Interest and disbursements

Who pays for the disbursements incurred in a case? In a successful case, it will be the paying party on a detailed assessment, but in a very meaningful sense, until that point, it will be the solicitors for the receiving party, who pick up the tab, paying for experts, court fees, and other expenses, as the case proceeds.

In major litigation, lasting years, and with large sums at stake, the cost of financing the litigation, can be substantial, and either eat into the profitability of the case, or even act as a barrier to entry, for a small firm, which might be in difficulty in even taking on the case.

A further point for consideration, is, if a charge is made for the valuable service provided by the solicitors to the client in financing the disbursements, how this can properly and legitimately, be passed to the paying party.

Practitioners have long been aware that in the former regime of recoverable success fees, that element of the success fee, which related to the cost to a solicitor of delay in payment and/or funding the litigation was irrecoverable inter partes.

Accordingly, the decision reached by the Court of Appeal in the case of the Secretary of State for the Department of Energy and Climate Change and Coal Products Limited.v.Jeffrey Jones and others [2014] EWCA Civ 363 is an interesting illustration, of the way that solicitors were able to recover an element of interest incurred pre-judgment and the making of the costs order, for their clients on disbursements.

The facts of the case may be briefly stated. The case involved the aftermath of the Phurnacite Litigation, where after a 6 week trial on liability, costs were awarded to the claimants as receiving parties. The claimants disbursements exceeded £787,000.

The claimants had all entered, in addition to their CFAs, disbursement funding arrangements with their solicitors. These provided that the solicitor would fund disbursements as the case went along, in return for interest at 4% above rate. The interest was only payable if recovered from the paying party, and so was accurately to be described, as a contingent liability.

The solicitors contended that the agreements were exempt from the Consumer Credit Act 1974, as the contingent nature of the liability, meant that they were not providing “credit” as defined by the Act.

At first instance, Swift J accepted that the agreement was a proper one, enforceable, and awarded interest as claimed.

On appeal, a very narrow issue was taken: namely whether the interest rate to be awarded by the court, was excessive, and should be reduced to reflect the solicitors circumstances, not the claimants’ circumstances, who would be the beneficiaries as a factor in the exercise of the discretion.

Perhaps unsurprisingly, the Court of Appeal took the view, that the fact it was the solicitors who had funded the litigation, made no odds, as if the agreement had been made by the claimants with a bank or other commercial lender, the liability to pay the interest, was the claimants.

It is a relatively straightforward matter to draft such an agreement, which should ensure, per the Court of Appeal decision, that the costs of financing such expenditure, can properly be recoverable from the paying party.

Accordingly, any firm which routinely finances on credit, the client’s disbursements should review its funding arrangements to ensure that in successful cases, a useful 4.5% of interest on disbursements is recovered, from the point when the liability is incurred.

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