Out-Law Guide | 15 Jan 2009 | 1:39 pm | 2 min. read
Fosse Motor Engineers Limited & Others v Conde Nast and National Magazine Distributors Limited & Others
In August 2008, the High Court dismissed a claim that the first defendant had negligently caused a fire at the claimants' premises. There was no dispute that, as a result of this decision, the claimants should pay the first defendant's costs (amounting to about £680,000) subject to assessment.
The issue was whether the claimants were liable to pay interest on costs and disbursements paid by the first defendant's insurers during the course of the litigation.
The first defendant claimed interest from the dates on which the invoices were paid until the date of the judgment at 1% above the Bank of England base rate and interest after judgment at the court's judgment rate until payment.
Under Civil Procedure Rule 44.3(6), a court may order a party to pay "interest on costs from or until a certain date, including a date before judgment".
The claimants did not dispute the rate of interest claimed, but argued that the first defendant had not paid the costs in question. Its insurers had paid them, as they were obliged to do by the terms of the insurance policy. Consequently, this was not a case in which the court should exercise its discretion.
The judge disagreed.
The purpose of a costs order is to compensate the defendant for the costs incurred in successfully defending an action. Where costs have been paid on account, the real cost to the defendant includes being deprived of the use of that money pending judgment. This can be compensated by an award of interest.
But, in the judge's view, the rule did not limit the award of interest only to the party that had incurred those costs. As a matter of principle and commercial reality, he found that the court had a discretion to award interest on costs incurred by the successful defendant's insurers in funding the defence.
In cases involving insurers, the judge thought it would almost inevitably be the case that insurers would incur a financial loss when they paid costs as and when invoices fell due. The money was likely to have come from an interest-earning account or fund, so interest on that money would have been lost.
The claim in this action amounted to over £4 million and substantial defence costs had been incurred and paid over a period of several years. The judge was satisfied that this was a case in which it was appropriate to award interest on those costs
In reaching his decision, the judge followed the general approach taken in previous cases to interest on costs and saw no reason why that approach should not extend to costs paid by insurers in funding a successful defence.
In exercising its discretion, however, the court will take all the circumstances of the case into account, such as the significance of the claim and the commercial parties involved, the conduct of the parties, the degree of success enjoyed by the defendant (an outright win in this case) and the amount of time that has elapsed since the bills were paid.