Secretary of State for the Department of Energy And Climate Change & Anor v Jones & Ors

Factual and Procedural Background

On 21 December 2012, following an earlier judgment on liability concerning eight lead claims in an industrial personal injury group litigation, the trial judge ordered the defendants to pay 80% of the claimants' costs as agreed or assessed. While there was agreement that costs and disbursements would attract interest from the judgment date, a dispute arose over whether pre-judgment interest on disbursements was payable and, if so, at what rate. The litigation involved a substantial trial and disbursements exceeding £787,500. After a hearing on 24 March 2013, the judge ordered the defendants to pay pre-judgment interest on disbursements at 4% above base rate, which was appealed by the defendants.

The claimants were former industrial workers of modest means who brought personal injury claims against the defendants. Their solicitors, a medium-sized firm, had entered Conditional Fee Agreements (CFAs) with the claimants, under which solicitors' fees were conditional on success but disbursements were payable regardless of outcome. The solicitors agreed to fund the disbursements under novel disbursement funding agreements, charging interest at 4% above base rate. The defendants challenged the interest rate, arguing it should be based on the solicitors' borrowing costs rather than the claimants', contending the agreements were a device for the solicitors to recover interest at a chosen rate.

Legal Issues Presented

1. Whether the judge was correct to determine the rate of pre-judgment interest on disbursements by reference to the claimants' circumstances rather than the solicitors'.
2. Whether the disbursement funding agreements constituted genuine liabilities of the claimants or were merely devices for the solicitors to recover interest.
3. Whether the appropriate rate of interest on pre-judgment disbursements should be 4% above base rate or 1% above base rate, reflecting a first class borrower.

Arguments of the Parties

Defendants' Arguments

• The judge erred by considering the claimants' circumstances rather than those of the solicitors when setting the interest rate.
• The claimants were never at real risk of paying interest as repayment was contingent on recovering interest from the defendants, making the claim effectively a subrogated claim by the solicitors.
• Absent evidence of the solicitors' borrowing costs, the interest rate should default to 1% above base rate, the conventional rate for a first class borrower.
• The disbursement funding agreements were a device to enable the solicitors to charge interest at a rate of their choosing.
• Had the contingent repayment obligation not been conceded, the defendants could have argued the agreements were unenforceable under the Consumer Credit Act 1974.

Claimants' Arguments

• The identity of the lender (the solicitors rather than a bank) is irrelevant; the agreements were genuine and created real liabilities for the claimants.
• The claimants did borrow money from the solicitors, who funded substantial disbursements, and the liability to pay interest crystallised upon success.
• The letter from the solicitors dated 20 March contained a misstatement regarding repayment obligations and did not override the contractual terms.
• The appropriate comparator for interest rate purposes is the typical borrowing cost for claimants of modest means, making 4% above base rate reasonable and modest.
• The defendants' arguments before the judge and on appeal were misplaced and did not undermine the genuine nature of the agreements.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Tankard v John Fredericks Plastics [2009] 1 WLR 1731	Example of Law Society’s scheme for funding disbursements.	Referenced to illustrate types of funding available for disbursements.
F & C Alternative Investments Ltd v Barthelemy (No 3) CA [2013] 1 WLR	Principles governing assessment of interest on costs and the discretion of the court.	Used to confirm the discretionary nature of pre-judgment interest awards and the approach to assessing reasonable rates.
Bim Kemi AB v Blackburn Chemicals Ltd [2003] EWCA Civ 889	Assessment of interest rates by reference to borrower class.	Supported the principle that interest rates vary by class of borrower and that evidence can displace presumptions.
Fiona Trust & Holding Corporation v Privalov [2011] EWHC 664 (Comm)	Interest rate assessment in commercial contexts.	Referred to as an example of commercial court approach to interest on costs.
Jaura v Ahmed [2002] EWCA Civ 210	Higher interest rates for SMEs and private individuals.	Used to illustrate that private individuals typically recover interest at a higher rate than first class borrowers.
Attrill v Dresdner Kleinwort Ltd [2012] EWHC 146 (QB)	Interest rate differentiation by borrower class.	Supported the principle of differing interest rates based on borrower category.
Giles v Thompson [1994] 1 AC 142	Champerty and indemnity principle in funding agreements.	Referenced by defendants but court noted changes in law and declined to consider these points as they were not raised below.

Court's Reasoning and Analysis

The court began by affirming the discretionary power under CPR 44.2(6)(g) to award interest on costs, including pre-judgment interest, with the purpose of compensating a party deprived of the use of money or who had to borrow funds. The court noted that the rate of interest typically reflects the class of borrower, with first class borrowers generally recovering base plus 1%, and private individuals a higher rate to reflect borrowing costs.

The defendants argued the interest rate should be based on the solicitors' position, as the claimants were never at risk of paying interest due to contingent repayment obligations. However, the court rejected this, reasoning that the arrangement was analogous to claimants borrowing from a bank, with the solicitors acting as the lender on terms more favourable to claimants. The contingent nature of repayment did not render the liability notional once the claimants succeeded and damages were recovered; the liability to pay interest crystallised and became real.

The court found no error in the judge’s analysis or application of legal principles. It held that the agreements were genuine, the claimants had a real liability to repay the credit and interest, and the 4% above base rate was a reasonable rate reflecting the claimants' circumstances. The defendants’ reliance on a letter containing a misstatement did not alter the contractual terms or the court’s view of the liability. Issues of champerty and indemnity principle raised by the defendants were not considered as they were not argued below.

Holding and Implications

The court DISMISSED THE APPEAL, affirming the judge’s order that the defendants pay pre-judgment interest on disbursements at 4% above base rate.

The direct effect is that the defendants remain liable to pay interest at the rate awarded, reflecting the claimants’ borrowing circumstances. The decision does not establish new precedent but confirms established principles regarding the assessment of interest on costs and the recognition of genuine funding agreements between claimants and solicitors.