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You may have seen numerous articles/posts regarding the case of Marbrow v Sharpes Garden Services Ltd  EWHC B26 (Costs) and it is no surprise that this has caught everyone’s “interest” (if you pardon the pun).
On Friday 10 July 2020, Senior Costs Judge Gordon-Saker, handed down the Judgment which clarified several issues that commonly arise on inter-partes assessments. In this particular case, the Master was considering issues that had arose out of an assessment of costs in a personal injury case (that settled shortly before Trial and it was agreed that the Defendant do pay the Claimant’s costs on the standard basis) – such issues included VAT, interest on a disbursement funding loan and the date interest on costs should run.
Firstly, let us look at the issue of VAT and more specifically whether the cap on the recoverable costs of the costs management process (provided by paragraphs 7.2(a) and (b) of Practice Direction 3E) are inclusive or exclusive of VAT. The case was budgeted and thus subject to a costs management order – at the case management conference the Claimant’s budget was approved and the Defendant’s was agreed.
As a quick refresher, paragraph 7.2 of Practice Direction 3E reads:
“Save in exceptional circumstances—
(a) the recoverable costs of initially completing Precedent H shall not exceed the higher of £1,000 or 1% of the total of the incurred costs (as agreed or allowed on assessment) and the budgeted costs (agreed or approved); and
(b) all other recoverable costs of the budgeting and costs management process shall not exceed 2% of the total of the incurred costs (as agreed or allowed on assessment) and the budgeted (agreed or approved) costs.”
The Defendant contended that the caps were inclusive of VAT because it is not expressly stated to be otherwise. The Claimant argued that VAT does not fall within the definition of costs in CPR 44.1 and thus VAT could not fall within the caps.
The Master found that “To my mind the caps provided by paragraph 7.2 cannot include VAT because they are expressed as percentages of figures which do not include value added tax. All of the figures set out in a budget exclude VAT – as Precedent H makes clear. 2% of £100,000 excluding VAT, would be £2,000 excluding VAT.”
Furthermore, the Master referred to paragraph 12.133 of Friston on Costs (3rd edition) which reads as follows “While there is no authority on the point, it is likely that the percentage limits are exclusive of VAT. This is because Precedent H is designed in such a way as to discourage VAT being recorded therein, so it would seem odd if the costs were payable on a VAT-inclusive basis. Moreover, if it were not a VAT-exclusive limit, then a VAT-registered litigant would have the advantage over a non-VAT registered litigant – and that would be a curious state of affairs.”
I am sure many of you will share my belief that this is a welcoming decision and is a good result for those who practice in costs, specifically those of us who are tasked with regularly preparing budgets. If the Master had ruled the other way, then this would have simply prevented full renumeration of the work done and limit the caps imposed further. It would also allow a greater allowance for VAT registered parties/parties not liable for VAT.
The Master then proceeded to consider the issue of the Claimant’s claim (included in the Bill of Costs as an item of costs) for interest that was payable under a loan agreement with his Solicitors in relation to the funding of disbursements (such claim totalling £2,484.48) – the agreed interest between the Claimant and his Solicitors was 5%.
The Claimant relied on the Court of Appeal’s decision in Secretary of State for Energy v Jones  EWCA Civ 363 as the authority providing that such an item was recoverable as an item of costs. The Master rejected the Claimant’s argument and disallowed the item within the Bill, relying upon the case of Hunt v RM Douglas (Roofing) Ltd  11 WLUK in support of his decision.
In Hunt, the Claimant sought to recover the interest he had incurred under an overdraft to fund the disbursements in his claim. The Court of Appeal held that the funding costs had not been included in the categories of expense recoverable costs and thus to include such costs would constitute as an unwarranted extension.
In the instant case, the Master distinguished Jones from the current proceedings on the basis that it was entirely different case where the disbursement came to a total in excess of £787,500.00 and was a group action in any event.
However, the Master did then go on to consider the provision CPR 44.2(6)(g) which does allow for the Court to order the payment of interest on costs from a date preceding Judgment. The Defendant submitted that the Costs Judge does not have any such power to award pre-judgment interest on costs. The Master concluded that he could not see any reason why a Costs Judge should have power to award interest from a date after Judgment (as per CPR 44.2(6)(g)) but not from a date earlier than Judgment (which stems from the same rule).
The Master concluded that interest on a disbursement funding loan was not a recoverable cost.
Now, let us address the third and final “interest-ing” (sorry, couldn’t resist!) issue that was considered by the Master – what date should the Claimant’s entitlement to interest run from?
The Defendant submitted that interest should run from three months after the Order for costs as per Involnert Management Inc v Aprilgrange Limited & Ors  EWHC 2834 (Comm). Whereas, the Claimant contended and maintained that the entitlement to interest (at the Judgement Act rate of 8%) should run from the date of the Order.
The Master concluded that the entitlement to interest under Section 17 of the 1838 Judgment Act is automatic and thus the Court will, generally, not order this expressly. Therefore, interest is payable on the costs at 8% from the date of the Judgment (as per Hunt) unless the Court makes a different Order pursuant to CPR 40.8 or CPR 44.2(6)(g).
Additionally, the Defendant was solely relying on Involnert, which was a commercial case where the Court had ordered interest to be paid at 2% over base rate from the when the costs were incurred (pre-Judgment) until the date 3 months after the date of the costs order when interest would become due at 8%. The Master noted that as the Defendant did not make any specific arguments nor identify any features in this case, thus the Defendant’s position (by default) is that interest should only run from the date on which a formal Bill of Costs should have been served.
Nonetheless, the Master concluded the Defendant’s position was not the default position and subsequently there had been no (good) reason provided to warrant departure from the general rule; therefore, the Claimant should be entitled to interest from the date of the Order.
Whilst maybe not ground-breaking nor revolutionary, the Judgment has clarified some common issues that arise on inter-partes assessments.
Personally, I welcome the decision (particularly in regard to the costs caps on costs of assessment being exclusive of VAT) and I am sure that many of you will share my belief.
Nonetheless, if you do not agree (which is absolutely fine, as we are all entitled to our views) then I would be “interest-ed” (last one, I promise!) to hear your thoughts on why.
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