UK & Europe
Insurance & Reinsurance
In 2018, we highlighted that a number of claimant representatives were seeking to recover interest on disbursement funding loans. Our longstanding position is that such claims should be challenged as being irrecoverable.
This issue has resurfaced in recent case law, which we have set out and addressed below.
Interest cannot be claimed as costs. Lord Justice Purchase in Hunt v RM Douglas (Roofing) Limited held that '…funding costs have never been included in the category of expenses, costs or disbursements envisaged by the statute and RCS O.62' and went on to add that to include them would 'constitute an extension of the existing category of "legal costs"…'.
The pre-CPR finding in Hunt resurfaced in Motto & Ors v Trafigura Ltd, in which Lord Neuberger affirmed the position that interest is not recoverable as costs under the CPR.
In light of this, interest which is claimed with a served Bill of Costs is not recoverable.
Further, if the matter concludes by way of a Part 36 offer and acceptance, then the claimant is automatically barred from seeking any interest in respect of a disbursement funding loan due to the provisions specifically set out in CPR 44.9(4) which applies when a Part 36 offer is accepted under CPR r 36.13.
Recent case law
In Secretary of State v Jones  EWCA Civ 363the Claimant’s solicitors had agreed to fund disbursements (effectively acting as a creditor) and under that agreement the Claimant would have to pay interest on the disbursements if they were successful in the claim. It was not disputed in that matter that interest was payable on the loan, only the rate which should apply. Claimant representatives have recently sought to rely on this as authority to recover pre-judgment interest.
The Claimant served a Bill seeking both pre- and post-judgment interest in an attached schedule. The parties agreed all costs save for the pre-judgment interest, which related to the interest accrued on a disbursement funding loan the Claimant said was taken out to pay for a medical report.
The Claimant primarily relied on Jones and other authorities to seek recovery of those costs to argue that it was normal to allow pre-judgment interest.
Master Brown disagreed, saying that "it was not my understanding that outside high value commercial litigation there is any general rule or normal practice of the sort [the Claimant] contended for". He went on to state that "I am not satisfied that the Court in Jones intended to set a general rule that an award of interest on costs should be made in respect of the period before judgment".
Master Brown also considered that "the Court in Hunt and Simcoe… did not appear to have it in mind that the costs of funding in ordinary litigation should be met by a separate award of interest".
He therefore concluded that the claim for pre-judgment interest was not recoverable between the parties.
In this decision, the Claimant included their claim for the interest on the disbursement funding loan within the Bill of Costs itself. The costs were assessed but three issues were reserved to a separate judgment, including that in respect of the interest on the disbursement funding loan.
Once again, the Claimant relied on Jones as being an authority for the proposition that those costs were recoverable. The Court again rejected that proposition, with Master Gordon-Saker holding that "in my judgment it is clear following Hunt that interest incurred under a disbursement funding loan cannot be recoverable as costs".
The Master also considered that whilst CPR r 44.2(6)(g) afforded the judge power to award interest from a date after judgment, it did not afford such power from a date earlier than judgment.
Whilst neither of the above authorities is binding, it is clear that the decision in Secretary of State v Jones did not alter the status quo in respect of the recoverability of interest on disbursement funding loans. Clyde & Co will continue to dispute any such claims.