Proactivity can save you thousands...
Costs Aware Issue 3
Section 17(1) of the Judgments Act 1838 sets out that:
"Every judgment debt shall carry interest at the rate of 8 pounds per centum per annum from such time as shall be prescribed by rules of court until the same shall be satisfied, and such interest may be levied under a writ of execution on such judgment."
As the Bank of England base rate has stood at 0.5% or less since March 2009 receiving parties are not proactive in recovering costs in the knowledge that interest is accruing at a better rate than if it were invested.
We have noticed that some firms are proactive in resolving claims but take months and sometimes years to commence assessment.
When large sums have been spent on costs, it is a matter of some significance whether interest at the higher rate payable under the Judgments Act starts to run when the costs order is made, or not until a later date.
A paying party cannot compel the receiving party to commence assessment until three months after the entitlement to costs has expired. That means for every £1m in costs you have outstanding for that three month period, £20,000 in interest will accrue.
If assessment is commenced at the expiry of the three month period then it is likely to be another nine months before costs are assessed. That means for every £1m in costs you have outstanding for the total period of 12 months interest of £80,000 per £1m will be accrued.
Preventing interest accruing
An early appropriate payment on account of costs will prevent interest accruing and if done in every case, it could save you thousands in the long run.
On the multi track cases where it matters most, there is nothing stopping us from considering the last approved budget and making a payment on account based upon when the claim was compromised. It will be a little rough and ready but it can be fine-tuned once a bill of costs is served.
CPR 40.8 provides that interest begins to accrue from the date that judgment is given unless the court orders otherwise. The power to "order otherwise" is exercised in accordance with the overriding objective of dealing with cases justly, and the essential question is therefore what justice requires.
That means that if justice requires that interest ought to accrue from a different date then the court ought usually to "order otherwise".
Provided a payment on account of costs is made, paying parties will very often agree to the date changing to the date of service of notice of commencement.
Apply to disallow interest
Where they do not agree to delay the date of accrual of interest - make an application to alter the date.
This strategy has removed the incentive for receiving parties to delay providing detailed assessment of their costs.
Apply to disallow interest and costs
Where the receiving party fails to commence assessment within three months of the judgment CPR 47.8 provides that you can apply for an order to compel the receiving party to commence assessment within 14 days (for example) and in default the claim for costs and interest may be disallowed.
It is surprising how often an application has to be made and how often receiving parties fail to comply with it!
Where a receiving party fails to request a hearing date within six months of the entitlement to costs, the paying party may apply for an “unless” order to compel the receiving party to request a hearing date. Where the receiving party fails to comply both interest and costs may be disallowed.
The proactive use of the court’s powers can literally save you thousands of pounds.