Keoghs Insight


Ben Petrecz

Ben Petrecz

Costs Lawyer & Partner

T:01204 678701

Hollow threats but with a possible sting in the tail


Claims for interest arise from time to time in relation to both rehabilitation and costs. We have taken a look at the current state of play after a recent decision concerning a claim for commercial interest in a claim for costs.

Costs: Interest on Funding Loans

Ever since the Court of Appeal decided Hunt v RM Douglas (Roofing) Ltd [1987] TLR, 23 November, it is trite law that interest on, and the cost of setting up and managing, a disbursement funding loan is not recoverable between the parties. This is because such expense cannot be properly characterised as being legal costs. Of equal importance was the clarification provided by the Master of the Rolls in Motto v Trafigura Ltd [2011] EWCA Civ 1150 that the cost of setting up funding arrangements cannot be properly described as an item incurred by the client for the purposes of the litigation.

Unperturbed by these authorities, receiving parties regularly threaten insurers & compensators that exorbitant levels of interest will be levied on funding loans and charged against them in due course should they be unwilling to accede to lofty demands for interim payments. This aggressive stance is usually based on sophistry and the misreading/misapplication of decisions such as Jones and Others v The Secretary of State for Energy and Climate Change and anor [2013] EWHC 1023 (QB).

Nevertheless, the Civil Procedure Rules grant the court power under r40.8 to award pre-judgment interest on a sum and/or interest on costs from or until a certain date under r44.2(6)(g), including a date before judgment.

In the recent case of Godfrey v Automotive Products Ltd (CC Liverpool) 17/12/20, the claimant funded his low value noise induced hearing loss claim by way of conditional fee agreement, ATE insurance policy and a disbursement funding loan charging a commercial rate of interest set at 15.3% APR. During the course of the detailed assessment proceedings, the claimant sought reimbursement of that interest in full from the defendant paying party.

In rejecting the claim for interest, District Judge Baldwin (sitting as a Regional Costs Judge) found that although there is no bar to a costs judge exercising the power granted to the court under r44.2(6) at any time when being asked to exercise its general discretion on costs, there was nothing compelling on the facts to persuade any such exercise of discretion in the claimant’s favour. There was no evidence to show a real and genuine need for the claimant to finance his disbursements by way of a loan and impecuniosity was not self-proving. In addressing the widely touted Jones decision, the experienced costs judge stated at [29]:

“I also accept the proposition that the decision in Jones is more focussed upon the facts of that case, namely the notion of the reality of the loan arrangement with the solicitors and the interest rate which should be applied, rather than providing any overarching principle or encouragement as to the exercise of the Court’s discretion as to compensating for disbursement funding loan interest generally in personal injury claims going forward. If that was intended, any wider applicability seems to have been singularly overlooked by many lawyers in this field for some time.”

The judge was also unpersuaded that 15.3% APR was within a reasonable band for unsecured loans for someone in the position of the claimant when other reported decisions in personal injury claims featured rates of 4% and 5% above base rate.

Credit Rehabilitation: Keeping to the “interesting” theme…

The Godfrey case deals specifically with interest on costs in the context of detailed assessment proceedings. It remains to be seen whether the dispute surrounding the awarding of interest on loans may extend to the question of damages as well as costs.

We are aware of recent attempts by claimant solicitors to argue that they should be entitled to take out a loan with interest to pay for items such as rehabilitation; case management; support worker input; therapies; equipment; housing etc. If similar or greater rates of interest like the one in Godfrey (15.3% APR) were applied to loans on account of damages, the total cost would be significant, especially if the loan was lengthy.

The availability of external funding at a cost that could be passed on to the insurer could deter a claimant lawyer from engaging constructively with the defendant/insurer around rehabilitation and could hamper efforts around statutory funding too.

In accordance with Section 35A(2) of the Senior Courts Act 1981, there is a presumption that claimants are entitled to interest on special damages that exceed £200. As per Jefford v Gee [1970] 1 All ER 1202, the general rule is that interest is awarded on special damages at either:

  • …half the ‘appropriate rate’ from the date of accident to the date of trial, or
  • …if a real part of the loss was incurred on an identifiable date, at the full ‘appropriate rate’ from that date to the date of trial.

As the special account rate (‘appropriate rate’) is currently 0.1% (as of 1 June 2020), the level of interest awarded by the Courts on special damages is likely to be significantly less than the level of interest charged on any loan taken out to fund rehabilitation. However, it is possible that the Courts might be sympathetic to an argument that the ‘cost’ of interest on a loan is a recoverable head of damage arising from the index accident, if the same is reasonably incurred, and is causally linked to the injuries.

If faced with such a threat, it is important to take a robust stance and challenge any attempt to introduce such a new head of damage. It might be useful to remind claimant solicitors that the claimant has a duty to mitigate any losses and if they have failed to do so, then evidence of this failure may be used to counter any claim for interest. An offer of some funding, albeit with appropriate strings, could put the loan interest in difficulties.

Where liability is denied on the merits and to be contested there is an obligation on the other side to progress with the case promptly for determination and to facilitate the evidence “build” for a liability trial.  

Where primary liability is unlikely to be in dispute, take a proactive stance to rehabilitation and this might include the use of the Rehab Code.

Finally, if an argument that the claimant is impecunious and therefore requires a loan is advanced, the defendant is entitled to disclosure of documents relating to/proving the claimant’s impecuniosity as per the cases of EUI Ltd v Charles & Ors [2018] EW Misc B7 (CC) and Diriye v Bojaj & Anor [2020] EWCA Civ 1400. Putting the claimant to proof on this issue at an early stage may deter them from pursuing the argument.

These cases relate to credit hire and we are not aware of any case law dealing with the recoverability of interest on a loan taken out to fund rehabilitation. In the field of credit hire, impecunious claimants are able to recover higher rates for hire of a replacement vehicle and were the Courts to apply a similar approach to credit rehabilitation, it is conceivable that interest on such loans may be recoverable. Rehabilitation providers may also include additional charges  that are not required to be paid  immediately – which would lead to inflated claims for rehabilitation costs.

Defendants could argue that interest on a loan taken out to fund rehabilitation is too remote and not sufficiently causally linked to the index accident. However, this yet untested area of high value personal injury litigation may be a topic that is ripe for adjudication.


The stakes are high but for now largely untrammelled, long may that last! As always the critical factor is not merely the detail of the response but how it is phrased and the context in which it is presented. If there is going to be judicial discretion they will have to see the linked correspondence and this will set the scene. Finally, if the argument is run within the litigation this must be addressed in the pleadings.

For more information please contact:

Ben Petrecz

Partner: Costs

Liam Anderson

Solicitor: Complex Injury Claims