Court awards 2.5% interest as it comes down near the middle on costs dispute

The High Court has awarded successful defendants interest of 2.5% on their costs after a dispute over the appropriate rate.

Mr Justice Zacaroli dismissed the claim brought in Kent v Paterson-Brown and Anor [2018] EWHC 2830 (Ch), and then, having made an award of indemnity costs for part of the proceedings, was asked to rule on the interest on costs payable up to the date of judgment. The defendants sought 4% above base, with the claimant submitting it should be 1% above base.

The defendants relied on MacInnes v Gross [2017] 4 WLR 49, in which Mr Justice Coulson (as he then was) awarded a rate of 4% above base. He did so after following two Court of Appeal rulings.

The first, McPhilemy v Times Newspapers Ltd (No2) [2001] 1 WLR 934, concerned with the rate of interest to be applied to costs where a party had failed to beat a part 36 offer. The Court of Appeal said it was appropriate to award a higher rate of interest in those circumstances because neither an award of damages nor interest at a level normally permitted under section 35A would compensate for the inconvenience, anxiety and distress of proceedings. This approach was followed by the court in Rowlands v Bryn Alyn Community (Holdings) Ltd [2003] EWCA Civ 383.

By contrast, Zacaroli J recounted, in Marathon Asset Management LLP v Seddon [2017] 2 Costs LR 255, Mr Justice Leggatt refused to follow those earlier Court of Appeal cases because they were concerned with a rule that enabled interest to be awarded at an ‘enhanced’ rate, whereas the case before him did not. He awarded interest at a normal commercial rate, which he assessed to be 2% above base.

The claimant relied upon Jones v Secretary of State for Energy and Climate Change [2014] 3 All ER 956, in which the Court of Appeal indicated that, in exercising its discretion as to the rate of interest, the court should conduct a general appraisal of the position having regard to what is reasonable for both the paying and the receiving parties.

Zacaroli J said: “It was noted that 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, although a party might displace that rule of thumb by adducing evidence specific to their case.

“It was further noted that the rate may differ depending on whether the borrower is classed as a first-class borrower, an SME, or a private individual. Typically, private individuals have tended to recover interest at a higher rate to reflect the cost of borrowing to that class.”

He concluded that, in the case before him, there was no evidence either as to the cost of unsecured borrowing for individuals – which both defendants were – or as to any circumstances peculiar to them.

“In the absence of such evidence, I adopt as a starting point the approach of Leggatt J in Marathon Asset v Seddon but, recognising that that case involved a corporate party, allow a slight increase in the rate to reflect the fact that the defendants are individuals, resulting in a rate of 2.5% over base per annum.”

Maxim Cardew (instructed by Grosvenor Law) for the claimant; Tom Weisselberg QC and David Lowe (instructed by Wallace) for the defendants

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Costs News
Published date
01 Nov 2018

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