Interest on Costs
Court of Appeal clarifies
Interest on Costs – Court of Appeal clarifies
Interest on Costs – Court of Appeal clarifies
In a recent Court of Appeal decision - Deutsche Bank AG -v- Sebastian Holdings Inc and another [2024] EWCA Civ 245, the Court of Appeal unanimously allowed an appeal regarding section 24(2) of the Limitation Act 1980, as to when time commences to run for limitation purposes on interest on costs where the order was for costs to be assessed.
Limitation Act 1980
The Limitation Act 1980 Pt I s.24(2) provides that “No arrears of interest in respect of any judgment debt shall be recovered after the expiration of six years from the date on which the interest became due”, the issue in the case was the precise meaning of the word “due”.
Facts
Deutsche Bank AG (Bank) was successful in a claim for US$243 million against a defendant (Sebastian) and obtained a costs order in its favour in November 2013, to be subject to detailed assessment if not agreed. Sebastian was liable to pay those costs. The assessment began in 2017 and concluded with the issue of a final costs certificate in May 2023, almost 10 years after the original costs order. As stated above, the Limitation Act precludes the recovery of interest on a judgment debt after 6 years from the date on which the interest becomes due. At first instance it was held that “due” in s.24(2) meant the date on which the interest liability accrued; and that interest on the costs as assessed first became due on the date of the costs order in November 2013. The effect of this ruling was that the Bank could not recover from Sebastian almost three and a half years’ worth of interest on the assessed costs. The value of this interest was a significant sum - £775,000. Naturally the Bank appealed arguing that that “due” in s.24(2) did not refer to the date on which the interest liability accrued, but meant payable (in the sense of enforceable), and that no interest on costs was payable until the costs had been quantified in the final costs certificate in May 2023.
Court of Appeal decision
The Court of Appeal analysed the wording of s.24(2) and agreed with the Bank that “due” meant payable. Whilst as a matter of language, “due” could equally mean owing or payable. The word “arrears” in s.24(2) was not neutral in the same way: there were no “arrears” of an amount owing until it had become in fact payable. Section 24(2) barred recovery of “arrears of interest”. That which had to have become due in order to commence time running was “the interest”, which was a reference back to the “arrears of interest”, recovery of which was precluded by the subsection. In other words, the starting point for the running of time identified in the subsection was “the date on which the [arrears of] interest became due.” That could only mean when the interest became payable, rather than owing, because there were no arrears of interest until the interest was in fact payable.
Certain policy considerations were identified by the Court of Appeal, not least that limitation provides certainty to a defendant after a lapse of time and that claimants should be encouraged to take steps within a reasonable period to enforce their rights. But these principles equally supported the construction that “due” meant payable as, if a judgment created a judgment debt which was immediately payable, a defendant should be expected to pay it. If it was owed but not yet payable because the amount was being assessed, a defendant could prevent interest accruing by making a payment on account of their established liability. Further, time should not start to run until a party was in a position to enforce their rights. It was not until the conclusion of the assessment that the receiving party could enforce the right to interest. That dictated that time should not start to run in s.24(2) until the interest was payable.
The clarity this decision provides is welcome to all parties regularly obtaining court judgments and orders for costs. Not only was the interest in dispute a significant sum but there were important points of principle considered.
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