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Fattal & Anor v Walbrook Trustees (Jersey) Ltd & Anor (Rev. 1)
Factual and Procedural Background
This appeal arises from two aspects of a decision by Master O'Hare dated 28th April 2007 concerning a detailed assessment of certain bills of costs. The dispute involves two appellants, brothers ("the Appellants"), and two trust companies along with others. The subject matter concerns a valuable property ("the Property") comprising multiple flats and commercial units, originally acquired under a joint venture agreement to which the Appellants were parties.
Legal title to the Property is held by a company incorporated in England and Wales ("Company A"). Equitable interests in the Property have been transferred through companies incorporated in the Isle of Man and Jersey ("Company B" and "Company C" respectively), all ultimately owned by trustees of five settlements or trusts ("the Trusts"). The Appellants are settlors, protectors, and income beneficiaries of two of these trusts ("the Appellant Trusts").
The dispute began in 2003 regarding whether the trustees were obliged to deliver transactional documents relating to the Property to the Appellants. This led to a Part 8 claim by the Appellants against the trustees and the companies involved. The trustees resisted providing documentation, asserting they could not or should not exercise their powers to do so.
Subsequent proceedings involved claims about the sale of the Property, the validity of certain leases, and the procedures for sale under the joint venture agreement. Various claims were struck out or compromised, with costs orders made against the Appellants. Master O'Hare conducted a lengthy detailed assessment of costs ordered by Hart J in October 2003. The resulting certificate required the Appellants to pay substantial costs to the trustees, including interest from the date of the original costs order, and awarded costs to the Appellants in relation to the documentation issue but declined costs for the assessment of those costs.
Legal Issues Presented
- Whether Master O'Hare erred in ordering interest to run from the date of the original costs order (3rd October 2003) in favour of the trustees.
- Whether Master O'Hare was correct in refusing to order that the trustees pay the Appellants' costs for the assessment of the costs awarded to them.
- Whether the court has jurisdiction to make or vary orders regarding the commencement date of interest on costs at the stage of detailed assessment.
- The application and interpretation of statutory provisions and court rules concerning interest on costs, including the Judgments Act 1838 (as amended) and Civil Procedure Rules (CPR) 40.8 and 44.3.
Arguments of the Parties
Appellants' Arguments
- Master O'Hare was wrong to order interest from the date of the original costs order because the costs had been financed by Company C through an interest-free loan, meaning the trustees did not suffer a loss justifying interest.
- The refusal to award the Appellants their costs of the assessment of their costs was incorrect, especially given the presumption under CPR 47.18 that a party is entitled to such costs unless exceptions apply.
- The distinction between the assets of Company C and the Trusts means the trustees and beneficiaries had no direct interest in Company C's assets, so no entitlement to interest arises from Company C's interest-free loan.
- The order to pay interest on the full amount was anomalous because the Appellants would pay interest that would be subject to tax, effectively paying gross and receiving net income.
- Interest should be payable only on 75% of the costs and received only by trustees of the trusts other than the Appellant Trusts.
Trustees' Arguments
- Master O'Hare had jurisdiction to make the order regarding interest, including the commencement date, at the detailed assessment stage.
- The court rules and statutory provisions allow the court or costs judge to vary the date from which interest runs, and it would be impractical and unjust to restrict this power to the judge who made the original costs order.
- The refusal to disallow interest or costs of assessment for the trustees was justified because their costs were reduced for ordinary reasons and not due to any misconduct or procedural failures.
- The Appellants' submissions regarding the tax implications and partial interest payments were not persuasive or sufficient to overturn the costs order.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Hunt v Douglas Roofing [1990] 1 AC 398 | Interest on costs runs from the date of judgment or order (incipitur rule). | Confirmed the starting point for interest on costs as the date the judgment is entered, not the date of certificate issuance. |
| Douglas v Hello Magazine [2004] EWHC 63 (Ch) | Discretion to award interest from a date before judgment where payment was made earlier. | Used to illustrate discretionary power to adjust interest start date. |
| Powell v Herefordshire Health Authority [2002] EWCA Civ 1786 | Discretion to reduce or vary interest on costs to reflect actual timing of costs incurred. | Supported the proposition that the court may depart from the incipitur rule based on circumstances. |
| London Chatham & Dover Railway Company v South Eastern Railways Company [1893] AC 429 | Purpose of interest awards is compensation for being out of pocket. | Reinforced the compensatory rationale for awarding interest on costs. |
| Earl of Malmsbury v Strutt & Parker [2008] EWHC 616 (QB) | Interest on costs compensates for loss due to expenditure on costs. | Supported the principle that interest compensates the recipient for out-of-pocket costs. |
| Hadji-Ioannou v Frango [2005] EWHC 279 (Ch) | Discretion to disallow costs under CPR 44.14 is not limited to exceptional circumstances. | Used to argue against requiring exceptionality for disallowance or variation of costs or interest. |
| Fosse Motor Engineers Limited v Conde Nast and National Magazine Distributors Limited [2008] EWHC 2527 (QB) | Consideration of funding arrangements may be relevant to interest awards on costs. | Referenced to acknowledge possible exceptions to interest awards in voluntary interest-free loans. |
| Horsford v Bird [2006] UKPC 55 | Presumption that a party is entitled to costs of detailed assessment proceedings. | Supported the presumption underlying the Appellants' submissions on costs of assessment. |
| Chrulew v Borm-Reid & Co [1992] 1 WLR 176 | Costs of assessment not to be denied solely because of reduction in amount claimed. | Illustrated the principle that reduction in claimed costs does not automatically deny assessment costs. |
Court's Reasoning and Analysis
The court examined the statutory framework governing interest on costs, primarily the Judgments Act 1838 (as amended) and the Civil Procedure Rules (CPR) 40.8 and 44.3. It noted that while the original rule (the incipitur rule) mandated interest to run from the date of judgment, amendments introduced judicial discretion to vary this commencement date.
The court disagreed with Master O'Hare's view that such discretion should only be exercised in exceptional circumstances, emphasizing that the rules do not impose such a limitation. Instead, the court held that the overriding consideration is what justice requires, particularly compensating the party out of pocket for costs paid.
Regarding the Appellants' argument that the interest-free loan from Company C negated the need for interest, the court found this reasoning unrealistic and disconnected from commercial reality. It held that the trustees, through Company C, were deprived of the use of funds and thus entitled to compensation by way of interest. The court rejected the distinction between the assets of Company C and the Trusts as irrelevant to the entitlement to interest.
The court addressed the Appellants' complaints about tax implications and partial interest payments, finding no unacceptable anomaly since the payments and receipts occur in different capacities and the trustees must recover costs with interest to protect all beneficiaries.
On the question of jurisdiction, the court held that a costs judge or Master has the power to make or vary orders concerning the commencement of interest on costs at the detailed assessment stage. This approach aligns with the practicalities of litigation, avoiding the need for the original trial judge to address complex funding issues.
Regarding the refusal to award the Appellants their costs of the assessment of their costs, the court accepted Master O'Hare's reasoning. The Appellants' bill was reduced by over 60%, largely due to the absence of attendance notes, which complicated the assessment process and justified the disallowance of assessment costs. The court found this within the discretion granted by CPR 47.18 and consistent with precedent.
The court also upheld the award of the trustees' costs of assessment, noting their reduction was moderate and for ordinary reasons, not misconduct.
Holding and Implications
DISMISSED
The court upheld Master O'Hare's decision ordering the Appellants to pay the trustees' costs with interest commencing from the original costs order date and refusing to award the Appellants their costs of the assessment of their costs. The court confirmed that the discretion to vary the commencement date of interest on costs exists and can be exercised by a costs judge or Master at the detailed assessment stage.
The decision affirms the compensatory rationale for interest on costs and clarifies that funding arrangements, such as interest-free loans from related companies, do not automatically negate entitlement to interest. The ruling does not establish new precedent but confirms existing principles and their application in complex trust and property disputes.
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