Evidence Needed to Recover Disbursement Loan Interest
Posted on 22nd February 2022 at 11:18
By Sean Linley, Costs Draftsman
Recent years have seen a significant uptake in disbursement loans and litigation funding. The issue of interest on disbursement loans continues to be a battleground between parties. In Gill v Barnsley Canister & Others (15 November 2021) (County Court at Barnsley), District Judge Corkill held that whilst there was a discretion to allow the recovery of disbursement loan interest, there would need to be evidence before the Court that there was no way of funding disbursements without a loan and evidence as to the reasonableness of the loan and the rate of interest applied.
- Disbursement loan interest is recoverable in principle as per CPR r44.2(c)
- Where there is a dispute as to the recovery of the disbursement loan interest then evidence is needed to address:
- Whether it was reasonable for a particular client to obtain a disbursement loan.
- What other methods of funding disbursements were available (such as a personal loan).
- Whether the interest rate applied is reasonable (or whether it was the only rate available) when compared to other disbursement funding methods.
The claim related to a Noise Induced Hearing Loss Claim which settled in the sum of £2,032.40. A costs claim followed with the Bill of Costs provisionally assessed at £8,204.46 excluding interest with just over £4,000.00 of the sum relating to disbursements.
The Bill of Costs included a claim for interest incurred arising from the taking out of a funding loan. The funding loan charged "a commercial rate of interest set at 15.3% APR."
It was noted that that amount of interest when the Bill of Costs was submitted to the Court was £707.08.
The Claimant submitted that the Court had the power to award interest and relied upon the cases of Secretary of State for the Department of
Energy and Climate Change & Anor v Jones & Ors  EWCA Civ 363 and Sharp & Ors v Blank & Ors  EWHC Civ 933.
The Claimant contended that the disbursement loan was reasonable and proportionate for the Claimant "who they say falls within that class of litigant who is private with modest means and it is, therefore, reasonable and proportionate for this class of litigant to have funded the litigation by this method."
The Defendant relied upon the Pre-CPR case of Hunt v RM Douglas Roofing  and the later case of Motto v Trafigura . It was submitted that the Court permit an individual to recover interest, however, "they had to show that the interest they incurred came within the definition of costs." The Defendant contended that, as per Hunt, interest was a part of the cost of funding litigation and was not specifically "costs and expenses" and thus it ought not to be recoverable. They stated that Motto supported the preposition that the costs of funding litigation are not recoverable between the parties.
The Court considered that Motto was concerend with the recoverability of costs in setting up an ATE Premium and the amount of the premium as opposed to "interest payable under a funding agreement."
Considering matters DJ Corkill stated that:
"14. The claimant though, as the defendant pointed out, has, we are told, taken this loan out because it was reasonable to do so, but no evidence has been adduced by the claimant as regards the claimant's reasons for taking out the interest. Effectively, the court is being asked to make an assumption as regards the claimant's need and reasonableness. We have no copy of the agreement. We have no details of comparable rates.
15. The court should also bear in mind that recoverability of costs and the amount recovered should not guarantee the claimant a complete indemnity in respect of what has been incurred and there is always an element of the costs of litigation."
The Court confirmed it was satisifed that it could order interest under CPR r44.2(c) but considered that:
"18. [...] in order to be able to make that award, I think it would be wrong for this court to simply say, well, an award of interest can be made, therefore this claimant entered into this agreement and incurred interest of 15.3% and that he fell within a class of litigant of modest means without there being some evidence to support that contention."
19. This is an issue that clearly concerned Judge Baldwin. Like myself, he was being asked to make an assumption, namely that the claimant is a private individual of modest means and that, as a consequence, it was reasonable and proportionate for the claimant to have funded the litigation by way of taking out a loan.
20. I am not saying I would need to do a trawl of the claimant's financial circumstances, but I think the court is entitled to be provided with some evidence from the claimant to say that they had no way of funding the litigation or funding the disbursements without such a loan, that the loan he took out was the only available loan to him and that, as a consequence, the interest rate charged was the only rate of interest he could take out in the loan market. I do not think it is asking too much to expect to see a witness statement with some additional information as opposed to the court being asked to make an assumption that the claimant fell within a class of litigant of modest means.
21. One of the reasons why I would be much more comfortable to have seen some form of witness evidence is I consider the interest rate of 15.3% to be very much on the high side, as did Judge Baldwin, and I would particularly have liked to have known whether the claimant would have been able to take out a personal loan which would have had a far lower rate of interest and why it was this particular agreement that was attractive to the claimant. Because we are looking at potentially rates of around 4% to 5% above base rate which is far more favourable than the 15.3% sought by the claimant and which is also 7.3% higher than judgment debt rate of 8%.
22. Whilst like Judge Baldwin I do feel the court has power to award interest on a disbursement funding agreement, on the evidence before myself I am not persuaded that it is appropriate for this court to exercise the discretion it has in favour of theclaimant and to award the interest sought."
Gill reaffirms that interest on a disbursement loan is recoverable in principle and that the Court has the power to order the recovery of the same. Practically, the decision in Gill shows that practitioners should and must consider whether disbursement funding is appropriate for their individual client, what disbursement loan products are available and whether the rate of interest is reasonable. A contemparenous file note highlighting that such issues were considered and discussed with the Claimant will be helpful.
Where there is a dispute at assessment between the parties as to the recovery of disbursement loan interest then the receiving party ought to consider supporting witness evidence addressing the reasonableness of such a loan, the rate applied and availability of other products (the latter point can be backed up by the contemparenous evidence).
It would be wise for a practitioner to clearly advise clients that the full extent of interest may not be recoverable, particularly if any short-fall is to be sought from the client.
The Judgment has kindly been shared by Gordon Exall on his CivilLitigationBrief blog here.
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