Interest on Costs
Unlike some areas of litigation such as Personal Injury, a client involved in commercial litigation proceedings will commonly pay legal costs during the course of the proceedings.
A client who obtains a favourable judgment in commercial litigation proceedings may consider applying to the Court for an order that the unsuccessful party not only pay an amount of the successful party’s costs, but also an amount for interest on those costs.
Seeking an order for interest on costs
To recover interest on costs an order must be sought from the Court pursuant to s101(4) of the Civil Procedure Act 2005.
An order for interest on costs should be sought by the successful party at the time submissions on costs are made. Often in litigation involving commercial disputes, an order for interest on costs may be awarded when it is clear that costs have been paid by a commercial client throughout the course of proceedings.
If an order for interest on costs is not sought prior to or at the time the costs order is made then the successful party may consider whether it should file an application with the Court within 14 days after the costs order is entered by the Court. Such application is made by way of Notice of Motion and the Motion will need to seek an order varying the original costs order pursuant to UCPR r 36.16(3A) and seek an order for the payment of interest on costs of the successful party to the proceedings.
Awarding interest on costs
The purpose of making an order for interest on costs is to compensate a party who is out of pocket as a result of paying costs to its legal representatives during the course of proceedings.
Campbell J noted at paragraph 82 of Joseph@Lahoud@ and Anor v Victor Lahoud and Ors  NSWSC 126 (10 March 2006) (“Lahoud v Lahoud”), that before an order for interest on costs is made, there is no requirement to satisfy the Court that the circumstances of the proceedings are out of the ordinary.
Form of interest on costs order
The general form of the interest on costs order is set out in the judgment in of Lahoud@ v Lahoud.@ It should be noted that the judgment refers to Schedule 5 of the Uniform Civil Procedure Rules 2005 (“UCPR”) which has now been repealed. From 1 July 2010, UCPR 36.7(1) has set out the rate of post-judgment interest under s101(4) of the Civil Procedure Act 2005.
In accordance with the judgment of Lahoud@ v Lahoud, the orders sought by a successful party awarded costs, should be as follows:
1. the [unsuccessful party] is to pay the [successful party] interest on the [successful party’s] costs and disbursements as assessed or agreed:
a) at the rate from time to time applicable set out in UCPR r 36.7;
b) on the Allowed Percentage of each amount of costs and disbursements actually paid by the [successful party]; and
c) from the date of payment by the [successful party] of each such amount of costs and disbursements until such time as costs due to the [successful party] under these orders have been paid.
The Allowed Percentage equals ((y/x) x 100)%
X – equals the total amount of costs and disbursements which the [successful party] has paid or is liable to pay in connection with these proceedings.
Y – equals the total amount of costs and disbursements allowed to the [successful party] in connection with these proceedings as agreed or assessed.
2. Grant liberty to either party to restore upon 3 days’ notice.
Payment of interest on costs
If a successful party obtains an order for costs and also an order for interest on costs, the costs of the proceedings will need to be agreed between the parties or assessed by a court appointed costs assessor.
Following the agreement or assessment of the costs payable by the unsuccessful party, the interest payable on those costs can be calculated using the above formula.
If agreement cannot be reached on the interest payable on the costs, the matter should be re-listed before the Court to seek appropriate directions.