CFA-Funded Claimants May Recover Pre-Judgment Costs Interest Without Recovering Success Fees

1. Introduction

The Court of Appeal has clarified that a successful party need not have paid legal fees, or personally borrowed money to pay them, before receiving pre-judgment interest on costs under CPR 44.2(6)(g). The power can also compensate a party whose liability to another person reflects the provision of legal services on credit, including a contingent liability arising through a conditional fee agreement (“CFA”).

The important qualification is that an award of interest remains distinct from recovery of the success fee itself. Section 58A(6) of the Courts and Legal Services Act 1990 continues to prohibit costs orders requiring an opposing party to pay all or part of a CFA success fee. That prohibition does not prevent a separate, compensatory award of interest calculated on recoverable costs.

The appeal arose from litigation concerning the collapse of the Fundão Dam in Brazil in November 2015. Approximately 450,000 claimants—including individuals, businesses, municipalities and utilities—seek compensation from BHP Group (UK) Ltd and BHP Group Limited. Although the underlying litigation concerns environmental liability under Brazilian law, this appeal concerned the English procedural rules governing interest on costs.

2. Background and Summary of the Decision

The underlying proceedings

Following the Stage 1 trial, Mrs Justice O’Farrell held that BHP was strictly liable as a polluter under Brazilian Environmental Law and alternatively liable for fault under article 186 of the Brazilian Civil Code. She also rejected the limitation defence. Permission to appeal those substantive decisions had been refused by both the High Court and the Court of Appeal; they were not reopened in this appeal.

In the consequential order dated 26 January 2026, the judge directed BHP to pay:

• 90% of the claimants’ Stage 1 costs, assessed on the standard basis;
• pre-judgment interest at 1% above UK base rate on the total recoverable Stage 1 costs, from 1 August 2023 until 26 January 2026; and
• £43 million on account of costs.

The judge declined to order an immediate detailed assessment. The date selected for interest represented the point at which half the relevant fees had been incurred, providing a practical alternative to calculating interest separately on each item.

BHP’s challenge

BHP argued that the claimants had neither paid their lawyers nor borrowed money to fund their costs. Their CFAs required payment only upon success. Accordingly, BHP contended that there was no compensable deprivation of money.

BHP also submitted that awarding interest because the claimants might later owe success fees would circumvent section 58A(6). It relied particularly on the Supreme Court’s decision in Hirachand v. Hirachand [2024] UKSC 43, [2025] AC 599, which rejected indirect recovery of success fees through substantive financial provision.

The outcome

The Court of Appeal unanimously dismissed the appeal. Sir Geoffrey Vos, Master of the Rolls, delivered the principal judgment, with Lord Justice Zacaroli and Lady Justice Cockerill agreeing. Senior Costs Judge Rowley sat as an assessor.

The court held that:

1. CPR 44.2(6)(g) confers a broad discretion to compensate for the time value of money.
2. The receiving party need not have made an immediate payment or personally obtained a loan. A liability to compensate another person for supplying legal services on credit can suffice.
3. On the assumptions accepted by both parties, the claimants’ contingent success-fee liabilities included compensation for their solicitors’ funding costs.
4. An ordinary award of interest on recoverable costs was not an award of the success fees and did not infringe section 58A(6).

BHP did not develop its alternative challenge to the exercise of discretion in oral argument. The Court of Appeal nevertheless expressly endorsed the judge’s exercise of that discretion.

3. The Funding Arrangements: Why the Evidence Mattered

The court did not inspect the claimants’ individual CFAs. Instead, both parties invited it to proceed on agreed assumptions supported by evidence describing the solicitors’ wider funding arrangements.

That evidence had appeared in Various Claimants v. Mercedes-Benz Group AG [2024] EWHC 695 (KB), in the Pan NOx Emissions Group Litigation. It explained that Pogust Goodhead acted under CFAs and financed its operations through a secured corporate debt facility of $552.5 million provided by Gramercy PG (UK) Holdings Ltd, with Gramercy Funds Management LLC acting as investment manager.

The distinction between the firm’s borrowing and its clients’ obligations was important:

• The facility supplied working capital across the firm’s portfolio and operating expenses, rather than constituting a loan made directly to these claimants.
• The clients were not parties to the funding agreements and had no repayment obligations to the lender.
• The firm had to repay the borrowing irrespective of individual litigation outcomes.
• The clients would, upon success, owe base costs and success fees under their CFAs.

BHP accepted that success fees generally contain an element compensating solicitors for funding costs. The court therefore proceeded on the basis that the success fees here served that purpose at least in part.

The decision consequently rests on an accepted economic connection between the clients’ contingent liabilities and the credit supplied by their solicitors. It does not establish that every CFA, whatever its terms, automatically supports an award of pre-judgment interest.

4. The Statutory and Procedural Framework

Interest and recoverable costs are separate questions

CPR 44.2(6)(g) expressly permits an order for “interest on costs from or until a certain date, including a date before judgment”. The rule does not state that the receiving party must already have paid the costs or personally borrowed the money used to finance them.

By contrast, section 58A(6), as amended by section 44(4) of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (“LASPO”), provides:

“A costs order made in any proceedings may not include provision requiring the payment by one party of all or part of a success fee payable by another party under a conditional fee agreement.”

The central interpretive question was whether applying the interest power in these circumstances would offend that statutory prohibition.

The historical development

The judgment distinguished several developments:

1. The traditional position: funding costs were not recoverable as ordinary litigation costs.
2. The original CFA regime: section 58(8) of the Courts and Legal Services Act 1990 excluded recovery of the percentage increase payable under a CFA.
3. The 1999 procedural changes: amendments to section 17 of the Judgments Act 1838 and the introduction of the CPR enabled rules governing when interest runs, including pre-judgment interest on costs.
4. The 2000–2013 success-fee regime: the original section 58A(6) permitted inter partes recovery of success fees, subject to the applicable rules.
5. The post-LASPO position: success fees again became irrecoverable from the opposing party, but the separate interest power remained.

This history supported the conclusion that the availability of interest does not depend on whether success fees are recoverable. The two mechanisms developed separately and perform different functions.

5. Precedents Cited and Their Influence

A. The distinction between funding costs and interest

In Hunt v. RM Douglas (Roofing) Ltd (1988) 85(3) LSG 33, (1987) 137 NLJ 1133, the Court of Appeal held that funding costs fell outside the established categories of recoverable legal costs. This supplied the starting point: the present judgment was not creating a new right to insert financing expenses into a bill of costs.

The House of Lords decision in Hunt v. RM Douglas (Roofing) Ltd [1990] 1 AC 398 addressed a different question. It established that section 17 of the Judgments Act 1838 applied to costs orders and that post-judgment interest ran from the date of the judgment or costs order—the incipitur date—rather than the later date on which the costs were quantified—the allocatur date.

These decisions demonstrate why recognising the financing burden through interest need not make financing expenses themselves recoverable as costs.

B. The development of the broad pre-judgment interest discretion

McPhilemy v. Times Newspapers Ltd (No 2) [2001] EWCA Civ 933, [2002] 1 WLR 934 concerned the then Part 36 interest jurisdiction. It identified the unfairness arising where a successful party had paid costs before judgment but received no interest for that period. Its importance was explanatory: interest addresses the financial consequences of having to fund litigation before obtaining a costs order.

In Bim Kemi AB v. Blackburn Chemicals Ltd [2003] EWCA Civ 889, [2004] 2 Costs LR 201, the Court of Appeal recognised the propriety of pre-judgment interest where a party had paid its solicitors and lost the use of that money. Douglas v. Hello! [2004] EWHC 63 (Ch), [2004] 2 Costs LR 304 supported that approach. The present court treated these as examples of compensable loss, not as exhaustive definitions of the jurisdiction.

Nova Productions Ltd v. Mazooma Games Ltd (No 2) [2006] EWHC 189 (Ch), [2006] RPC 15 was particularly important. Kitchin J rejected the proposition that pre-judgment interest should be confined to exceptional cases. The discretion must reflect all the circumstances, the parties’ conduct, their degree of success and the overriding objective. The judgment’s reference to Powell v. Herefordshire Health Authority [2002] EWCA Civ 1786, [2003] 3 All E.R. 253 appeared within that supporting analysis, rather than as a separately developed basis for the present decision.

C. Cases involving payment by someone other than the litigant

Fosse Motor Engineers Ltd v. Conde Nast and National Magazine Distributors Ltd [2008] EWHC 2527 (QB), [2009] 3 Costs LR 377 established that insurer-funded litigation could attract pre-judgment interest. Akenhead J rejected the need for a minute examination of the successful party’s funding arrangements and regarded interest as primarily compensatory.

Similarly, Fattal v. Walbrook Trustees (Jersey) Ltd [2009] 4 Costs LR 591, [2009] EWHC 1674 (Ch) treated pre-judgment interest as an ordinary, rather than exceptional, possibility. The fact that a company owned by the litigant had funded the costs did not defeat the claim.

Neither case decided the precise CFA issue before the court. Together, however, they undermined a rigid requirement that the litigant must personally have written the cheque.

D. The governing general principles

Jones v. Secretary of State for Energy and Climate Change [2014] EWCA Civ 363, [2014] 3 Costs LO 541 provided the principal modern statement of the discretion. Sharp LJ explained that the court should undertake a general appraisal of what is reasonable between the parties, ordinarily considering the relevant class of litigant rather than conducting a disproportionate investigation of individual borrowing arrangements.

BHP relied on the description in that case of compensating someone deprived of money or obliged to borrow. The Court of Appeal held that this description did not impose an exclusive threshold. Reading it as exhaustive would contradict both the wording of the rule and the breadth of the discretion.

The passage from Jones v. Secretary of State for Energy and Climate Change also referred to F&C Alternative Investments Ltd v Barthelemy (No. 3) and Fiona Trust & Holding Corporation v Privalov [2011] EWHC 664 (Comm). These supported the general approach to commercial interest rates and class-based assessment. The present judgment did not attribute to them a separate ruling on contingent CFA liabilities.

E. The success-fee prohibition

In Hirachand v. Hirachand [2024] UKSC 43, [2025] AC 599, the Supreme Court held that a claimant could not recover a CFA success fee through an award under the Inheritance (Provision for Family and Dependants) Act 1975. Litigation costs were to be dealt with through the procedural costs regime. An order substantively providing for the success fee remained a prohibited costs order, whatever jurisdiction or label was used.

The Court of Appeal accepted that principle without qualification. It distinguished the present award because it compensated the time value of money through an express procedural interest power; it did not reimburse the success fee. The Supreme Court had not considered CPR 44.2(6)(g) or its interaction with section 58A(6).

BHP also relied on Musst Holdings v. Astra Asset Management [2026] EWHC 1599 (Ch). The judgment records that reliance but does not separately analyse or overrule the decision. It should therefore not be treated as establishing a wider conflict with that authority.

F. Supporting analogies from post-judgment interest

In Nosworthy v. Royal Bournemouth & Christchurch NHS Foundation Trust [2020] EWHC B19 (costs), Master Brown distinguished irrecoverable funding costs from interest that mitigates their financial consequences. The Court of Appeal expressly approved that distinction.

The reasoning drew on Simcoe v. Jacuzzi UK Group plc [2012] EWCA Civ 137, [2012] 1 WLR 2393. That case supported the continued application of the incipitur rule despite the increasing use of CFAs and discouraged excessive factual investigation into the date from which interest should run.

These authorities concerned post-judgment interest and were used by analogy, not as direct determinations of the present pre-judgment issue. In particular, observations about entirely voluntary or cost-free third-party funding should not be mistaken for a holding that every such arrangement necessarily qualifies under CPR 44.2(6)(g).

Finally, Marbrow v. Sharpes Garden Services Limited [2020] EWHC B26 (Costs) was cited alongside the former CPR 44.3B(1), which generally excluded the deferred-payment element of success fees unless the court ordered otherwise. The Court of Appeal found this unhelpful to BHP: the former rule regulated recovery of additional liabilities, not the separate award of pre-judgment interest.

6. Analysis of the Court’s Reasoning

A. The relevant loss is economic, not dependent on payment formalities

The court began with the purpose of interest: compensation for the time value of money. A litigant may bear that burden by spending its own money, borrowing to meet bills, or becoming liable to compensate another person who provides legal services on credit.

A contrary rule would make entitlement turn on the contractual route by which funding was supplied. Two parties could bear economically comparable financing burdens, yet only the party that borrowed directly would qualify. Nothing in CPR 44.2(6)(g) required that distinction.

The court’s formulation therefore extended beyond personal cash expenditure while retaining a compensatory foundation. The claimants’ contingent obligation mattered because, upon success, it would reduce the damages retained by them.

B. Contingency does not eliminate the funding burden

The solicitors’ acceptance of litigation risk did not mean that credit was free to the clients. The agreed assumption was that the success fees included compensation for deferred payment. Although payable only upon success, that obligation could support the interest jurisdiction.

This is the decision’s principal clarification. A contingent liability can be legally relevant before it becomes an immediately payable debt, provided it represents the relevant burden of obtaining legal services on credit.

C. The success fee triggers consideration of interest but does not measure it

The most significant distinction appears in paragraph 51. The contingent funding liability was a trigger enabling interest to be claimed. It did not determine how much interest should be paid.

The amount instead depended on what financing the recoverable costs would reasonably have cost the relevant class of litigant. The award was calculated by applying an interest rate over time to recoverable costs, not by identifying and transferring a proportion of the success fee.

This distinction answers the strongest objection based on Hirachand v. Hirachand. Merely renaming a success fee “interest” would not suffice. Here, however, the court identified an independent legal power, an independent compensatory purpose and an independent method of calculation.

D. The policy behind LASPO remains operative

The Jackson reforms addressed the inflationary consequences of making success fees recoverable from defendants. A claimant whose opponent must pay the fee has less incentive to negotiate its size.

The Court of Appeal considered that incentive problem absent here. The interest award did not increase with the agreed success fee. The claimants therefore remained financially interested in keeping that fee down.

The judgment does not deny that interest mitigates the practical burden of funding litigation. Its conclusion is that such mitigation is not equivalent to making the funding charge itself recoverable.

E. Broad assessment, not a forensic funding audit

The court endorsed a proportionate approach to funding evidence and calculation. An application should not normally become a detailed examination of every financing arrangement, drawdown or deferred payment.

That does not dispense with a factual foundation. In this case, the necessary connection between the contingent success fees and the provision of credit was accepted. If that connection is disputed in future litigation, the court may need sufficient evidence to resolve it without undertaking a full financing audit.

The midpoint date and rate of 1% above base rate were upheld as appropriate on these facts. Neither was declared a mandatory formula for other cases.

7. Likely Impact and Limits

The judgment is important for CFA-funded and other credit-supported litigation. Defendants cannot defeat an interest application merely by showing that the successful party has not yet paid its lawyers or borrowed personally.

Its wider formulation may also assist parties liable to compensate insurers or third-party funders for providing credit. However, the judgment does not make every funding arrangement eligible, nor does it render all associated charges recoverable.

Future applications are likely to focus on:

• whether the receiving party bears a relevant funding burden, including a contingent one;
• whether the proposed award genuinely compensates the time value of recoverable costs;
• the appropriate rate and period for the relevant class of litigant; and
• whether the proposed calculation is independent of any irrecoverable success fee.

The decision is particularly useful in large group litigation, where individualised calculations could become disproportionate. It supports workable, broad-brush assessment while leaving the court free to refuse or adjust interest where the circumstances require.

Its limits are equally important: it does not permit success fees to be added to a costs bill, convert a solicitors’ corporate loan into a client liability, or determine the enforceability of the underlying CFAs.

8. Complex Concepts Simplified

Conditional fee agreement

A funding agreement under which the lawyer’s entitlement to payment depends on specified conditions, commonly success in the litigation.

Base costs and success fee

Base costs are the ordinary legal fees. A success fee is an additional contractual amount payable under the CFA. The fact that interest is available does not make that additional amount recoverable from the opponent.

Contingent liability

An obligation dependent on a future event. Here, the clients’ payment obligations depended on their claims succeeding.

Time value of money

The financial value of having money available now rather than later. Interest compensates for losing that availability or bearing the cost of obtaining credit instead.

Standard-basis assessment

A process for determining recoverable costs by reference to reasonableness and proportionality, with doubts generally resolved in favour of the paying party.

Payment on account

An interim payment towards costs before their final amount has been determined.

Incipitur and allocatur

The former refers to the date of the judgment or costs order; the latter to the later date when costs are quantified. The distinction primarily explains when post-judgment interest begins.

9. Conclusion

The Court of Appeal confirmed that pre-judgment costs interest can compensate a claimant who bears a contingent liability for legal services supplied on credit, even without prior payment or personal borrowing.

The controlling distinction is between compensating the time value of recoverable costs and reimbursing an irrecoverable success fee. The former remains available through the court’s broad discretion; the latter remains prohibited. The judgment preserves that boundary while recognising the economic realities of modern litigation funding.