Interest on costs

In Victoria, you can enforce a judgment for up to 15 years: s. 5(4) Limitation of Actions Act, 1958 (Vic.).  During that time, the judgment debt earns interest at a nice little rate, the penalty interest rate: s. 101 Supreme Court Act, 1986.  As of yesterday, the penalty interest rate is 10.5%, while the cash target rate you hear about in the news and on bank statements for your mortgage is, as of today — surprise! — still 3.75%.  And there is no discretion involved, unlike the interest which accrues at the same rate between commencement of proceedings and judgment: Hartley Poynton Ltd v Ali [2005] VSCA 53.  Typically, in superior courts, judgment is given on the claim, and an order made for the winner to pay the loser’s costs.  Working out how much the loser has to pay, however, takes time. The process is known as ‘taxation’.  First a costs consultant usually draws up a bill of costs in taxable form.  Then there are negotiations, and if they do not succeed there is a trial of the question of how much costs the winner pays the loser, generally after a long wait for a court date.  At the end of that, the court gives another judgment of sorts.

From when does s. 101 interest run on that part of the judgment requiring the loser to pay the winner’s costs? The date of the original judgment, or at the end of the taxation?  In the state courts in Victoria the answer is that interest is awarded on costs from the conclusion of the taxation unless the Court otherwise orders: s. 101.  In places which do not have such statutory specifications, interest runs from the date of judgment.  In Hamdan v Widodo [No 2] [2010] WASC 6 S the Supreme Court of Western Australia reviewed the authorities confirming the position in these other places, which include Western Australia.  The judgment canvasses the arguments which might be used on an application to vary the default position of judgment accruing from the finalisation of taxation:

‘6 In State Planning Commission v Della Vedova (86) the court held that interest in the Supreme Court runs from the date of judgment.

If interest is not payable on costs between the judgment and the completion of taxation, there is an incentive to delay disbursements and taxation: Hunt v R M Douglas (Roofing) Ltd [1990] 1 ACC 398 at 416; [1988] 3 ALL ER 823 per Lord Ackner at 833.

7. The decision in Hunt v R M Douglas (Roofing) Ltd is also to the effect that the right to interest on costs depends on the statutory enactment and, as a consequence, a litigant who has been awarded costs is entitled to interest on those costs from the date of judgment rather than the date the taxation of costs is completed. The decision is of the House of Lords and deals with the impact of relevant statutory changes on the common law position that interest on costs runs from the date of judgment.

8. However, in the course of the decision of Lord Ackner, with whom the other members of the court agreed, a number of rationalisations for the competing positions were discussed: (826). One such rationalisation is that, if interests does not run from the date of judgment, that interest is ‘fructifying in the wrong pocket’: Newton v Grand Junction Railway Co (1846) 153 ER 1133, 1134. For the contrary position it was said that when the sum is unascertained, the debtor cannot be expected to pay it until it is quantified and cannot make a tender until he knows how much it is and cannot be said to be wrongfully withholding the money: Denning LJ in K v K (divorce costs) [1977] Fam 39, 48 – 49. It has also been said that a client commonly pays costs on account well before those costs are taxed and, in those circumstances, it is difficult to see why he should be denied interest as from the judgment or later payment on the amounts from time to time paid (although the latter is not an option in this case): Erven Warnink BV v Townend & Sons (Hull) Ltd (No 2) [1982] 3 All ER 312, 319 – 320.

9. In Hunt v R M Douglas (Roofing) Ltd [[1990] IAC 298] the court concluded that a satisfactory result cannot be achieved in every case but the balance of justice favours the incipitur rule which is the rule that interest runs from judgment. The basis of that conclusion is that it is the unsuccessful party to the litigation who has caused costs unnecessarily to be incurred, and since interest is not awarded on costs incurred and paid by the successful party before judgment, why should the successful party suffer the added loss of interest on costs incurred and paid after judgment but before the taxing master gives his certificate: (832). I believe there is considerable substance to that rationale.’

The relevant bit of Williams’ Civil Procedure is para [1110.10].

See also:

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One Reply to “Interest on costs”

  1. Section 5(7) of the Limitations Act doesn’t have quite the effect you seem to suppose. You can enforce a judgment by means of execution (as opposed to commencing fresh proceedings – quite frankly, it’s hard to think when you would ever have to do that) for as long as you like or, more accurately, for as long as the court, in its discretion, will let you.

    See:

    Dennehy v Reasonable Endeavours Pty Ltd, in the matter of Dennehy (A Bankrupt) [2003] FCAFC 158

    It’s a scandal and will come as a shock to many, but that’s apparently the law.

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