Court of Appeal holds interest is payable on costs even where a claimant is funded by a CFA

The Court of Appeal has given judgment on the narrow question of pre-judgment interest on costs where the Claimants are funded by a conditional fee agreement (‘CFA’), in the long running case of Municipio de Mariana v BHP Group Ltd and others [2026] EWHC 73 (TCC).

Background

The proceedings arise from the collapse of the Fundao Dam in Brazil.  A large number of Claimants seek losses alleged to have been suffered as a result of the collapse of the dam.  The Court had previously given judgment following a 5 month trial. 

The Appeal

The Court has now considered an appeal by the Defendants of the award of pre-judgment interest at a rate of 1% above UK base rate on the Claimants’ costs, from 1 August 2023 until 26 January 2026.

The Claimants’ legal costs had been funded by a CFA so that the costs only became due on the occurrence of a successful outcome.  The Claimants had therefore not actually spent (or borrowed) the legal costs.  The Defendants argued that the Claimants should not get interest on those costs prior to the successful outcome because they were not ‘out of pocket’ as they had not had to fund the legal costs as the proceedings had gone along, because of the CFA.

The Court of Appeal’s decision

The Court of Appeal dismissed the appeal.

The discretion to award interest is a broad one, the Court observed: “There is […] nothing in the wording of CPR Part 44.2(6)(g) or elsewhere to suggest that […] interest can only be awarded if the receiving party has actually expended money on costs or has borrowed money to pay such costs.”  The Court had been right to exercise the discretion to award pre-judgment interest in the Claimants’ favour.

The Claimants were ‘out of pocket’ in the sense that they would have to pay a success fee under the CFA to compensate their solicitors for not being paid unless and until the claim was successful.  “The purpose of the power in CPR Part 44.2(6)(g)”, the Court held, “is to compensate the recipient either for having been kept out of his money or for itself being liable to compensate someone else (whether the solicitors providing the legal services themselves, an insurer or a third-party funder) for the fact that legal services have been provided to the recipient on credit.”   Having to pay a success fee in a CFA was a liability to compensate the solicitors for contingent and delayed payment which falls within the purpose of the power to award interest on costs.

The appellants pointed out that Hirachand [2024] AC 599 and section 58A(6) of Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) banned a recovery as between parties of success fees.  The Court held that awarding interest on costs “does not infringe the prohibition in section 58A(6), because it is an order for pre-judgment interest on costs, which is quite distinct and separate from an order requiring ‘the payment by one party of all or part of a success fee payable’.”  An award of pre-judgment interest was not equivalent to an order requiring payment of the success fee itself.

Pre-judgment interest on costs is not exceptional, and the Court reaffirmed the approach taken in previous authorities.

Discussion

The judgment is perhaps unsurprising, but it is useful clarification by the Court of Appeal.

In practical terms, the current Bank of England base rate is 3.75%.  Interest at 1% above that, or 4.75%, for say 3 years pre-judgment, can amount to a not insignificant sum.  On an award of say £500k, interest award might amount to as much as over £70,000.  Those acting for Claimants on CFAs should not forget to recover it, and Defendants or their insurers should reserve for it as one of the costs risks of defending a claim.