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Discussing the Court of Appeal’s judgment in Jones and others, Benjamin Williams, a barrister at 4 New Square, advises lawyers handling similar cases to make sure that your funding agreement is well-drafted, and to consider whether there are any consumer credit implications.
Jones v Secretary of State for the Department of Energy and Climate Change  EWCA Civ 363,  All ER (D) 255 (Mar)
The claimants had commenced personal injury proceedings under a conditional fee agreement. Their solicitors had funded the cost of disbursements through a ‘credit’ agreement. Interest had been payable on the cost of funds provided to pay the disbursements at a rate of 4% above base rate. The claimants had succeeded in their action and the judge ordered that the defendants pay the claimants’ pre-judgments disbursements plus interest at 4% above base rate. The Court of Appeal, Civil Division, affirmed that order as it had been the claimants, not their solicitors, who had been liable to pay the funding that had been provided and the interest chargeable thereon.
The key issue was whether a successful party could recover pre-judgment interest on cost, where, although the litigant had not paid the costs, he had incurred interest charges. The point of particular note was that the charges had been incurred via an agreement with the litigant’s own solicitor, rather than a bank. This feature has caused considerable attention in the legal market, especially to personal injury specialists and others whose clients are rarely able to pay them before the end of a case. The question was then, what should the rate of interest be? Should it be assessed with reference to the financial position of the clients, or the financial position of the solicitors? If the former, the interest rate was higher.
In one sense, the most interesting point was not fully tested, as ultimately the defendant did not strongly contest the award of interest in principle. However, both the QB judge and the Court of Appeal were unequivocal in welcoming the arrangement as promoting access to justice. Various attempts by the defendant to raise objections in principle—for example suggesting the arrangement might be champertous or offend the indemnity principle—were given short shrift. Certainly, the judgment does make it clear that solicitors who charge their clients a reasonable rate of interest can expect to recover it if those clients are later awarded their costs. The court also found that it was the financial position of the clients that was relevant, and in this case upheld a rate of base plus 4%.
It was noteworthy that the funding arrangements were provided by solicitors, on terms that the interest was payable only if the case was successful.
Both courts held that interest could be recovered as claimed. The challenge was to defeat misplaced arguments that because the liability to pay interest eventuated only if the case was won, it was somehow unreal. In fact, there is nothing unusual about arrangements where a liability to pay arises in one scenario but not another. An insurance contract is an obvious example, as are non-recourse loans and conditional fee agreements.
Make sure that your funding agreement is well-drafted, and do consider whether there are any consumer credit implications.
I expect that other solicitors will make such funding arrangements, at least in heavy cases. In smaller cases, I can see some judicial resistance to getting into issues of interest on costs at the end of a trial—although interest in small cases will be very high when aggregated across a substantial case load. I can see that defendants may in the future attempt to challenge such arrangements under consumer credit legislation—this has certainly been a tactic which the big liability insurers have used in the past to challenge arrangements whereby claimants have brought claims on credit, as in the notorious ‘credit hire’ cases like Dimond v Lovell  1 AC 384,  2 All ER 897.
Benjamin Williams specialises in insurance, and all aspects of the law relating to solicitors and litigation funding. He is ranked by the leading practice directories as the top tier junior for costs litigation. In Jones and others, he was counsel for the respondents.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
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