Partner Jim Knight looks at interest on Costs including pre-judgment interest
 

The Court’s power to order interest on costs, including pre-judgment interest on costs is derived from CPR 44.2 (6) (g). (The equivalent rule was CPR 44.3(6)(g) before the Jackson reforms).

The rule provides that the court may order “interest on costs from or until a certain date, including a date before judgment”. The purpose of such an award is to compensate a party who has been deprived of the use of his money, or who has had to borrow money to pay for his legal costs.

The relevant principles do not materially differ from those applicable to the award of interest on damages under section 35 A of the Senior Courts Act 1981. The discretion conferred by the rule in respect of pre-judgment interest is not fettered by the statutory rate of interest, under the Judgments Act 1838, but remains at large.

Ultimately, the Court conducts a general appraisal of the position having regard to what is reasonable for both the paying and the receiving parties. This in turn normally involves an assessment of what is reasonable having regard to the class of litigant to which the relevant party belongs, rather than a minute assessment which would be inconvenient and disproportionate to undertake.

In commercial cases the rate of interest is usually set by reference to the short-term cost of unsecured borrowing for the relevant class of litigant, though it is always possible for a party to displace a ‘rule of thumb’ by adducing evidence, and the rate charged to a recipient who has actually borrowed money may be relevant but is not determinative. See F & C Alternative Investments Ltd v Barthelemy (No 3) CA [2013]1 WLR at paragraphs 98, 99 and 102 to 105; Bim Kemi AB v Blackburn Chemicals Ltd [2003] EWCA Civ 889 at 18 and for example, Fiona Trust & Holding Corporation v Privalov [2011] EWHC 664 (Comm).

The rate may differ depending on whether the borrower is classed as a first class borrower, an SME or a private individual. Historically at least, first class borrowers, have generally recovered interest at the appropriate base rate plus 1 per cent, unless that was unfair or inappropriate though in the light of recent interest rate developments there is no presumption that base rate plus 1 per cent is the appropriate measure of a commercial rate of interest.

To read the rest of Jim Knight's article click here.