph (1); and
    (b) the receiving party commences the proceedings later than the period specified in 47.7, the court may disallow all or any part of the interest otherwise payable to the receiving party under:
    (i) Section 17 of the Judgments Act 1838; or
    (ii) Section 74 of the County Courts Act 1984
    but must not impose any other sanction except in accordance with rule 44.14 (powers in relation to misconduct)."
  38. Similarly, under rule 47.14, dealing with the detailed assessment hearing, which requires the receiving party to file a request for detailed assessment within three months of the expiry of the period for commencing detailed assessment, and sets out the procedure to be adopted if no such application is made. The rule provides:
  39. "5. If –
    (a) the paying party has not made an application in accordance with paragraph (3); and
    (b) the receiving party files a request for detailed assessment hearing later than the period specified in paragraph (2), the court may disallow all or part of the interest otherwise payable to the receiving party under:
    (i) Section 17 of the Judgments Act 1838; or
    (ii) Section 74 of the County Courts Act 1984
    but must not impose any other sanction, except in accordance with rule 44.14 (powers in relation to misconduct)."
  40. Mr Williams points out that when he appeared before His Honour Judge Stewart QC the provisions of the Costs Rules, set out above, were not raised by his opponent.
  41. It is Mr Williams' case that the relatively short amendment to Section 17 is most unlikely to have overruled the House of Lords' decisions in Hunt v Douglas and Thomas v Bunn. He suggests that had such a fundamental change been intended, there would have been something far more specific in the amendment. He supports that argument by pointing out that he could find nothing in the travaux preparatoires, and in Lord Woolf's Access to Justice Report no reference to the change in the Judgments Act appears, accordingly, the default starting point, in his submission, remains the judgment, or, in this case, the date of the Tomlin Order.
  42. With regard to Mr Williams' jurisdiction point, Mr Bacon argues this is incorrect, and relies on CPR 2.4:
  43. "Where these rules provide for the court to perform any act, then except where an enactment, rule or practice direction provides otherwise, that act may be performed –
    (a) in relation to proceedings in the High Court by any Judge, Master or District Judge of that court; and
    (b) in relation to proceedings in a County Court by any Judge or District Judge."
  44. He also relies on CPR 40.8 as giving the overarching jurisdiction (see paragraph 14 above), and submits that CPR 44.3(6)(g) must be read in the light of those rules. Rule 47.8 gives the Costs Judge specific power in case of delay, with regard to interest on the entire costs of the action.
  45. In support of his argument Mr Bacon relies on the judgment of the Court of Appeal in Powell v Herefordshire Health Authority [2002] EWCA Civ 1786. This was an appeal from the decision of a Costs Judge, who had decided that interest on costs should run from the date upon which judgment was entered for the claimant for damages to be assessed. Liability had been admitted, and the judgment provided that the plaintiff should recover against the defendants damages to be assessed and costs. Kay LJ, giving the judgment of the court, stated:
  46. "11. Neither party suggested to Master Rogers that he had any power to order that the costs run from any different date. Master Rogers concluded on the arguments presented to him that the date from which the interest ran was the date when the original judgment had been entered, June 1994. He clearly recognised that this decision would seem unjust to the defendant in that interest would be carried on a substantial part of the costs for many years before those costs were actually incurred, but he felt compelled by the 1838 Act, as subsequently interpreted by the courts, to reach such a conclusion.
    12. Unfortunately, neither party drew to the attention of Master Rogers the provisions of CPR 44.3(6)(g) …
    13. There was thus no need in law for Master Rogers to find himself in the legal straight jacket that the parties had suggested. He had a discretion which enabled him to look at the dates when the costs had been incurred, and to come to a conclusion in relation to the payments of interest that fitted the justice of the circumstances of the particular case. He did not do so because he was not made aware of the possibility of that course. It becomes immediately apparent that the decision that he made cannot stand."
  47. The court went on to explain that counsel, neither of whom had appeared below, having considered the matter appreciated what had gone wrong, and agreed between themselves what would be a fair order. The appeal was accordingly disposed of on terms agreed between the parties. Mr Bacon suggests that I am bound by that decision.
  48. Mr Williams argues that it is clear from the judgment that the parties had already reached agreement, and submitted an order by consent, and that the court gave a short judgment in order to assist practitioners, but, in his submission, had not heard any argument, and, in those circumstances, the decision is not authoritative.
  49. Deemed Orders

  50. In support of his argument, Mr Williams refers to CPR 44.12(2), in respect of cases where costs orders are deemed to have been made, rule 44.12(2) states:
  51. "Interest payable pursuant to section 17 of the Judgments Act 1838 or section 74 of the County Courts Act 1984 on the costs deemed to have been ordered under paragraph (1) shall begin to run from the date on which the event which gave rise to the entitlement to costs occurred."

    This, he says, is an example of the incipitur rule.

  52. Costs Practice Direction paragraph 4.2(6) states:
  53. "Where the bill covers costs payable under an order or orders, in respect of which the receiving party wishes to claim interest from different dates, the bill must be divided to enable such interest to be calculated."

    Mr Williams submits that this passage refers to interest from the date of the substantive order.

  54. Costs Practice Direction paragraph 45.5, which deals with liability for costs of detailed assessment proceedings, under rule 47.18, provides:
  55. "45.5(1) In respect of interest on the costs of detailed assessment proceedings, the interest shall begin to run from the date of the default, interim or final costs certificate as the case may be.
    (2) This provision applies only to the costs of detailed assessment proceedings themselves. The costs of the substantive proceedings are governed by rule 40.8(1)."
  56. This, he says, is another manifestation of the incipitur rule, where the costs certificate dealing with the costs of the detailed assessment proceedings is treated as the judgment giving rise to the judgment debt.
  57. CPR 44.12(2) is, says Mr Bacon, an exception to the general rule. He says that this is entirely consistent with the interpretation of CPR 40.8, for which the Defendants argue in that, instead of interest running from the date of quantification in the case of a deemed order, it is specifically provided by the rule that it will run from the date of the relevant event.
  58. THE INCIPITUR RULE OR THE ALLOCATUR RULE?

  59. Mr Williams submits that the law as to when interest should begin to run was absolutely clear, following Hunt v Douglas, in 1999 when Section 17 of the 1838 Act was amended. He refers to Thomas v Bunn at 380G, which I have quoted at paragraph 20 above, to the effect that the wording of Section 17:
  60. "clearly envisages a single judgment which constitutes the "judgment debt"". In respect of damages, interest does not run until the damages are quantified, but in the case of costs interest runs from the date of the "single judgment"."
  61. He submits that if the fundamental change advocated by the Defendants was intended by Parliament, one would have expected to see, in commentary or consultation, some reference to the fact that in respect of costs "the date that judgment is given" should now mean the date of quantification of those costs. He also points out that, if Mr Bacon is correct, this change has been completely overlooked for more than a decade, and the point has never been raised in the authorities to which I have been referred during the course of argument. The point has either been completely overlooked, or was thought to be unarguable. He argues that the relatively small change in the wording of Section 17 cannot have led to the splitting of judgments from a single judgment prior to 26 April 1999, to two judgments (ie, damages and costs) after that date.
  62. As to the starting point, Mr Williams relies on Lord Ackners' conclusion in Hunt v Douglas (which I have quoted at paragraph 19 above). This conclusion, he submits, sets out the simple and well established principle relating to interest on costs, which has for many years been accepted without question until the decisions in Gray v Toner and Bridle v Ikhlas.
  63. Mr Williams cites the Court of Appeal's decision in Bim Kemi AB v Blackburn Chemicals Ltd [2003] EWCA Civ 889 in support of his assertion that Hunt v Douglas Roofing continues to apply (see paragraph 18(c)). He also relies on the decision of Mr Justice Mann in Schlumberger Holdings Ltd v Electromagnetic Geoservices AS [2009] EWHC 773 (Pat) where he stated:
  64. "9. It is well established that interest on costs from the date of a costs judgment is payable at the judgment debt rate from the date of the costs order rather than from the later date when the costs are actually quantified. In this respect costs orders are to be contrasted with judgments for damages, where the judgment debt rate applies only once the damages have been assessed and does not run from the date on which damages in their general sense are ordered.
    10. In this respect the costs position might be regarded as a bit of a historical anomaly, but it is plain on the authorities that that is the position. See Hunt v RM Douglas (Roofing) Ltd … and Thomas v Bunn …"
  65. Mann J went on to quote from the judgment of Chadwick LJ in McPhilemy v Times Newspapers Ltd. (No. 2) [2002] 1 WLR 934, where he decided that the court had power to award enhanced interest in respect of a Part 36 offer under rule 36.21, but that statutory interest applied after the date of judgment (see paragraph 12 of Mann J's judgment). Mr Williams' submission is that there has never been any suggestion that the incipitur rule in respect of orders for costs should not apply, as it has always done.
  66. With regard to the question of when interest should start to run, the Defendants' case is that it should not start to run until the costs have been assessed, and the relevant interim or final costs certificate issued. Mr Bacon goes further, and suggests that my jurisdiction is now unfettered, and that I am not bound by Hunt v Douglas, or Thomas v Bunn. Further, he submits there is no reason why the Claimants should receive interest on the costs, since they are not, and never will be, out of pocket. He points out that the jurisdiction of the court to award interest on costs is essentially a statutory one, arising out of the 1838 Act, and that both Hunt v Douglas and Thomas v Bunn were decided prior to the introduction of the CPR. He argues that there is a critical difference between the wording of Section 17 of the 1838 Act as originally formulated, and the form of words now used by Rules of Court pursuant to the 1999 Amendment to Section 17, CPR 40.8(1), which provides that "the interest shall begin to run from the date that the judgment is given …" Mr Bacon argues that this form of words needs to be given a modern interpretation, which essentially means that in respect of costs the date the judgment is given is the date of the certificate. It is this modern approach which, he says, persuaded HHJ Stewart QC that awards for both damages and costs should be treated in the same way, so that interest should only run once the figure for damages or costs has been quantified.
  67. He supports his submissions by reference to Hunt v Douglas and Thomas v Bunn, pointing out that these decisions were made when it was not permissible for legal representatives to enter into conditional fee agreements. At the time of Hunt v Douglas Roofing, Section 17 had not been amended. I have set out an extract from Lord Ackner's opinion at paragraph 17 ff above. Mr Bacon refers to further paragraphs in that opinion, in relation to which of the practices should prevail:
  68. "407E In Schroeder v Clough (1877) 46 LJQB 365 there was a motion to vary an order of the master which gave interest on costs only from the date of his certificate. The order was affirmed, it being held that the effect of [the Supreme Court of Judicature Act 1875] was to apply the Chancery practice throughout the High Court.
    Some five years after the decision in Schroeder v Clough, that is in 1883, there were enacted new Rules of the Supreme Court. Order 42, r 14 provided, inter alia: "... The Forms in Appendix H shall be used with such variations as circumstances may require".
    Form 1 in App H was for a writ of fieri facias, where the party entitled elected to execute by one writ for both judgment debt and costs. This directed the sheriff to levy the judgment debt and costs in the same form as in App F to the 1875 rules but the old footnote was replaced. The new footnote said:
    "Day of the judgment or order, or day on which money directed to be paid, or day from which interest is directed by the order to run, as the case may be."
    Form 2, which related to an order for costs only, and which gave the sheriff the same direction as to interest, leaving the day from which it was to run blank, contained no footnote."
  69. It fell to Field J in Pyman & Co v Burt Boulton [1884] WN 100 to determine the effect of the alteration of the footnote. He decided that the form given in Appendix H had to be read in conjunction with the note appended to it. He stated:
  70. "By the note, which applies both to the interest on the debt and to the interest on the costs, it is provided that the day to be inserted shall be the day of the judgment or order, or day on which money directed to be paid, or day from which interest is directed by the order to run, as the case may be. The meaning of that is that there may be a judgment simply, in which case the interest on the debt and on the costs will begin to run at once; or there may be a judgment directing money to be paid on a future day, in which case the interest will begin to run from that day; or there may be a judgment with a special direction as to the day from which interest on the debt or on the costs is to run. In any particular case I could order that the interest on the costs should not begin to run until after they have been taxed. In the absence of any special order, no distinction is made between interest on the debt and interest on the costs. Both begin to run from the day of the judgment."
  71. So, at that point both the Courts of Chancery and Common Law adopted the principle that interest should run from the date of the judgment, notwithstanding the actual amount had not been identified.
  72. Mr Bacon further refers to the speech of Lord Ackner in Hunt, which I have quoted at paragraph 18 above, and then refers to K v K. He submits that this decision, of the Court of Appeal, is an important step in the debate about the application of the incipitur and allocatur rule. Lord Denning MR was not persuaded that he was bound by the earlier decisions, although this was based on the fact that the footnote to the earlier forms of execution was omitted in 1964. Mr Bacon argues that we now find ourselves in the same position as the Court of Appeal thought it was in, because, given the amendment to the 1838 Act, and the Civil Procedure Rules, the court now has a discretion with regard to interest. In K v K, a wife who had been successful in divorce proceedings sought interest on her legal costs from the date of the original costs order in her favour, notwithstanding that she did not actually pay the underlying bills until after taxation. Lord Denning, having reviewed the history relating to the incidence of interest, stated:
  73. "I think we are entitled to go back to the time before 1883. We can go back to the note which appeared in the statute of 1875, which says that the date to be inserted is "The date of the certificate of taxation". Alternatively, we are entitled to say that the rule of equity should prevail. In the further alternative, we are entitled to apply a little commonsense. Interest should be payable whenever money is "wrongly withheld" from the one who is entitled to it: see Jefford v Gee [1970] 2 QB 130, 140 to 146. When the sum is unascertained, the debtor cannot be expected to pay it until it is quantified. He cannot make a tender until he knows how much it is. He cannot be said to be "wrongfully withholding" the money until it is fixed. So in all fairness interest should only run from the date of quantification: …"
  74. Stephenson and Orr LJJ, both agreed with that approach. The Court of Appeal again considered the contest between the incipitur rule and the allocatur rule in Erven Warnink BV v J Townsend & Sons (Hull) Ltd [1982] 3 All ER 312, in which the decision in K v K was followed. Lord Ackner quoted from the judgment of Fox LJ (page 415B):
  75. "... the purpose of an order for costs is to give an indemnity, or partial indemnity, to the successful litigant in respect of his expenses of the litigation. If, therefore, he has made payments to his lawyers in respect of costs prior to taxation (and it is likely nowadays that he will) it is difficult to see why he should be denied interest as from the judgment or later payment on the amounts from time to time paid (up to the aggregate ultimately allowed on taxation). On the other hand, interest cannot be allowed in the K v K situation. It seems to us that the court is entitled to consider the purpose of the statute and to construe it as not permitting interest in such circumstances. If the date of judgment is accepted as the general principle, such a construction would merely be a limitation on the general principle in order to avoid absurd results, just as in the case of interest on a judgment on a fixed sum to be paid at a future date ... The only alternative, we think, is to apply the allocatur rule rigidly in the case of costs."
  76. Lord Ackner then set out his conclusion, to the effect that K v K was wrongly decided, and that the footnote in the Rules of Court after 1965 should not be interpreted as disturbing the incipitur rule, and that the established effect of the 1883 Rules continued. His conclusion is set out at paragraph 19 above. It is Mr Bacon's case that this court is not bound by Hunt v Douglas, because the House of Lords at that time was considering Section 17 in a different form.
  77. Mr Bacon then turns to Thomas v Bunn, from which I have quoted Lord Ackner at paragraph 20 above. He points out that in Hunt v Douglas, Lord Ackner had expressed the view that the courts, having accepted since its enactment that Section 17 does apply to an order for costs, continuing (page 416D):
  78. "This acceptance is because a judgment for costs to be taxed is to be treated in the same way as a judgment for damages to be assessed, where the amount ultimately ascertained is treated as if it was mentioned in the judgment - no further order being required. A judgment debt can therefore in my judgment be construed for the purpose of s 17 as covering an order for the payment of costs to be taxed."

    In Thomas v Bunn Lord Ackner stated that he was not right so to conclude in Hunt.

  79. Relying on the judgment in Thomas v Bunn Mr Bacon argues that the word "judgment" means the quantified judgment, and that the incipitur rule only applies to orders for costs for the policy reasons set out by Lord Ackner in Hunt, and concluding that the balance of justice favours continuing so to treat such an order.
  80. Mr Bacon relies on this passage from the speech of Lord Ackner in Thomas v Bunn at 374C. Having quoted the wording of Section 17, Lord Ackner stated:
  81. "If the words used in this section are considered in isolation, the problem would not appear to be a difficult one. It is accepted there cannot be a "judgment debt" until there is a judgment for a quantified sum, i.e. a final as contrasted with an interlocutory judgment. Such a final judgment is to carry interest from the time of entering up "the judgment," i.e. the judgment which creates the judgment debt, i.e. the final judgment. This is made doubly clear by the provision that the interest shall run "until the same shall be satisfied." Until there is a quantified sum which the judgment debtor is obliged by the terms of the judgment to pay, there is no judgment which he is able to satisfy. The final provision in the section that "such interest may be levied under a writ of execution on such judgment" must refer to the judgment which has created the judgment debt, that is the final judgment.
    Accordingly the words of the section, taken on their own, visualise only a final judgment quantifying a sum of money - the damages judgment in this case, and not the liability judgment which may have been given some years earlier and which identifies no sum of money as being due and payable?"
  82. Mr Bacon argues that the wording of CPR 40.8 must have the same meaning. Thus, he argues the decision in Thomas v Bunn means that "judgment" is a judgment for a quantified sum. In his submission it follows that since this court is no longer bound by the decision in Hunt, which was based on policy considerations, those considerations are not apposite, and the decision is no longer binding.
  83. Mr Bacon relies on HHJ Stewart QC in Gray v Toner in support of his argument that interest should not start to run until the costs have been assessed, since until that moment the Claimants will not be exposed to a costs liability, and that accordingly they should not be awarded interest on the period prior to that.
  84. In Gray v Toner the client was under a liability to pay the solicitor's costs, although the expectation was that the costs would be recoverable from the opponent. The CFA imposed no obligation, express or implied, on the Claimant to pay interest on costs to her solicitors, although she did have a duty to account for any costs actually recovered. The Judge pointed out that in Hunt v Douglas and Thomas v Bunn the court was dealing with Section 17 of the 1838 Act in its original form, and the court had no discretion under the Act, interest was automatic. The only issues for the courts were ones of interpretation of the statute:
  85. "14. The defendant submits, based on the above and in particular the judgment in Fattal, that interest on costs has been assimilated with interest on damages. It should be awarded only when the recipient is out of pocket. This claimant recipient being on a CFA was not out of pocket and should receive no interest.
    15. The claimant accepts that whether or not the recipient is out of pocket is the test as regards damages (cf Giles v Thompson [1994] 1 AC 142 at 167H-169B; Burdis v Livesey [2002] EWCA Civ 510 at paragraphs 157-162). However the claimant does not accept that (i) the position on damages and (ii) the position pre judgment on costs are the same as (iii) the position post judgment on costs. Nor does the claimant accept that Fattal determines the issue. As to Fattal the claimant relies on the fact that there must be a "good reason" to make an order other than one of interest post judgment (paragraph 25) and that the "primary purpose" for an award of interest on damages, debt or costs is to "compensate" (paragraph 26) suggests that there are other purposes.
    …
    21. … A new section 17 has repealed the words "from the time of entering up the judgment" and replaced them with, "such time as shall be prescribed by rules of court". Rule 40.8(1) says interest "shall begin to run from the date that judgment is given". I have not found this an easy point but, in my judgment, the old dichotomy between damages and interest has gone, as a result of those provisions. Judgment for damages and costs now means the same, ie where the judgment itself quantifies the sum which the debtor owes to the creditor. Not only has the statute changed but also the justification for the old anomaly (apart from precedent) has largely been superceded. The first two points of justification (Hunt 415F-416C) can now be responded to in this way:
    (i) Interest now can be awarded as a matter of discretion on costs incurred and paid by a party before judgment.
    (ii) It can no longer be said that payments of costs are likely to be made to lawyers prior to detailed assessment. There are many cases where they will but thousands where they will not; the scenery has changed and on CFAs solicitors and barristers often expressly agree to "finance their client's litigation until it is completed". Indeed, they can allow a proportion of the success fee to compensate for delay in payment. Nowadays also interim payments of costs are regularly awarded.
    22. There are other factors which can be mentioned as to the pros and cons of construing section 17 (as amended) and rule 40.8(1) so as to abolish the anomalous dichotomy between damages and costs and I will turn to them in a moment. However, my primary reasons for my finding are those in paragraph 21 above.
    23. I now turn to the other factors:
    …
    (iii) Ms Hennessey also submits that, if interest on costs is from assessment of costs unless the court orders otherwise, many privately funded clients will have to seek an order of interest. That will be so but the court has that discretion.
    24. My main difficulty in coming to this conclusion is the approach in Fattal; yet the point I have determined was itself not argued or determined in Fattal although it underlies the reasoning of that decision, namely that the incipitur rule on costs survives subject to rule 40.8(2) discretion. Notwithstanding this, it may well be a good reason to order otherwise if a client has paid costs to his solicitors prior to a detailed assessment.
    25. If I am wrong on my first finding then I find that in the context of this CFA there is a good reason to depart from the incipitur rule. The primary purpose of compensating the recipient for being precluded from obtaining a reward on money expended (Fattal paragraph 26) has no application here. Many of the other points I have made as to relevant factors on the point of construction (see paragraphs 21-23 above) apply in justifying an order that interest in this case should run only from the date of assessment of costs and not from the date of the order or costs to be assessed."
  86. Mr Bacon submits that Judge Stewart's approach reflects the Defendants' submission that there should be consistency between interest on damages and interest on costs. He submits that CPR 40.8, when read with Section 17 as amended, envisages a settled judgment sum, so that "the date the judgment is given" in CPR 40.8 is the date when a judgment containing a "judgment debt" is handed down. The judgment debt must be a quantified sum.
  87. With regard to the County Courts (Interest on Judgment Debts) Order 1991, Mr Bacon points out that the order was promulgated shortly after the House of Lords decision in Thomas v Bunn, and accordingly reflects that decision. Article 2(2) specifically excludes costs from the provision that where a judgment is for the payment of a judgment debt, the amount of which is to be determined at a later date, the judgment debt shall carry interest from that later date. CPR 40.8, which came into force in 1998, and which applies in both the High Court and County Courts, provides that interest shall begin to run from the date that judgment is given unless the court orders otherwise. He submits that, in that context, interest applies to both damages and costs, and if there is a perceived conflict between the provisions of the 1991 Order and the 1998 Rules, the later rules are to be preferred.
  88. THE POWERS OF THE COURT WITH REGARD TO THE STARTING POINT

  89. A further limb of Mr Williams' argument is, as to whether the court has power to alter the rate of interest, and to what extent the court should decide upon the starting point. The Defendants' submission is to the effect that the rate of interest is very high (8%), and that the Claimants themselves are not out of pocket, and do not therefore need compensating.
  90. Mann J, in Schlumberger v Electromagnetic was asked to adjust dates in order to deal with what was characterised as an explicit rate problem. The Judge was not persuaded that he should do so. He dealt with the problem in this way:
  91. "21. I do not think that the differential requires what Mr Burkill frankly accepted was "fudging". What if the rate moves the other way so that the judgment debt rate is below prevailing interest rates — should similar fudges be found to protect successful parties? I doubt it. The will of Parliament expressed in this mechanism should be respected.
    22. The heart of the problem lies only partly in the newly-arising differential interest rates. The other part lies in the anomaly referred to above, namely that the judgment debt rate applies from the date of the costs order whereas on the damages it applies from the date of the assessment. What Mr Burkill is asking me to do is really to address that anomaly. If his arguments are good in this case, they are good in every case. The real problem is that anomaly. If the problem is to be addressed then it should be confronted head on and that anomaly addressed rather than trying to work around the edges and introduce temporary fixes by deploying provisions for the purposes of which they were almost certainly not intended with uncertain wider consequences. It is beyond the powers of this court to address the anomaly, the law having been fixed by higher courts than this."
  92. The Defendants for their part rely on a decision of Mr Justice David Steel in Colour Quest Ltd & Ors v Total Downstream UK Plc & Ors [2009] EWHC 823 (Comm), where the Judge was persuaded to order that interest under the Act should run from a day other than the date of judgment:
  93. "43. I conclude that justice requires a postponement of the liability for the interest until a later date. This was indeed a case very much out of the norm where the costs are very large indeed. Indeed the claimants themselves wish to double the time allowed for the presentation of a detailed account for assessment. The disparity between the claimants' costs and those assessed as due may, it is contended, run to millions. It follows that payments on account are exposed to an enormous margin of error. In my judgment the starting date should be extended to 6 months from today."
  94. Thus, although Steel J did not purport to alter the rate of judgment interest, by adjusting the date from which interest should run, he effectively reduced the rate of interest which would otherwise have been payable. It goes without saying that Mr Williams argues that the approach of Mann J is to be preferred to that of Steel J.
  95. Mr Bacon also refers to the judgment of Tugendhat J in D Pride & Partners v Institute for Animal Health [2009] EWHC 1617 (QB), in which he agreed with the approach of David Steel J in Colour Quest v Total.
  96. Mr Justice Christopher Clarke in Fattal v Walbrook Trustees (Jersey) Ltd [2009] EWHC 1674 (Ch), had to decide the appropriate starting point for various orders for costs. He started by considering the applicable terms of Section 17 of the 1838 Act, as amended, CPR 40.8 and CPR 44.3. He continued:
  97. "25. The combined effect of the Act and the Rules is that save where a rule or Practice Direction otherwise provides, interest will run from the date the judgment is given unless the Court orders otherwise. There is nothing in the statute as amended or in the Rules, which indicates that a different order is only to be made in exceptional circumstances. No doubt there must be a good reason to make such an order, but the Court must not, in my judgment, need to be able to label the circumstances as exceptional. The Rules expressly indicate that the court may order interest to begin from the date before judgment and the circumstances in which it is likely to do so include cases where substantial sums have been paid in costs before the judgment is given - a not exceptional occurrence.
    26. The most important criterion is that any order should reflect what justice requires. The primary purpose of an award of interest on a debt, damages or costs is to compensate the recipient for the fact that he has been precluded from obtaining a return on the money which he has had to expend on costs and has thus been out of pocket - London Chatham & Dover Railway Company v South Easter Railways Company [1893] AC 429 at 437; Earl of Malmsbury v Strutt & Parker [2008] EWHC 616 (QB) paras 5 and 6.
    27. The ability of the High Court to depart from the incipitur rule was conferred in order that the court could take account of the fact that money would often be expended before any judgment. Conversely, where money has not been expended, for example where the bulk of the costs have been paid at a date long after the relevant judgment, justice requires that the date for the commencement of the interest is postponed beyond the date of that judgment.
    28. If and insofar as Master O'Hare proceeded on the basis that an order could or should only be made providing for interest to run from a date other than the date of judgment if the circumstances were "exceptional", I respectfully disagree with him. If that were so, it could significantly reduce the circumstances in which the court could order interest to be paid on costs expended before the judgment. There is no reference to exceptionality in the applicable rule. I note that in Hadji-Ioannou v Frango [2005] EWHC 279 (Ch), Lindsay J declined to import into the power of the court to disallow costs under CPR 44.14 any requirement that that should only be done in exceptional circumstances if there had been a disallowance of interest under CPR 47.8.
    29. At the same time, the circumstances in which in practice the just order is that no interest shall accrue on the costs from any date are likely to be highly exceptional. It may be that that was what Master O'Hare meant when he said that the court should not exercise its discretion readily, but only in exceptional circumstances.
    30. Since the payment of solicitors' costs involves the payment of money which could otherwise have been profitably employed, the overwhelming likelihood is that justice requires some recompense to be made in the form of interest. If the receiving party has financed the costs from his own money or from money that he has borrowed at interest, the case for his receiving interest on his costs, at least from some date, is likely to be overwhelming. The position might be different if the finance had been advanced entirely voluntarily, interest free, from a sympathetic relative or institution, as Akenhead J contemplated in Fosse Motor Engineers Limited v Conde Nast and National Magazine Distributors Limited [2008] EWHC 2527 QB, or conceivably from a lender which mistakenly failed to call for interest. In some cases it may be necessary to examine the underlying financial arrangements.
    31. Does the fact that in the present case it is BS 2000 which has financed the costs make any difference? In my judgment, it does not. The trustees had to finance the payment of the costs. It no doubt made sense for BS 2000, a company which was owned by the trustees as an asset of the trusts, to advance the necessary funds without interest. The effect of BS 2000 making that advance was to deprive it of the use of that money. As a result, the trusts have been deprived of the benefit which they would have received indirectly from the use of the money. In effect, they have, through BS 2000, borne ultimately and indirectly the expense of the litigation. The interest received by the trustees will enure to the benefit of the trusts. It represents compensation to the trust estate for a company owned by the trust being unable to use the money in question."
  98. In response to Counsels' submissions to the contrary, he continued:
  99. "34. I regard this approach as losing touch with commercial reality and substantial justice. It is idle to suppose that the £275,000-odd advanced would not have been used to earn a return if not used to pay costs, and unrealistic to suppose that the fact that a company wholly owned by trustees for the benefit of the trusts was deprived of the use of that money represents no loss to the trusts, even if the loss be indirect and through the trusts' wholly owned company.
    35. In addition, it seems to me that the Master was entitled to look at the position of the defendants, who included BS 2000 which had advanced the monies, collectively. Between them they were out of pocket and the payment of interest to the trustees was a proper means of compensating them. The position was not that a benevolent third party with no personal interest in the dispute had advanced the funds."
  100. Mr Williams takes issue with Christopher Clarke J at paragraph 26, where he states that the primary purpose of an award of interest on a debt, damages or costs is to compensate the recipient. He submits that that passage is obiter, and that there are other important criteria in play. In Fattal the litigation had been funded by an interest free loan from a company. In the present case the Claimants themselves are not out of pocket, but this is because the lawyers themselves have funded the litigation under a commercial agreement. In his submission, therefore, the judgment in Fattal does not shed any light on the position of solicitors funding litigation.
  101. Turning to the Defendants' submission that the Claimants are not out of pocket, and therefore do not require compensating, Mr Williams argues that interest is to compensate for non payment of the judgment, rather than non payment of any actual debt to the Claimants. He illustrates the difference between interest on damages and interest on costs by reference to the Credit Hire Litigation, where it has been decided that no interest is payable in respect of credit hire damages, since the claimant is not actually out of pocket. However, once judgment is given, interest runs on the judgment debt, under the Judgments Act.
  102. In respect of the compensation element, Mr Bacon refers to the judgment of Langley J in Montlake & Ors v Lambert Smith Hampton Group Ltd [2004] EWHC 1503 (Comm) where the Judge stated:
  103. "30. … Whilst I can see no injustice in awarding Wasps costs on an indemnity basis from 13 January 2004, especially so where the Part 36 offer was made when the substantial costs of a trial were largely only in prospect, I do not think in a case in which the success fee is set at 100% and is properly recoverable in principle, an award of interest on the costs would be appropriate or just. By definition those costs have not yet been paid. Whilst neither the fees of counsel nor the experts were subject to the CFA the only information before me is that those fees have been paid to the extent of £250,000 but I do not know when those payments were made. I think the rule is primarily intended to compensate the party entitled to costs for payments already made by way of costs at the time judgment is obtained: McPhilemy v Times Newspapers (No 2) [2002] 1 WLR 934 at paragraph 23. Whilst I note that the terms of the order referred to in that paragraph, perhaps in contrast to the principle stated, was for interest to run from "the date upon which the work was done or liability for disbursements was incurred" I think the rule is intended to compensate the client not his advisers for sums paid or for an obligation to pay which might itself carry an exposure to interest. I will therefore order that costs be assessed on the indemnity basis from 13 January 2004 but I will make no order as regards interest on those costs."
  104. Mr Bacon submits that this judgment supports the compensatory principle in respect of the client rather than the funder of the litigation.
  105. WHAT IS THE POSITION OF FUNDING THIRD PARTIES?

  106. Mr Williams raises two queries, first is the position of persons other than the Claimants relevant when considering the matter of interest on costs? And second; if it is, what is the correct position? In answer to the first question, he submits that the position of a third party may well be a relevant criterion, and cites the position of the funding company in Fattal in support of that proposition. He also relies on Lord Ackner in Hunt v Douglas (at 415H), where he expressed the view that barristers, solicitors and expert witnesses should not be expected to finance their client's litigation until it is completed. Thus, where legal representatives have effectively funded the litigation, their position is a relevant consideration to be taken into account when deciding about interest.
  107. Implied Terms in the CFAs

  108. In respect of the second question, Mr Williams acknowledges that, in principle, interest on costs belongs to the Claimants. In this case, however, he argues that since the Claimants were represented on CFAs which limited the legal representatives' costs to what they are able to recover from the paying party (so called CFA lites), so that the Claimants would not in any circumstances ever have to pay anything in respect of costs, there would be no injustice in counsel and solicitors receiving interest on their fees, rather than the Claimants receiving that interest when they have suffered no detriment during the time when costs have not been paid. In circumstances where the Claimants have no interest in the recovery of profit costs or disbursements, he submits that it is obvious what terms should be implied into the CFAs to give those agreements business efficacy, and to enable the interest to be paid to the legal representatives. He suggests that there is no difficulty in implying terms into a CFA, since they already have implied terms as to reasonable care and skill. He also suggests that there are numerous other parts of the CFA where terms necessarily have to be implied. He gives as an example the Claimants' obligations to co-operate with the solicitors and give them instructions:
  109. "that allow us to do our work properly … not to ask us to do anything illegal, improper or unreasonable … tell us everything we need to know and not mislead us … go to any meeting or court hearing that we ask you to go to."

    These obligations are very shortly put, but he submits would necessarily require more specific terms to be inferred should circumstances so demand.

  110. Mr Williams produces a copy of Mr Jay QC's CFA with Leigh Day & Co. This is in the standard PIBA form, and apparently all counsel on the Claimants' side had such an agreement. Clause 28 of the agreement reads:
  111. "The solicitor will use his best endeavours to recover interest on costs from any party ordered to pay costs to the client and shall pay counsel the share of such interest that has accrued on counsels' outstanding fees."
  112. With regard to the category 1 CFAs with the Claimants, the preamble to the agreement states:
  113. "This agreement must be read in conjunction with the Law Society document "What you need to know about a CFA"."
  114. Although that document was not in the original bundle, it was produced during the hearing, and at page 5 of the document states:
  115. "We are allowed to keep any interest your opponent pays on the charges."
  116. The category 2 CFAs contain no express term as to interest, but Mr Williams submits that there is an implied obligation upon the Claimants to account to the legal representatives for any interest.
  117. The starting point is interest should run from the date of the original judgment, and in Mr Williams' submission it is only since the Fattal case that any different result has been allowed. In hundreds of thousands of CFA cases, until the decision in Gray v Toner, the parties have assumed that interest would be payable from the date of the judgment. That interest must belong to someone, and, in his submission, in the CFA the draftsman has not thought of this particular contingency. Where the contract is silent as to interest, it does not work in relation to interest, it is incomplete, and accordingly it is necessary to imply a term as to interest. If the interest is said to belong to the client, he submits that this requires an implied term, just as much as if interest is to belong to the solicitor. The interest, he says, should belong to the party who is out of pocket, ie, the solicitors and legal representatives who have effectively funded the action. He submits that such a term is necessary. Dealing with the category 2 CFAs, Mr Williams submits that Leigh Day have direct control over the litigation and the costs, and the client never has any interest in the costs because the form of the CFA is the so called CFA lite, which means that the legal representatives will charge the client only what they recover from the paying party.
  118. As to the costs and interest belonging to the client, Mr Williams points to Hunt v Douglas at 410E:
  119. "if she were to recover that interest she could not hand it over to the counsel or lawyers or accountants, she would keep it herself and pay tax on it …"

    and 416A:

    "It is common ground between the parties that the unsatisfactory situation illustrated in K v K can be simply dealt with by an express agreement between the solicitor and his client that interest recovered on costs and disbursements after judgment is pronounced, but before the Taxing Master's certificate is obtained …. shall as to the interest on the costs belong to the solicitor and as to the interest on disbursements be held by him for and on behalf of the person or persons to whom the disbursements are ultimately paid."
  120. In answer to Mr Williams' submission that a term regarding interest should be implied into the CFAs, Mr Bacon relies on a number of passages from Chitty on Contracts:
  121. "13-004 Intention of Parties
    In many cases, however, one or other of the parties will seek to imply a term from the wording of a particular contract and the facts and circumstances surrounding it. The court will be prepared to imply a term if there arises from the language of the contract itself, and the circumstances under which it is entered into, an inference that the parties must have intended the stipulation in question [Hamlyn & Co v Wood & Co [1891] 2 QB 488, 494]. An implication of this nature may be made in two situations: first, where it is necessary to give business efficacy to the contract, and, secondly, where the term implied represents the obvious, but unexpressed, intention of the parties. … Both, however, depend on the presumed common intention of the parties. Such intention is, in general, to be ascertained objectively and is not dependent on proof of the actual intention of the parties at the time of contracting."
  122. Mr Williams drew my attention to a new paragraph in the supplement to Chitty:
  123. "13-004A
    More recently a much broader approach to the implication of terms was adopted by the Judicial Committee of the Privy Council in Att Gen of Belize v Belize Telecom Ltd [2009] UKPC 10; [2009] WLR 1988, Lord Hoffmann stated that:
    " … in every case in which it is said that some provision ought to be implied in an instrument, the question for the court is whether such provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean"
    and that the list of requirements set out in previous cases for the implication of a term:
    " … is best regarded not as a series of independent tests which must each be surmounted, but rather as a collection of different ways in which judges have tried to express the central idea that the proposed implied term must spell out what the contract actually meant, or in which they have explained why they did not think that it did so."
  124. Mr Williams points out that the question to be decided is objective not subjective.
  125. In relation to efficacy of the contract Mr Bacon relies on another passage from Chitty:
  126. "13-005 Efficacy to Contract
    A term will be implied if it is necessary, in the business sense, to give efficacy to the contract. The general principle of law was thus stated by Bowen LJ in The Moorcock [1889] 14 PD 6468:
    "Now, an implied warranty, or, as it is called, a covenant in law, as distinguished from an express contract or express warranty, really is in all cases founded upon the presumed intention of the parties, and upon reason. The implication which the law draws from what must obviously have been the intention of the parties, the law draws with the object of giving efficacy to the transaction and preventing such a failure of consideration as cannot have been within the contemplation of either side; and I believe if one were to take all the cases, and there are many, of implied warranties or covenants in law, it will be found that in all of them the law is raising an implication from the presumed intention of the parties with the object of giving to the transaction such efficacy as both parties must have intended that at all events it should have."
    In this situation, although there is an apparently complete bargain, the courts are willing to add a term on the ground that without it the contract will not work Liverpool City Council v Irwin [1977] AC 239 254 262."
  127. Mr Bacon points out that in this case all the CFAs have worked satisfactorily, and there is therefore no necessity for an implied term. It was Lord Wilberforce in Liverpool City Council v Irwin who stated (at 254f):
  128. "In my opinion such obligation should be read into the contract as the nature of the contract itself implicitly requires, no more, no less: a test in other words of necessity."
  129. Mr Bacon relies on further passage from Chitty:
  130. "13-007 Obvious Inference From Agreement
    A term which has not been expressed may also be implied if it was so obviously a stipulation in the agreement that the parties must have intended it to form part of their contract:
    "Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if while the parties were making their bargain, an officious bystander were to suggest some express provision for it in the agreement, they would testily suppress him with a common, "oh, of course"." [Shirlaw v Southern Foundries 1926 Ltd [1939] 2 KB 206 227]
    A term will not, however, thus be implied unless the court is satisfied that both parties would, as reasonable men, have agreed to it had it been suggested to them. The knowledge or ignorance of each party of the matter to be implied, or of the facts on which the implication is based, is therefore a relevant factor. Further, since:
    "… the general presumption is that the parties have expressed every material term which they intended should govern their contract, whether oral or in writing,"
    the court will only imply a term if it is one which must necessarily have been intended by them, and in particular will be reluctant to make any implication
    "where the parties have entered into a carefully drafted written contract containing detailed terms agreed between them."
  131. Mr Bacon submits that the question of interest was not something which was so obvious that it went without saying. It seems unlikely that any of the Claimants would have given the question of interest any thought at all. He also points out that the CFAs were carefully drafted written contracts which went through several revisions. At no time was interest mentioned.
  132. Chitty continues:
  133. "13-008 Incomplete Contract
    There is yet another situation where a term may be implied. This is where the court is simply concerned to establish what the contract is, the parties not having themselves fully stated the terms: "in this sense the court is searching for what must be implied". In Liverpool City Council v Irwin the contract by which dwelling units in a Council block were let to tenants consisted of "conditions of tenancy" which imposed obligations upon the tenants, but which were silent as to the contractual obligations of the landlord. The House of Lords implied an obligation on the part of the landlord to take reasonable care to keep the essential means of access and other communal facilities in reasonable repair. In Sim v Rotherham Metropolitan BC [1987] Ch 216 the contracts under which secondary school teachers were employed were in general silent as to the extent of the teachers' obligations as teachers. The court implied an obligation on their part to cover for absent colleagues during non-teaching periods if requested to do so. …"
  134. And finally:
  135. "13-009 Where Term Not Implied
    A term ought not to be implied unless it is in all the circumstances equitable and reasonable. But this does not mean that a term will be implied merely because in all the circumstances it would be reasonable to do so or because it would improve the contract or make its carrying out more convenient: "the touchstone is always necessity and not merely reasonableness" [Irwin]. The term to be implied must also be capable of being formulated with sufficient clarity and precision. …"
  136. Mr Bacon argues that the CFAs in this case set out both the obligations of the solicitors and the obligations of the clients.
  137. In the light of what is said in Chitty, Mr Bacon submits that it is impossible to imply the term sought by Mr Williams into the CFAs. The Solicitors Costs Information and Client Care Code, which was current when the CFAs were entered into, required solicitors to explain costs information in detail to their clients. The 2007 Code has similar requirements. There is no necessity for any term to be implied into the CFAs, some CFAs (not in this case) do contain terms as to interest, others do not. Both operate satisfactorily however as conditional fee agreements. He submits that there is no ambiguity in any of the CFAs which requires the court to imply a term into the agreement in order to make it work. He suggests that Mr Williams is not seeking to construe the meaning of the CFAs, but is attempting to improve the agreement by the insertion of an implied term as to interest. Furthermore, the improvement to the contract would be for the benefit of Leigh Day, and not for the Claimants themselves.
  138. Mr Bacon refers to the conditional fee agreements used in this litigation. The effect of the conditional fee agreements formed one of the key issues which I have already heard, and in respect of which the Claimants are now seeking permission to appeal. Mr Bacon submits that the CFAs are relevant to the issue of interest, since they provide how and when the Claimants are to pay for their solicitors. There are eleven different types of CFA in use, which Mr Bacon groups into three categories. The first category was the first to be used, and is contained within a single page. Under the heading "Paying us" it states:
  139. "If you win your claim, you pay our basic charges, our disbursements and a success fee. You are entitled to seek recovery from our opponent of part or all of our basic charges, our disbursements, a success fee and insurance premium as set out in the document "what you need to know about the CFA".

    The document does not state expressly when a Claimant entering into this agreement would be liable to pay costs to Leigh Day.

  140. The second category of CFAs (numbers 2 to 7) have slight variations between them, but all provide:
  141. "4. Your Liability To Us
    (a) The elements of our charges:
    (i) Our charges are made up of basic charges, success fee, our expenses and barristers' fees.
    …
    (vi) Our expenses are payable in full whatever happens in your case. However you are only liable to pay our basic charges, success fees and barristers' fees to the extent that they are recovered from an opponent.
    (b) What you pay us varies depending on whether you win your claim or not. You win your claim if you become finally entitled whether by agreement, judgment or otherwise, to be paid any damages (including provisional damages) and/or all or part of the legal costs of your substantive claim.
    (c) If you win your claim you pay our basic charges, our success fee, barrister's fees and our expenses. We will attempt to recover these from an opponent and will usually succeed in recovering most of them. As indicated above, you are only liable to pay our basic charges, success fee and barristers' fees to the extent that we do recover them.
    (d) If you do not win your claim you generally pay only our expenses.
    …"
  142. The third category of CFA (numbers 8 to 11) were amended CFAs, to be used as fallback should any of the earlier CFAs be found to be unenforceable. There has in fact been no challenge to the enforceability of the earlier CFAs, and the third category is mentioned only for the sake of completeness. Under the heading "Your liability to us" similar, but not identical, provisions are set out which make it clear that the Claimant will only be liable for Leigh Day's charges to the extent that they are recovered from the other side, or, in the case of expenses, from the ATE insurer.
  143. The category 1 CFAs contain no provision that Leigh Day should be entitled to retain any interest recovered, in fact interest is not mentioned at all. The category 2 and 3 CFAs explicitly limit the Claimants' liability for basic charges, success fees and barristers' fees to those recovered from the Defendants, thus the Claimants' liability to pay those costs is deferred until the point of recovery. Mr Bacon argues that the category 1 CFAs should be approached on the basis that those Claimants would be treated in the same way.
  144. None of the CFAs require the Claimants to pay Leigh Day interest of any kind on any basis, and in none of them have Leigh Day incorporated into the success fee element a proportion designed to compensate them for any delay in receiving their costs. The Claimants have not been required to pay anything out of their damages towards their costs. The situation is, argues Mr Bacon, indistinguishable from that in K v K.
  145. Mr Bacon also makes the point that the category 1 CFA states:
  146. "This agreement must be read in conjunction with the Law Society document "What you need to know about a CFA""
  147. This document was not initially produced by the Claimants, although what was produced was an explanatory document, presumably drafted by Leigh Day headed "Your legal costs and charges for clients being advised under a conditional fee agreement". That document is, however, drafted on the basis that the client may very well have some liability for costs.
  148. On this basis Mr Bacon argues that although a number of post CPR cases have proceeded on the assumption that the decisions in Hunt v Douglas and Thomas v Bunn are still binding, this approach is, in his submission, wrong, since neither Hunt nor Thomas binds the court as to the correct interpretation of the words "from the date that judgment is given" in CPR 40.8. In his submission the decision of the Court of Appeal in Bim Kemi AB v Blackburn Chemicals Ltd [2003] EWCA Civ 889; the decision of Mann J in Schlumber Holdings Ltd v Electromagnetic Geoservices AS [2009] EWHC 773 (Pat); and Christopher Clarke J's reasoning in Fattal v Walbrook Trustees (Jersey) Ltd [2009] EWHC 1674 (Ch) were all based on acceptance that Hunt v Douglas and Thomas v Bunn were still binding. It was not argued in any of those cases that the House of Lords decisions were no longer binding. In Bim Kemi the Court of Appeal stated, at paragraph 18(c):
  149. "It is clear from CPR 44.3(6)(g) that the rules intended that the court should have power to award interest on costs ... In any event in principle there seems no reason why the court should not do so where a party has had to put up money paying its solicitors and been out of the use of that money in the meanwhile. It furthermore seems to us that Mr Wilson is right that there is no reason why Blackburn should not have interest at the judgment rate as from 30 January 2002, that being the date of the order of the trial judge. That must be so in our view because if the judge had made the order which we now hold he should have made in Blackburn's favour, interest would have been payable at the judgment rate from the date of that order down to the date of payment – see Hunt v R M Douglas (Roofing) ..."
  150. I have quoted paragraph 22 of the judgment of Mann J in Schlumber, at paragraph 55 above. And in Fattal v Walbrook Trustees, Christopher Clarke J stated:
  151. "19. Master O'Hare approached the matter in this way. He pointed out that the basic rule under the Judgments Act 1838 used to be that the court had no discretion in respect of interest on costs. Section 17 of that Act used to provide that every judgment debt should carry interest from the time of entering up the judgment until the same should be satisfied. Section 18 makes an order for costs a judgment debt within the meaning of section 17 . In Hunt v Douglas Roofing [1990] 1 AC 398, the House of Lords decided that interest on costs runs from the date of the judgment or order, even though costs may have been paid years beforehand (the incipitur rule). The date of entering up the judgment was when it was signed, not when the taxing master issued his certificate.
    20. In 1998 the Judgments Act was amended so as to give the court a discretion. That discretion has, as Master O'Hare pointed out, been used to allow additional interest in respect of a period before the order as in Douglas v Hello Magazine [2004] EWHC 65 Ch, where interest was awarded from the date on which payment by the defendants had actually been made to their solicitors and in Powell v Herefordshire Health Authority [2002] EWCA Civ 1786 , the discretion was used to reduce interest on costs where the incipitur rule might have allowed interest on costs from 1994, although they had only be incurred for the most part in 2000."

    I have quoted paragraphs 25 – 31 at paragraph 63 above. There was no discussion in this case as to the meaning of the words "from the date the judgment was given".

  152. The authority which Mr Bacon argues does bind this court is Powell v Herefordshire Health Authority [2002] EWCA Civ 1786 (see paragraph 30 above).
  153. Kay LJ concluded:
  154. "14. … In those circumstances it is unnecessary for us to consider the matter any further, just as it is unnecessary to consider the rather difficult questions as to what would have been the position under the old law, which now happily is a part of legal history."
  155. Mr Bacon argues that Lord Ackner in Thomas v Bunn, concluding that interest on damages should run only from the date of quantification, is a conclusion which remains valid and applicable to the modern day position in respect of costs.
  156. Subrogation

  157. Mr Williams draws an analogy with litigation funded by insurance companies, where, by virtue of the right to subrogation, the insurer steps into the shoes of the insured. He argues that there is no question of a windfall, as it will be an implied term of the insurance arrangement that the insured will account to the insurer for the interest recovered. In support of this proposition he refers to the judgment of Widgery LJ in H Cousins & Co Ltd v D & C Carriers Ltd [1971] 2 QB 230. In that case the plaintiffs had imported goods from Hong Kong, which arrived at London Docks. The goods then disappeared in transit, and the claimants claimed from their insurers who settled the claim. The insurers then decided to pursue the claim against the defendant carriers, and issued proceedings in the plaintiffs' name. The matter was settled, but the parties could not agree to what extent interest on the damages was payable. Widgery LJ (at 242G) quoted Diplock J in Yorkshire Insurance Co Ltd v Nisbet Shipping Co Ltd [1962] 2 QB 330 at 339:
  158. ""The expression 'subrogation' in relation to a contract of marine insurance is thus no more than a convenient way of referring to those terms which are to be implied in the contract between the assured and the insurer to give business efficacy to an agreement whereby the assured in the case of a loss against which the policy has been made shall be fully indemnified, and never more than fully indemnified."
    It is therefore pertinent to inquire what term, if any, is to be implied in a contract of insurance in regard to the ultimate destination of interest awarded under the Law Reform (Miscellaneous Provisions) Act 1934. It seems to me that the answer to the officious bystander's query would be: "Of course the assured may retain interest accruing prior to the date of settlement by the insurers but thereafter such interest must go to the insurers." Unless we are constrained by [Harbutt's "Plasticine" Ltd v Wayne Tank and Pump Co Ltd [1970] 1 Q.B. 447] to rule otherwise, I think that such a term was necessary to give business efficacy to the contract now in question."
  159. Widgery LJ went on to distinguish Harbutt's case, and concluded that the question under consideration was not one concluded by authority. Davies LJ, agreeing with Widgery LJ, also felt that Harbutt's case had been wrongly decided, since its effect would have been that the assured would have received all the interest, and thus have been over compensated. He continued (at 243G):
  160. "The truth of the matter is that, as the insurers after indemnifying the assured have the right to sue the wrongdoer in the name of the assured in order to recover the amount of the loss, there goes with that right the ancillary right to ask the court in its discretion to award interest on the whole or any part of the sums recovered. The fact that the assured has been paid off by the insurers is, so far as concerns the defendants, res inter alios acta."

    and at 244F:

    "It might be said for the purposes of the present case that just as the assured must not be over-compensated, so the insurers ought not to be under-compensated. And if the insurers do not recover interest for the period between the date of payment by them and the recovery against the third party, then they are under-compensated since they have been kept out of their money for that period."
  161. Karminski LJ, agreeing with the other two judgments, expressed the view that any other resulted would be manifestly unfair and unjust to the insurers.
  162. Mr Williams argues that precisely the same analysis holds in respect of solicitors acting under a CFA lite, even if interest post judgment is seen as purely compensatory (which he says it is not), it ought still to be awarded to compensate the funders, ie, counsel and Leigh Day who supported these claims. Again, Mr Williams points out that this particular argument was not put to HHJ Stewart QC in Gray v Toner. He also points out that, prior to that case, there had never been any challenge in a CFA case as to interest on costs, and it had been assumed, by both advocates and Judges, that in a CFA case interest on the judgment debt would be payable in the normal way. This, he says, supports his argument that an implied term should be inserted into the CFAs to the effect that interest on costs should belong to the legal representatives, rather than to the Claimants themselves.
  163. With regard to Mr Williams' reliance on H Cousins & Co Ltd v D & C Carriers Ltd, Mr Bacon argues that solicitors in a CFA case are not in the same position as insurers, who, under the terms of the insurance contract, are entitled to step into the shoes of the claimant. He relies on the passage from the judgment of Davies LJ, which I have quoted at paragraph 101 above.
  164. Mr Bacon supports his argument, relying on Giles v Thompson [1994] 1 AC 142 at 168B, in which Lord Mustill concluded that the plaintiff motorist was claiming interest on hire charges which she was not obliged to pay until judgment was given, accordingly, she had not been kept out of any money of her own whilst the claim was being assessed and litigated; accordingly, no interest was payable. Lord Mustill referred to H Cousins & Co, and expressed the view that although there was a superficial resemblance to Giles v Thompson it was only superficial, because a subrogated insurer did have an interest in the insured's cause of action, and in its fruits, of a kind which the hiring companies did not possess. In Mr Bacon's submission the solicitors in this case are in exactly the same position as the hire companies in Giles v Thompson.
  165. The ATE Premium

  166. With regard to interest on the ATE premium, which when quantified finally will form part of the costs, the Defendants argue that on the compromise date they paid approximately £30 million in respect of damages to the Claimants, in addition £20 million by way of payment on account of costs. A further payment on account of costs of £10 million was made on 23 December 2009. The Defendants argue that these sums are more than enough to cover the ATE premium, even at the claimed figure of £9 million. Condition 1 of the ATE policy states:
  167. "If legal proceedings are successful, and the solicitor or insured receives payment of monies due to the insured, the insurer will be deemed to hold a lien over these monies up to the value of the premium. The insured agrees and will give appropriate instructions to the solicitor to ensure that the solicitor will not pay any monies subject to lien to the insured until the premium due under the insurance has been paid to us, unless our prior written consent has been obtained."
  168. On that basis the Defendants argue that the insurance premium should be deemed to have been paid, and that accordingly no interest should be charged in respect of it.
  169. In summary, Mr Bacon argues that the words "the date that judgment is given" should be taken to mean that interest should run from the date of quantification, both in respect of damages and costs. This has, he said, the merit of consistency. He acknowledges that if a client has in fact paid costs on account, the court is likely to order, under CPR 40.8, that interest on the amount paid should run from the date of payment. There is no injustice, he submits, if interest does not run, the client having not paid any money on account.
  170. CONCLUSIONS

    The Jurisdiction of the Court

  171. In respect of Mr Williams' submission that a Costs Judge does not have the powers of the court under CPR 44.3(6)(g), or under 40.8, I gratefully adopt the reasoning of Christopher Clarke J in Fattal v Walbrook:
  172. "42. Mr Thomas Seymour on behalf of the trustees submitted to me, although he did not make the submission to Master O'Hare, that the Master had no jurisdiction to make any order providing the interest not to accrue. This is because, so he submits, " the court " specified in CPR 40.8(1) (b) must mean the court which gives the judgment the costs on which, in the absence of some special order, interest is due from its date. Thus, in the present case it would be necessary for the Fattal brothers to have secured an order from Hart J that interest should not accrue. Alternatively, if Master O'Hare had power to make such an order, it would be an erroneous exercise in discretion for him to do so.
    43. I do not accept these submissions. CPR 2.4 provides:
    "Where these rules provide that the court do perform any act then, except where an enactment, rule or practice direction provides otherwise, that act may be performed –
    (a) in relation to proceedings in the High Court by any judge, Master or district judge of that court."
    44. In my judgment this rule, interpreted in accordance with the overriding objective of dealing with cases justly, expeditiously and fairly, permitted Master O'Hare to make the order which he did.
    45. That conclusion is consistent with the decision of the Court of Appeal in Powell. In that case judgment was entered by consent for damages and costs in 1994. It was not until 2001 that judgment was given for the agreed measure of damages and costs. The Master, who had not had CPR 44.3(6)(g) referred to him, thought that he was bound to order interest to run from the judgment in 1994. The Court of Appeal drew attention to the latter provision and the parties [compromised] on a date from which interest should run, which must have been later than 1994. The Court of Appeal must have proceeded on the basis that the powers of "the court" under CPR 44.3(6) would be exercised by the Master and not only by whoever had given the original or the second judgment. It would be surprising in those circumstances if the powers of the court for the purposes of CPR 40.8(b) could in the present case only have been exercised by Hart J.
    46. Such a conclusion ties with other provisions of the rules. CPR 47.8(3) provides:
    "If –
    (a) the paying party has not made an application in accordance with paragraph (1); and
    (b) the receiving party commences the proceedings later than the period specified in rule 47.7, the court may disallow all or part of the interest otherwise payable to the receiving party under –
    (i) section 17 of the Judgments Act 1838 …"
    A similar provision is made in CPR 47.14(5).
    47. Mr Seymour accepts that it is for the Costs Judge to disallow interest under these provisions. It seems to me to make little sense that he should not be similarly entitled under CPR 40.8. Mr Seymour was disposed to accept that it was open to the costs judge to fix the period over which interest would run, even if it was only for a few days, but not that he could order that interest should not run at all. This would be a curious result and involve a distinction not justified by the language of the rule.
    48. Any other conclusion would also give rise to manifest difficulty. The judge who gives judgment for damages to be assessed together with costs may be wholly unaware of the facts which would be relevant to any determination of the date from which interest on costs should run - for example what costs have already been incurred; what costs are likely to be incurred in the future and whether there is any reason why no interest should be recoverable. It would be inappropriate for the parties to have to canvas those issues before him and for the judge to have to enter upon an enquiry as to funding arrangements in advance of the assessment. Complications would arise if, as here, the judge who made the first order was no longer available, or if two orders as to costs had been made, one in relation to liability and one in relation to damages by different judges. In addition, there are circumstances, eg upon an acceptance of a Part 36 offer or a discontinuance, when the claimant would be entitled to his costs when there would have been no judge who made an order for costs.
    49. I have considered whether the fact that, by the terms of the Judgment Act and the Rules, interest will begin to run on costs ordered to be paid unless the court otherwise orders means that, once any order for costs has been made without any order that interest will not begin to run, interest is bound to continue, at any rate if the order has been perfected, and the Court has no power to stop it doing so. Mr Seymour submitted that the order made by Master O'Hare not only travelled outside the functions laid down by CPR 47 relating to detailed assessment, but also involved an impermissible retrospective variation of the order made by Hart J.
    50. I do not accept that that is so. I do not regard the court as precluded from reaching a decision that interest will not begin to run from the date of the order for costs at some date after the original order for costs was made. That was what in effect happened in Powell where the Court of Appeal, by way of appeal from the costs judge, sanctioned the making of an order varying the date from which interest was commenced, even though the costs orders had been made previously by two different judges in relation to, first, liability and, later, quantum."

    That passage from the judgment of Christopher Clarke J provides the complete answer to Mr Williams' argument.

  173. With regard to the Court of Appeal decision in Powell v Herefordshire, it seems to me that the views expressed by Lord Justice Kay clearly contemplated that the Costs Judge does have the requisite power under CPR 44.3(6)(g), and I accordingly reject Mr Williams' submission under this head.
  174. Deemed Orders

  175. Mr Williams' argument in respect of deemed orders does not in my judgment advance his case, and on any reading is insufficient to dislodge the clear view of Christopher Clarke J in Fattal, and the Court of Appeal in Powell.
  176. The Incipitur Rule or the Allocatur Rule?

  177. If, as Mr Williams argues, the incipitur rule is the correct starting point, the decisions in Gray v Toner and Bridle v Ikhlas are the only cases in which the allocatur rule has been applied. The other cases to which I have been referred, such as Tugendhat J in D Pride & Partners v Institute For Animal Heath and David Steel J in Colour Quest v Total dealt with the date from which interest should start, which was effectively the anticipated date of commencement of the detailed assessment proceedings. Mann J in Schlumberger Holdings v Electromagnetic was not persuaded that it was appropriate to do this, and it does not appear that Schlumberger was cited to the court in Colour Quest, nor was it argued that altering the date from which interest should run could effectively be described as altering the rate of interest which Parliament has decided should run on judgment debts; the argument in the Colour Quest case being that the rate of interest was so high that the court ought to take steps effectively to reduce that rate. In D Pride & Partners, the Defendant asked for the Judgment Act rate of interest to run from the date of the hearing before Tugendhat J. The Claimants argued that interest should run as from the date of payment, or, if earlier, 14 days from the dates that costs were agreed or assessed. Mr Williams adopts the Defendants' argument in that case, to the effect that this would be to allow the paying party to borrow a substantial sum of money at no interest.
  178. With regard to Fattal v Walbrook, which Mr Bacon relies on in support of his submission that interest is largely compensatory, Mr Williams argues that the law relating to interest on damages and costs has not been assimilated, nor is it compensatory. He suggests that the obiter statement of Christopher Clarke J, at paragraph 26 of Fattal, is in fact not correct. Two authorities were cited by the Judge, London, Chatham & Dover Railway Company v South Eastern Railway Company [1893] AC 429 at 437 and Earl of Malmsbury v Strutt & Parker [2008] EWHC 616 (QB). The Earl of Malmsbury case related to interest before judgment, and the London & Chatham case did not relate to interest on costs at all.
  179. In respect of the House of Lords decision in Thomas v Bunn, Mr Williams adopts the submission of Counsel at page 380C (see paragraph 20 above). Whilst it is not clear whether Lord Ackner accepted that submission, which distinguishes between damages and costs, he suggests that the submission is clearly sensible and should be accepted.
  180. Mr Williams submits that what is contemplated by the Judgments Act is that the interest should compensate for failure to perform the judgment, rather than to reimburse a party for having had to part with money. With regard to the case of Montlake v Lambert Smith Hampton Group Ltd, Mr Williams points out that this decision does not assist either party, in that it refers to interest pre-judgment under Part 36.
  181. He says that when awarding damages the court will usually award interest on those damages up to judgment, and the judgment rate would apply after judgment. Thus, if the incipitur rule were to apply to damages, eg where judgment is given with damages to be assessed, the result could well be a double charge of interest.
  182. It would be a brave Costs Judge who decided that the decisions of the House of Lords in Hunt v Douglas and Thomas v Bunn were no longer binding. There are, no doubt, many cases where the circumstances envisaged by Lord Ackner exist, ie, that clients have paid costs to their legal representatives as litigation has progressed. What distinguishes this case, in addition to the introduction of new Rules of Court, is that these proceedings were conducted under a so called CFA lite which ensured that the individual Claimant would never, in any circumstances, have to pay anything towards his or her costs. Conditional and contingency fee agreements were, of course, not permitted at the time of the House of Lords decisions. Thus, in my judgment, the incipitur rule still applies, but the court has the power to order that the date from which interest shall begin to run shall be a different date.
  183. Powers of the Court With Regard to the Starting Point

  184. It is clear from CPR rule 40.8(1)(b) that the court has power to decide the date from which interest shall begin to run, whether that power should be used in order effectively to reduce the rate of interest payable is a matter for discussion. Mann J in Schlumberger v Electro Magnetics was not persuaded that it was an appropriate use of the power (see paragraph 59 above). On the other hand both David Steel J in Colour Quest Ltd v Total Downstream and Tugendhat J in D Pride & Partners v Institute for Animal Health were persuaded that it was appropriate.
  185. For my part I prefer the approach of Mann J, and do not think it appropriate to use the power under rule 40.8 to manipulate the rate of interest. Although the judgment rate of 8% may be very high, in the present circumstances, that is the rate decided by Parliament, and until Parliament decides otherwise, that is the rate which should be payable. With regard to the question whether compensation of the receiving party is the primary purpose of the legislation, Christopher Clarke J in Fattal v Walbrook Trustees, again, in my judgment, provides the answer (see paragraph 63 above). Although Mr Williams argues that a number of important criteria are in play with regard to interest, I do not accept his submission that Christopher Clarke J was incorrect to state at [26] that the primary purpose of an award of interest on a debt, damages or costs is to compensate the recipient for the fact that he has been precluded from obtaining a return on the money which he has had to expend on costs and has therefore been out of pocket.
  186. On the basis that interest belongs to the Claimants, rather than their legal advisors, there is a good argument for saying that since they are not out of pocket, and are never ever going to be asked to contribute to the costs, it would be unjust and inappropriate to decide that interest on those costs should run from 23 September 2009 until payment. It is however necessary to consider Mr Williams' argument that any interest ought to be paid to the legal representatives, who have effectively funded the litigation throughout.
  187. What is the Position of Funding Third Parties?

    Implied Terms in CFAs

  188. Whilst I accept Mr Williams' submission that the position of persons other than the Claimants may be relevant when considering the matter of interest on costs, the proposition that the interest should be payable to the legal representatives raises difficult issues. His argument rests largely on the need to imply terms into the conditional fee agreements.
  189. There is no difficulty as between Leigh Day and counsel, since the CFAs with counsel provide that the solicitors will use their best endeavours to recover interest on costs, and will account to counsel for the appropriate share. The question is, therefore, whether terms should be implied into the CFAs with the clients, to the effect that any interest should belong to Leigh Day.
  190. The category 1 CFAs refer to the Law Society document "what you need to know about a CFA". That document contains a clause to the effect that the solicitors are allowed to keep any interest the opponent pays on the charges. In the documents originally put before the court the Law Society document was not included. What was produced was the explanatory document "Your Legal Costs and Charges for Clients being Advised under a Conditional Fee Agreement". That document was presumably drafted by, or on behalf of, Leigh Day, but it was not drafted specifically for these proceedings. Mr Williams argues that the fact that the Law Society document was not produced, and may not have been shown to the clients when being signed up to the CFAs, was not a material consideration, since there are many instances of contracts of insurance being entered into which have not in fact been shown to the other contracting party, eg, motor insurance arranged over the telephone. In this case, however, the conditional fee agreements are governed by the provisions of the Courts and Legal Services Act 1990 as amended. In addition, as Mr Bacon points out, the Solicitors Costs Information and Client Care Code, required solicitors to explain costs information in detail to their clients; clients who would be entirely ignorant of how a CFA works. In the absence of any evidence that the contents of the Law Society document or its import was brought to the attention of the Claimants, I find on a balance of probabilities that the question of interest was never discussed in relation to the category 1 CFAs.
  191. The remaining categories of CFA contain no express terms as to interest, and Mr Williams submits there is an implied obligation upon the Claimants to account to the legal representatives for any interest recovered.
  192. Mr Bacon quoted at some length from Chitty on Contracts (see paragraph 77 ff above) and I accept his argument that there is no necessity for any term to be implied into the CFAs. These CFAs operate satisfactorily in their present form. There is no ambiguity in any of them which requires the court to imply a term in order to make it work, and any implied term would merely be to improve the contract for the benefit of the legal representatives. I accordingly reject Mr Williams' submissions that an implied term is required in order to give the CFAs business efficacy.
  193. I am strengthened in that view by the decision of the Privy Council in Attorney General of Belize and others v Belize Telecom Ltd and another. In that case Lord Hoffmann stated:
  194. "16. Before discussing in greater detail the reasoning of the Court of Appeal, the Board will make some general observations about the process of implication. The court has no power to improve upon the instrument which it is called upon to construe, whether it be a contract, a statute or articles of association. It cannot introduce terms to make it fairer or more reasonable. It is concerned only to discover what the instrument means. However, that meaning is not necessarily or always what the authors or parties to the document would have intended. It is the meaning which the instrument would convey to a reasonable person having all the background knowledge which would reasonably be available to the audience to whom the instrument is addressed: see Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912–913. It is this objective meaning which is conventionally called the intention of the parties, or the intention of Parliament, or the intention of whatever person or body was or is deemed to have been the author of the instrument.
    17. The question of implication arises when the instrument does not expressly provide for what is to happen when some event occurs. The most usual inference in such a case is that nothing is to happen. If the parties had intended something to happen, the instrument would have said so. Otherwise, the express provisions of the instrument are to continue to operate undisturbed. If the event has caused loss to one or other of the parties, the loss lies where it falls.
    18. In some cases, however, the reasonable addressee would understand the instrument to mean something else. He would consider that the only meaning consistent with the other provisions of the instrument, read against the relevant background, is that something is to happen. The event in question is to affect the rights of the parties. The instrument may not have expressly said so, but this is what it must mean. In such a case, it is said that the court implies a term as to what will happen if the event in question occurs. But the implication of the term is not an addition to the instrument. It only spells out what the instrument means.
    …
    22. There are dangers in treating these alternative formulations of the question as if they had a life of their own. Take, for example, the question of whether the implied term is "necessary to give business efficacy" to the contract. That formulation serves to underline two important points. The first, conveyed by the use of the word "business", is that in considering what the instrument would have meant to a reasonable person who had knowledge of the relevant background, one assumes the notional reader will take into account the practical consequences of deciding that it means one thing or the other. In the case of an instrument such as a commercial contract, he will consider whether a different construction would frustrate the apparent business purpose of the parties. That was the basis upon which Equitable Life Assurance Society v Hyman [2002] 1 AC 408 was decided. The second, conveyed by the use of the word "necessary", is that it is not enough for a court to consider that the implied term expresses what it would have been reasonable for the parties to agree to. It must be satisfied that it is what the contract actually means.
    23. The danger lies, however, in detaching the phrase "necessary to give business efficacy" from the basic process of construction of the instrument. It is frequently the case that a contract may work perfectly well in the sense that both parties can perform their express obligations, but the consequences would contradict what a reasonable person would understand the contract to mean. Lord Steyn made this point in the Equitable Life case, at p 459, when he said that in that case an implication was necessary "to give effect to the reasonable expectations of the parties"."
  195. With regard to the point that the legal representatives have effectively funded the litigation, this situation is in my judgment entirely different from that of the company in Fattal. Here the solicitors have taken a commercial decision to take on the litigation, and have chosen to do so using CFAs which are designed to recognise the risk involved in such litigation by means of the success fee. In other words, Leigh Day's investment in this litigation was made in the hope of making a profit from the conduct of it. It has proved a successful investment.
  196. Subrogation

  197. I do not accept Mr Williams' submission that this litigation is analogous to litigation funded by insurance companies. Under a contract of insurance, as Davies LJ has stated (see paragraph 101 above):
  198. "the insurers after indemnifying the assured have the right to sue the wrongdoer in the name of the assured in order to recover the amount of the loss, there goes with that right the ancillary right to ask the court in its discretion to award interest on the whole or any part of the sums recovered."
  199. These solicitors have no such contractual right, and I have already rejected Mr Williams' submission that such a right should be implied into the CFAs. In those circumstances, as Lord Mustill found in Giles v Thompson, although there may be a superficial resemblance to a right to subrogation in an insurance contract, it is no more than superficial, because the subrogated insurer does have an interest in the insured's cause of action and its fruits, of a kind which the legal representatives do not possess.
  200. The ATE Premium

  201. Mr Williams made it clear that no special order was being requested in respect of the ATE premium, and that it merely formed part of the overall figure for costs payable in respect of which he argues that interest should be paid from the date of settlement. I do not, therefore, need to reach any separate decision in respect of the ATE premium.
  202. Summary

  203. In summary, therefore, I find that this court does have the jurisdiction to deal with the incidence of interest. I find that the incipitur rule still applies, and that the decisions of the House of Lords in Hunt v Douglas and Thomas v Bunn are still binding. CPR rule 40.8 gives the court the power to make an order that interest shall begin to run from a date other than the date that the judgment is given. Any interest payable belongs to the Claimants. It is not appropriate to imply into the CFAs any term that the Claimants should account to Leigh Day for any interest recovered. Leigh Day therefore have no entitlement to recover interest on their own behalf, even though they may have effectively funded this litigation throughout.
  204. In all the circumstances, therefore, the appropriate order is that interest at the judgment rate should run from the date when an interim or final costs certificate is issued by this court.
  205. After the draft judgment had gone out to the parties I was asked to clarify the position with regard to interest on counsels' fees in the light of paragraphs 71 and 122 above. As I have said there is no difficulty as between Leigh Day and counsel. The CFAs are clear that Leigh Day will use their best endeavours to recover interest on costs and will account to counsel for the appropriate share. To date those endeavours have failed, and, for the reasons I have given, there is no case for the defendants having to pay interest on counsels' fees. There was never any agreement between the Claimants and counsel.
  206. As to the question whether Leigh Day's efforts were sufficient and any related issues between them and counsel I express no view. I have heard no argument on the topic.


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