The Court of Appeal has for the first time considered the nature of the limitation period for recovery of interest on judgment debts under section 24(2) of the Limitation Act 1980 and its application to costs orders subject to detailed assessment.
Today’s decision holds that the limitation period under section 24(2) only starts to run when interest becomes enforceably payable. In doing so, the Court allowed Deutsche Bank’s appeal against a decision of Dias J, who had characterised the limitation period under section 24(2) as imposing a six-year ‘statutory cap’ on interest worked backwards from the date recovery was sought. The effect of Dias J’s decision had been that the limitation period commenced on the date an order for costs subject to detailed assessment was made and not when the assessment had been completed. In long-running commercial litigation, where the costs of heavy interim applications are often made subject to detailed assessment that may not occur until years later, this construction of section 24(2) had the potential to deprive the receiving party of substantial interest on their costs. The Court of Appeal’s decision clarifies that the limitation period does not start to run until the detailed assessment is completed.
The decision is the latest in the long-running dispute between Deutsche Bank AG and Alexander Vik, a Monaco-resident billionaire who formerly carried out high-value and complex equity and FX trading through Sebastian Holdings Inc, his personal investment vehicle, using prime brokerage services provided by Deutsche Bank. In October 2008, Sebastian Holdings’ trading became heavily loss-making and Deutsche Bank made margin calls. Sebastian Holdings paid some but not all of what was due, leading Deutsche Bank in 2009 to bring a successful claim in the Commercial Court for the outstanding c.US$250 million.
In November 2013, Cooke J ordered Sebastian Holdings to pay Deutsche Bank’s costs of the action on the indemnity basis subject to detailed assessment and made an order for payment on account of costs of £32 million plus VAT. Cooke J subsequently made two non-party costs orders against Mr Vik, the first (in June 2014) in respect of the payment on account and the second (in October 2016) in relation to all of the costs of the action awarded against Sebastian Holdings. Mr Vik challenged the non-party costs orders (up to the Supreme Court and the European Court of Human Rights), only exhausting his appeal rights in February 2018.
The detailed assessment process commenced in 2017. It lasted 100 hearing days (which was longer than the original trial) and was not concluded until a Final Costs Certificate was issued on 11 May 2023. It is thought to be the longest detailed assessment in English legal history. Deutsche Bank’s costs were assessed in the amount of £37.7 million (including £1.2 million in relation to the costs of the assessment).
In December 2022, ahead of the final hearing in the detailed assessment, Mr Vik questioned Deutsche Bank’s entitlement to interest on the assessed costs. He contended that Deutsche Bank was limited under section 24(2) of the Limitation Act to the last six years of accrued interest at any point in time. That provision 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.”
Deutsche Bank’s position was that interest on the assessed costs only “became due” on the date that a Final Costs Certificate was issued and thereafter from day to day.
The significance of the start date for the limitation period arises from the fact that interests accrues on costs subject to detailed assessment from the date of the costs order and not the date of assessment: Hunt v R M Douglas (Roofing) Ltd [1990] 2 AC 398. However, the costs order is not enforceable as a judgment until the detailed assessment has been carried out and the costs liability quantified: Times Newspapers Ltd v Chohan [2001] 1 WLR 1859.
At the final hearing of the detailed assessment, Senior Costs Judge Gordon-Saker referred to the High Court the issue of Deutsche Bank’s entitlement to interest and the effect of section 24(2) of the Limitation Act.
At first instance, in the High Court, Dias J adopted Mr Vik’s construction of section 24(2) and held that “due” meant the date on which the interest liability accrues. She went on to hold that interest on the assessed costs first became due on the date that Cooke J ordered Sebastian Holdings to pay Deutsche Bank’s costs (i.e. in November 2013) and daily thereafter. The result was that Deutsche Bank was precluded from recovering interest for the period before May 2017.
In the Court of Appeal, Popplewell LJ (with whom King and Males LJJ) held that Dias J was wrong and Deutsche Bank’s construction of section 24(2) was correct. He held that section 24(2) bars recovery of “arrears of interest” and that the date such interest “became due” (at [19]):
“can only mean when the interest became payable, rather than owing, because there are no arrears of interest unless and until the interest is payable.”
Lord Justice Popplewell’s judgment contains a detailed and important discussion of the role of policy as a guide to interpretation of the Limitation Act and the distinct policy considerations that apply to limitation periods in respect of judgment debtors. He held that those policy considerations supported Deutsche Bank’s construction of section 24(2).
The judgment also represents the first application of the Supreme Court’s directive in Potter v Canada Square Operations Ltd [2023] 3 WLR 963 that reference to antecedent legislative history in interpreting consolidating legislation is unnecessary and impermissible unless “there is real difficulty and ambiguity in the statutory language which is incapable of being resolved by construing the words used in the statute” (at [11(4)]). Popplewell LJ held that the meaning of section 24(2) was not subject to any real ambiguity or difficulty and so resort to the legislative history of the provision was neither necessary nor permissible. However, even if reference had been legitimate, the origins of section 24(2) (which can be traced to section 42 of the Real Property Limitation Act 1833), he held that the legislative history provided no support for Mr Vik’s case.
Andrew McLeod acted for Deutsche Bank, instructed by Freshfields Bruckhaus Deringer LLP.
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