Jones & Ors v Secretary of State for Energy and Climate Change & Anor [2013] EWHC 1023 (QB)

Case No HQ09X03547[2013] EWHC 1023 (QB)IN THE HIGH COURT OF JUSTICEQUEEN'S BENCH DIVISION[Pre-judgment interest on disbursements]Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 3 May 2013
Before
THE HONOURABLE MRS JUSTICE SWIFT DBE
Between
JEFFREY JONES AND OTHERSClaimants
Mr David Allan QC, Mr Ivan Bowley and Mr Benjamin Williams (instructed by Hugh James) for ClaimantsMr Ronald Walker QC, Mr Robert O’Leary and Ms Judith Ayling (instructed by Nabarro) for DefendantsHearing Hearing date: 25 March 2013JudgmentMrs Justice Swift DBE:The background
[1]On 23 October 2012, I handed down judgment in the eight lead claims of the Phurnacite Workers Group Litigation (PWGL). On the same date, I received written and oral submissions about issues relating to costs. I handed down my judgment on costs at a hearing on 21 December 2012. That judgment provided that the defendants should pay 80% of the claimants’ costs of the action as agreed or assessed.[2]The parties agreed that the costs and disbursements to be paid by the defendants would be subject to interest from the date of the judgment in the usual way. However, the claimants sought an order that the defendants should also pay interest on the disbursements that had been paid from the date of payment of the relevant sums to the date of the judgment, i.e. an order for pre-judgment interest on disbursements. The claimants’ application for pre-judgment interest on disbursements was notified to the defendants only a short time before the hearing on 23 October 2012. Since the defendants had had insufficient opportunity to consider the grounds of the application and the various authorities relied upon by the claimants, they sought an adjournment in order to consider the claimants’ arguments. The claimants did not oppose that application and I therefore adjourned the hearing of the application to 25 March 2013.

The arrangements for payment of the claimants’ disbursements

[3]Each of the conditional fee agreements (CFAs) entered into by the individual lead claimants contained a provision that the claimant was liable for the payment of any disbursements incurred on his/her behalf, whether or not the claim was successful. I was told that this is the usual provision in such cases; indeed the Law Society’s model CFA provides that disbursements are payable whether or not the claim succeeds.[4]As might be expected in litigation of the type and complexity of the PWGL, it was necessary for substantial sums to be expended by way of disbursements as the claims proceeded. Those disbursements, which consisted mainly of payments for experts’ and counsels’ fees, amounted in total to more than £787,500.[5]Disbursements can be funded in a number of ways. A claimant with adequate means may pay the disbursements as the case progresses. If he or she does not have sufficient funds at his/her disposal, he/she may obtain a loan, e.g. from a bank. Alternatively there are commercial organisations which will fund disbursements for which they charge claimants a commercial rate of interest. In some cases, the claimant’s solicitors might fund the disbursements, either by absorbing the cost as part of their overheads or by providing the funding in return for the payment of increased hourly rates of remuneration or an additional uplift in their success fee under a CFA.[6]In the PWGL, the disbursements were paid by the claimants’ solicitors, Hugh James, pursuant to an arrangement which, at least in the sphere of personal injury actions, was somewhat novel. Hugh James entered into a “credit agreement” with each of the individual lead claimants whereby Hugh James undertook to provide credit in such sums as were required from time to time to pay disbursements relating to that claimant’s claim up to a maximum of £5,000 (paragraph 2 of the credit agreement) in return for payment of a credit charge. The charge for credit was agreed at 4% above base rate (paragraph 4). The credit agreement provided that Hugh James could increase that maximum sum if it proved necessary for the progression of the claim (paragraph 2). It further provided that, if the claim was successful, the credit charge would be paid by the claimant out of his/her damages whilst, if the claim was unsuccessful, the credit would be paid under the terms of the claimant’s policy with his/her after the event (ATE) insurance provider (paragraph 3).

The order for disclosure

[7]On 23 October 2012, the defendants applied for an order for disclosure of various documents relevant to the claimants’ application for interest on pre-judgment disbursements. I granted their application in part by ordering the claimants to disclose and make available for inspection the CFAs relating to the four successful lead claimants (Carhart, Davies, Richards and Robson). Such inspection was, however, to be limited to those provisions of the CFAs which related to the obligation to pay disbursements and interest or credit charges thereon. I also ordered disclosure of the credit agreements made between Hugh James and the four successful lead claimants. The defendants wished to inspect those documents in order to satisfy themselves that they constituted genuine and valid agreements for the payment of interest.

The hearing on 25 March 2013

[8]On 25 March 2013, I heard oral argument on the issue of pre-judgment interest on disbursements from Mr Benjamin Williams for the claimants and Mr Ronald Walker QC for the defendants. By the time of that hearing, there was no dispute about the genuineness or validity of the agreements for the payment of interest on disbursements. Furthermore, for the purposes of this litigation, the defendants conceded that the claimants were in principle entitled to pre-judgment interest on disbursements. The rate of that interest was however disputed.

The law

[9]CPR 44.3(1) provides that the court has discretion as to whether costs are payable by one party to another, as to the amount of those costs and when they are to be paid. Pursuant to CPR 44.3(6)(g), the orders that a court can make include an order that a party must pay interest on costs from or until a certain date, including a date before judgment. The rate of interest to be awarded on costs is not fixed and is in the discretion of the court.[10]The jurisdiction to award interest on costs incurred prior to judgment did not exist before the introduction of the CPR. I was told that the power was first exercised by the Court of Appeal in the case of Bim Kemi AB v Blackburn Chemicals Limited [2003] EWCA Civ 889. In that case, it had been argued by the claimant in written submissions (although not maintained orally) that an order for payment of pre-judgment interest on costs should never be made. The Court of Appeal rejected that argument on the basis that CPR 44.3(6)(g) was plainly intended to give the court power to make such an order. Giving the judgment of the Court, Waller LJ observed at paragraph 18 c):
“….in principle there seems no reason why the court should not [award interest on costs] where a party has to put up money paying its solicitors and has been out of the use of that money in the meanwhile.”
[11]In Bim Kemi, the defendants had argued for a rate of interest of 6% per annum to reflect the fact that they would have had to pay 2% over base rate if they had borrowed the money from their bank. Waller LJ considered that argument at paragraph 18 b) of the judgment:
“The question is whether the evidence in this case demonstrates that a rate greater than 1% above base rate should be applied. Evidence of what a bank might have charged if money had been borrowed is not we think sufficient. It is not clear to us what takes Blackburn outside the norm to which the 1% above base rate presumption applies. In our view the appropriate course in relation to these costs is to make an award of interest at 1% over base rate the interest to run from the date when the costs were paid.”
[12]In the judgment in Bin Kemi, the Court of Appeal referred extensively to the judgment of Rix LJ in Jaura v Ahmed [2002] EWCA Civ 210. In that case, the defendant had incurred interest charges on a bank loan which he had taken out to finance the purchase of the leasehold of business premises. His counterclaim for wrongful termination of the lease was successful. He claimed, inter alia, interest on his damages at a rate higher than the judgment rate of 8% in order to reflect the commercial rate of interest (between 10.25% and 11.25%) that he was paying to the bank. The judgment of Rix LJ dealt in detail with the question of the appropriate rate of interest to be awarded.[13]At paragraph 19 of his judgment, Rix LJquoted a passage form Chitty on Contracts,28th edition (1999):
“In business contexts, the rate of interest should reflect the current commercial rate. The approach of the Commercial Court is to award interest at a rate which broadly represents the rate at which the successful party would have had to borrow the amount recovered over the period in question.”
[14]Rix LJ went on to note (at paragraph 20 of his judgment) that a rate of 1% above base rate had become the usual rate adopted by the Commercial Court, albeit that this was “only a presumption” and could be varied up or down to meet the fairness of the parties’ particular situation. He referred to a number of cases (not all in the Commercial Court) which made clear that the correct approach was to look at the rate at which claimants with the general attributes of the claimant in the relevant case could borrow money. One example of such a case was Tate & Lyle Food and Distribution Ltd v Greater London Council [1982] 1 WLR 149, in which Forbes J said:
“There is evidence here that large public companies of the size and prestige of these plaintiffs could expect to borrow at 1 per cent over the minimum lending rate, while for smaller and less prestigious concerns the rate might be as high as 3 per cent over the minimum lending rate. I would think it would always be right to look at the rate at which plaintiffs with the general attributes of the actual plaintiff in the case … could borrow money as a guide to the appropriate interest rate.”
In Brown v KMR Services [1995] 2 Lloyd’s Rep. 513 and Deeny v Gooda Walker (No 3) [1996] LRLR 168, interest was awarded to Lloyd’s ‘names’ at 2% above base rate on the basis that this represented the rate which such individuals were likely to have to pay when borrowing money.[15]The claimant in Jaura contended that a rate of 8% would adequately compensate the defendant. The Court of Appeal was shown a schedule of base rates over the period for which the defendant had been servicing his bank loan. Those rates fluctuated between 5% and 7.5%. The Court of Appeal concluded that a rate of 8% would be too low and instead awarded interest at 3% over base rate. At paragraph 25 of his judgment, Rix LJ said:
“I strongly suspect that even that figure does insufficient justice to [the claimant] but I do not think that this court has enough evidence to support the case that the rate charged to Mr Jaura (4.5% above base) was typical of small businessmen in his position.”
He went on to observe at paragraph 26:
“It is right that defendants who have kept small businessmen out of money to which a court judges them to have been entitled should pay a rate which properly reflects the real cost of borrowing incurred by such a class of businessmen. The law should be prepared to recognise … that the borrowing costs generally incurred by them are well removed from the conventional rate of 1% above base (and sometimes even less) available to first class borrowers.”
[16]In Jaura, the Court of Appeal had been considering the appropriate rate of interest to be applied to damages, rather than to costs. Nevertheless, the Court of Appeal in Bin Kemi observed that, if persons had to borrow money in order to pay for litigation, there was no reason why a similar approach should not be taken in relation to interest on costs.

The parties’ submissions

[17]For the claimants, Mr Williams submitted that the credit agreements made between Hugh James and the individual lead claimants were relatively straightforward ‘running account’ agreements, which had been entered into as part of an arrangement to finance the disbursements necessary to pursue the claimants’ claims. He argued that the terms of the credit agreements were highly advantageous to the claimants. He suggested that the rate of interest specified in the credit agreements (4% above base rate) was modest when compared with the rates that would have been charged for an unsecured loan or for an overdraft or interest on a credit card. Furthermore, payment of the credit charge was contingent upon the individual claimant succeeding in his/her claim. The credit agreement provided that, if the claim were to fail, the disbursements would be recovered, not from the individual claimant, but from his/her ATE insurers. Mr Williams contended that the credit agreements could not be characterised as in any way unreasonable. That being the case, the court should adopt the rate of interest specified in the credit agreements. He said that the defendants had not sought to argue that, if the credit agreements had been made between the claimants and an independent third party such as a bank, the rate of 4% above base rate would have been unreasonable. The fact that the terms of the credit agreements were more favourable to the claimants than those which would have been offered by such a third party did not render the rate unreasonable.[18]Mr Williams acknowledged that it had not been possible to identify a case where a rate of interest of as much as 4% above base rate had been awarded by a court. However, he pointed out that, in most cases, the rate would be agreed by the parties without the intervention of the court. Furthermore, none of the reported cases in which pre-judgment rates of interest had been considered had involved private individuals of very modest means, such as these claimants.[19]For the defendants, Mr Walker said that most personal injury solicitors carry the cost of funding disbursements as part of their overheads. They can, by agreement with their client, charge an additional percentage success fee in recognition of the expenses thus incurred, although such an additional percentage would not be recoverable from the defendants. It would also be open to them to factor into their hourly rates the potential expense of funding disbursements. He argued that, in reality, the credit agreements constituted a device designed to enable Hugh James to recover interest on the disbursements which they had funded. He submitted that the claim for interest was in effect a claim on behalf of Hugh James, not on behalf of the claimants. The claimants themselves had never been at risk of paying either the disbursements or the interest on the disbursements. Payment from them was required only if they were successful in their claim and were able to recoup the amount of the disbursements and interest from the defendants. Mr Walker argued that the claimants’ circumstances were therefore irrelevant to any consideration of the appropriate rate of interest. The rate of interest identified in the credit agreements was not chosen by reference to the rates of interest at which the claimants might be able to borrow. Rather it constituted what Hugh James considered to be a reasonable rate for them to charge for funding the disbursements on the claimants’ behalf.[20]Mr Walker submitted that there was no evidence before the court such as to displace the usual presumption that the appropriate rate of interest was 1% above base rate. He acknowledged that there had been cases (such as Jaura) where the courts had awarded a rate of interest higher than 1% above base rate. However, he observed that he had been unable to find a case in which an award in excess of 3% above base rate had been made. He referred to the dicta of Gloster J (as she then was) in HLB Kidsons (a firm) v Lloyds Underwriters [2008] EWHC 2699(QB). At paragraph 19 of her judgment, Gloster J referred to the fact that the normal rate of interest awarded by the Commercial Court was base rate plus 1%. Counsel for the claimant in Kidsons was contending that, in the circumstances of that case, an award of base rate would be sufficient. Gloster J rejected that submission, observing at paragraph 20 that:
“…there are strong reasons of convenience in adopting a conventional measure. The burden is on the party seeking to disapply the normal rate to produce evidence to show that the conventional rate is inappropriate.”
[21]Mr Walker accepted that base rate plus 3% was a rate that may be appropriate for small businesses which have had to borrow money. He pointed out that there was no evidence before the court about Hugh James’ financial position or as to the rate at which they were able to borrow money. There was no evidence that Hugh James had actually borrowed money to finance the disbursements. If they had not done so, then what they had lost was confined to the notional interest that they might have earned on the capital, which was likely to have been significantly less than the interest they would have had to pay to borrow money to fund the disbursements.

Discussion and conclusions

[22]The determination of the rate of interest payable on disbursements is a matter for the exercise of my discretion, taking into account all the circumstances of the case and bearing in mind in particular the requirement to do justice as between the parties.[23]I take as my starting point the fact that it was essential, if the claimants’ claims were to proceed, that the necessary disbursements should be paid as the case went along. It is quite clear that the claimants would not have been in a position to fund the disbursements from their own pockets. They could have entered into an agreement with Hugh James that Hugh James would fund the disbursements in return for additional uplifts in their success fees. However, such uplifts would not have been recoverable from the defendants and, in the event that their claims succeeded, the claimants would have had to meet the additional uplifts out of their damages. The credit agreements provided a means by which the claimants could obtain funding for their disbursements without being required to advance any monies themselves and without financial risk since the credit agreements provided that, in the event of a claim failing, the disbursements would be paid by the ATE insurers. I consider it likely that the interest demanded by a third party for an unsecured loan in order to fund disbursements would have been significantly in excess of the 4% above base rate which was agreed with Hugh James. Indeed, the defendants did not seek to argue otherwise. Furthermore, such loans would not have been contingent, as were the credit agreement. I have no information about the likely terms of a disbursement funding agreement with a third party but it seems highly unlikely to have been as advantageous to a claimant as the credit agreements with Hugh James.[24]Of course, the rate of interest agreed between Hugh James and the claimants cannot of itself be determinative of the rate which should be awarded by the court pursuant to CPR 44.3(6)(g). If it were, it would be open to an unscrupulous solicitor to demand a wholly unreasonable rate of interest in the knowledge that the defendant would have to pay. The credit charges specified in the credit agreements provide only prima facie evidence of the cost to the claimants of obtaining the credit necessary to fund their disbursements, and that prima facie evidence would plainly be displaced by evidence that the charges were excessive. I heard no direct evidence about the likely cost to the claimants of funding their disbursements by alternative means. There can be no doubt, however, that the cost of unsecured borrowing to a private individual would be considerably higher than would be paid by a large company litigating in the Commercial Court. As I have said, the defendants did not contend that the claimants would have been able to obtain the necessary funding at a more advantageous rate of interest than 4% above base rate, let alone on a contingency basis. Nor did they argue that the rate of interest charged by Hugh James was excessive or unreasonable.[25]The defendants’ argument was that the imposition of the credit charges was a device to enable Hugh James to charge interest on the monies advanced on the claimants’ behalf. It is of course true that, if the credit agreements had not existed, no interest would have been payable. However, it does not follow that the claim for interest is in effect a claim by Hugh James, rather than by the claimants. The position is in reality no different from that which would have existed if the claimants had taken out loans from a bank to fund their disbursements and had agreed to pay interest to the bank. In that event, they would clearly have been entitled to claim from the defendant the monies paid by way of interest. In the PWGL, Hugh James fulfilled the role of a bank, but on terms more advantageous to the claimants than those which would have been offered by any bank.[26]The defendants relied on the fact that, pursuant to the credit agreements, the claimants were not required actually to pay out any interest as their claims proceeded and would not have been required to do so at all if their claims had failed. However, the fact that, under the credit agreements, the claimants’ liability to pay the credit charges was contingent on the success of their claims does not seem to me to alter the nature of the agreements. The fact is that the agreement provided that, since the claims have succeeded, the claimants are liable to pay credit charges. That being the case – and absent any suggestion that the agreed rate of interest was excessive or unreasonable – I consider that the appropriate rate of interest on pre-judgment disbursements is 4% above base rate.[27]The parties indicated that they would be able to agree on a mechanism for calculating the interest, it being accepted that no interest will be payable in any of the claims before execution of the relevant credit agreement.