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England and Wales High Court (Senior Courts Costs Office) Decisions
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Cite as:  EWHC 90206 (Costs)
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SCCO Ref: PTH 1002160 & 1002161
Application No: 10.A.3914
QUEEN'S BENCH DIVISION
SENIOR COURTS COSTS OFFICE
London, EC4A 1DQ
B e f o r e :
| YAO ESSAIE MOTTO & ORS
|- and -
|(1) TRAFIGURA LTD
(2) TRAFIGURA BEHEER BV
Mr Nicholas Bacon QC and Mr Daniel Saoul (instructed by Macfarlanes LLP) for the Defendants
Hearing dates: 10 & 12 May 2011
On the Claimants' Application in Respect of Interest on Costs
Crown Copyright ©
|THE JURISDICTION OF THE COURT||21|
|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|
|The ATE Premium||106|
|The Jurisdiction of the Court||109|
|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|
|The ATE Premium||130|
Senior Costs Judge:
"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."
"Judgment Debts to Carry Interest
Every judgment debt shall carry interest at the rate of  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."
"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)."
"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."
"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."
"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 "
"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.
"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").
"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  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."
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)  Fam 39 "
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  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  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."
"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  2 K.B. 516, as explained by Eve J. in Ashover's case  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
(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)."
(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)."
"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."
"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."
"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.
"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.
"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)."
THE INCIPITUR RULE OR THE ALLOCATUR RULE?
"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"."
"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 "
"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."
"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."
"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  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: "
"... 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."
"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.
"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?"
"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  1 AC 142 at 167H-169B; Burdis v Livesey  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."
THE POWERS OF THE COURT WITH REGARD TO THE STARTING POINT
"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."
"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."
"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  AC 429 at 437; Earl of Malmsbury v Strutt & Parker  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  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  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."
"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."
"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)  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."
WHAT IS THE POSITION OF FUNDING THIRD PARTIES?
Implied Terms in the CFAs
"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.
"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."
"This agreement must be read in conjunction with the Law Society document "What you need to know about a CFA"."
"We are allowed to keep any interest your opponent pays on the charges."
"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 "
"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."
"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  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."
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  UKPC 10;  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."
"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  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  AC 239 254 262."
"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."
"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  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."
"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  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. "
"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. "
"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.
"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.
"This agreement must be read in conjunction with the Law Society document "What you need to know about a CFA""
"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) ..."
"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  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  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  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".
"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."
""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  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."
"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."
The ATE Premium
"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."
The Jurisdiction of the Court
"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:
(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.
The Incipitur Rule or the Allocatur Rule?
Powers of the Court With Regard to the Starting Point
What is the Position of Funding Third Parties?
Implied Terms in CFAs
"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  1 WLR 896, 912913. 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  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"."
"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 ATE Premium