Broad discretion to compensate for “the loss of the time value of money”, says Vos
The court can award pre-judgment interest on costs where the claimants’ case is funded through a conditional fee agreement (CFA) with a success fee, the Court of Appeal has ruled.
The decision of the Master of the Rolls, Sir Geoffrey Vos, sitting with the deputy head of civil justice, Lady Justice Cockerill, and Lord Justice Zacaroli, was the first appellate decision on the issue.
The case concerned the high-profile Mariana Dam group litigation brought by class action firm PGMBM (Pogust Goodhead as was). Last year, the claimants succeeded on liability in the first stage of the litigation, with the judge and Court of Appeal refusing the defendant, BHP, permission to appeal.
PGMBM is funded by a debt facility, which it used for this and other cases; the clients have no arrangement with the funder, Gramercy.
Mrs Justice O’Farrell ordered that BHP should pay 90% of the claimants’ costs of the stage 1 trial, pre-judgment interest at the rate of 1% above UK base rate and £43m on account of costs.
BHP had argued that the claimants were not entitled to any interest on pre-judgment costs because they had neither paid any legal fees or disbursements up front nor explained how they were out of pocket.
O’Farrell J held that the claimants had a contingent liability for costs at this stage. “As a matter of principle, the claimants should be entitled to compensation in respect of the funding expenses for which they will be indebted out of any damages. The fact that their solicitors and/or funders have accepted the risk that the costs and funding expenses will only be recouped from any damages does not detract from that position.
“On balance, I consider that it would be appropriate for the court to exercise its discretion and award pre-judgment interest on costs, at the rate of 1% above base rate, up to the date of the order for costs.”
She went on to accept the claimants’ submission that she should adopt the point at which half of the fees were incurred, 1 August 2023, for the purpose of calculating the interest, as a “pragmatic and proportionate approach”.
In Municipio de Mariana and others v BHP Group (UK) Ltd and BHP Group Ltd [2026] EWCA Civ 1319, Vos MR said the “simple question” was whether the discretion to award interest in CPR 44.2(6)(g) could be exercised in favour of a party who was liable to compensate someone else for the fact that legal services have been provided to it on credit. There was no case law matching the facts here.
He found nothing in the wording of this rule or elsewhere “to suggest that such interest can only be awarded if the receiving party has actually expended money on costs or has borrowed money to pay such costs.
“Such a rule would fetter the court’s discretion, which would be at odds with the broad discretion provided for in the wording of the rule, and with the authorities.”
It was not in dispute that the success fees could be assumed to include some element of compensation for the credit provided, Vos MR went on, stressing that an application for pre-judgment costs “should not normally entail a minute examination of the funding mechanism”.
He explained: “It was clear in this case, and will be clear in many cases, that the receiving parties were obliged to provide compensation for the time value of the money used to fund their costs.”
Vos MR said the power in CPR 44.2(6)(g) provided “a broad discretion to compensate for the loss of the time value of money, which is for the purpose of compensating the receiving party either for having been kept out of its money or for itself being liable to compensate someone else (whether the solicitors providing the legal services themselves, an insurer or a third-party funder) for the fact that legal services have been provided on credit”.
The court also rejected BHP’s argument the Supreme Court decision in Hirachand made it impossible for the court to make an order for pre-judgment interest – it “had nothing to say about the scope of the power” in CPR 44.2(6)(g).
“The award of pre-judgment interest in circumstances where a claimant may ultimately pay a success fee is not the same as the award of the success fee itself either by way of a costs order or an order for substantive relief.”
Further, the fact that the claimants have incurred, through the success fees, a contingent liability to compensate their solicitors for their funding costs was “merely a trigger” to enable interest to be claimed.
“It does not in any way influence the amount of interest to be paid. The amount awarded is based on what funding the costs would reasonably have cost the class of persons of which the claimants form part, as opposed to the value of the success fee itself.
“The claimants remain incentivised to limit the amount of success fees, notwithstanding their ability to recover pre-judgment interest on their costs.”
Vos MR added that BHP said nothing in oral argument about the second part of its ground of appeal, namely that, if the power existed, the court should not have exercised it as it did, and said O’Farrell J was “entirely right” in making the order she did.
Nicholas Sloboda KC and Jade Fowler (instructed by Herbert Smith Freehills Kramer) for the appellants/defendants. Roger Mallalieu KC (instructed by PGMBM) for the claimants/respondents.