Interest on Costs for Funded Claimants: What Município de Mariana v BHP Means in Practice

The appeal arose following the Stage 1 trial of the Fundão Dam litigation. Mrs Justice O’Farrell found BHP liable and ordered it to pay 90% of the claimants’ Stage 1 costs on the standard basis, together with a payment on account of £43 million. She further awarded pre-judgment interest on those costs at 1% above base rate from 1 August 2023, being the approximate midpoint of the period during which the relevant costs had been incurred, until 26 January 2026.

The claimants’ solicitors acted pursuant to conditional fee agreements. It was common ground that the claimants had not paid their solicitors and would only become liable for base costs and a success fee in the event of success. BHP appealed solely against the award of pre-judgment interest and challenged the interest award on two principal grounds.

First, it argued that the Supreme Court’s decision in Hirachand v Hirachand [2024] UKSC 43 established that the court could not indirectly compensate a successful party for an irrecoverable success fee through some other mechanism, including an award of interest.

Second, it contended that interest on costs is only available where a litigant has, in some real sense, been deprived of money, either because it has incurred expenditure itself or because it has borrowed funds to meet legal costs.

Since the claimants had done neither, BHP argued there was no compensable loss.

The Court of Appeal rejected both arguments.

A Broad Discretion Under CPR 44.2(6)(g)

Sir Geoffrey Vos MR held that nothing in CPR 44.2(6)(g) confines the court’s discretion to situations where a party has paid money out of its own pocket or incurred borrowing costs. The Master of the Rolls observed that such an interpretation would improperly fetter a broadly expressed discretionary power, emphasising that the jurisdiction to award pre-judgment interest on costs is “self-evidently about compensating one party for the loss of the time value of money” [10] and may apply where a litigant has either been deprived of money or has become liable to compensate another person for the provision of legal services on credit.

Perhaps the most significant passage in the judgment is the recognition that legal services may be supplied on credit by a solicitor acting under a CFA, an insurer, or a third-party funder. In each case, value has been advanced before payment is made and the litigant is ultimately liable to compensate them for providing that funding. The court therefore rejected the proposition that the receiving party must demonstrate actual financial expenditure as a precondition to an award of interest.

A Contingent Liability is Sufficient

The Court of Appeal further held that a contingent liability under a CFA is capable of grounding an award of interest. Although the claimants’ obligation to pay arose only in the event of success, that obligation was nevertheless sufficient. The existence of a contingent liability meant that legal services had been provided on deferred payment terms and that the claimants were potentially liable to compensate their solicitors for extending credit.

Accordingly, the court regarded the provision of litigation services under a CFA as engaging the jurisdiction under CPR 44.2(6)(g).

Hirachand and Section 58A(6)

The court also rejected the contention that an award of interest amounted to an impermissible circumvention of section 58A(6) of the Courts and Legal Services Act 1990.

The distinction drawn by the court is an important one. Interest is not awarded as reimbursement of the success fee itself, nor is it calculated by reference to the level of that fee. Rather, it compensates for the provision of litigation credit during the period before recovery.

The success fee is therefore relevant only insofar as it evidences the existence of a funding arrangement under which credit has been extended.

On that analysis, the award of interest does not render the success fee recoverable and does not undermine the principle established in Hirachand.

The Conceptual Significance of Mariana

Whilst the practical consequences of the decision are obvious, its greater significance may lie at a more conceptual level.

Historically, interest has often been justified on the basis that a successful party has been “kept out of its money”. That language appears frequently throughout the authorities and reflects a traditional understanding of compensatory interest as recompense for the temporary deprivation of capital. The difficulty for BHP was that the claimants had not, in any conventional sense, been kept out of any money. They had not paid their solicitors, incurred borrowing costs or diverted capital from other purposes. If deprivation of money were the sole rationale for costs interest, the appeal might have had considerably greater force.

The Court of Appeal’s reasoning implicitly recognises a broader principle. What matters is not simply the loss of capital but the economic value of credit. Legal services supplied under a CFA involve a party receiving valuable services immediately whilst payment is deferred until a later date. That arrangement itself has value and would, in ordinary commercial circumstances, attract a cost.

Viewed in that light, Mariana represents a shift away from a purely cash-based conception of loss towards recognition of the economic realities of deferred payment arrangements. The judgment acknowledges that modern litigation is frequently financed through structures that bear little resemblance to the traditional model of clients paying solicitors as work is undertaken.

The Relationship with the Jackson Reforms

The decision also raises interesting questions regarding the policy underpinning the Jackson reforms.

One of Sir Rupert Jackson’s central concerns was that recoverable success fees created market distortions by requiring paying parties to meet liabilities over which they had little control. BHP sought to invoke that policy concern, arguing that interest was in substance being used as a surrogate mechanism for recovering funding costs.

The Court of Appeal rejected that argument on the basis that the amount of interest awarded bears no relationship to the success fee itself. The existence of a success fee liability operates merely as a trigger for the court’s discretion. The quantum of interest is assessed by reference to the cost of funding applicable to the relevant class of litigant and not by reference to the amount of any success fee.

As a matter of legal principle, that distinction is undoubtedly correct.

Nevertheless, an interesting question remains. A funded claimant who obtains interest on costs has, in economic terms, recovered some compensation directly attributable to the existence of a funding arrangement. The Court of Appeal’s answer is that this reflects compensation for litigation credit rather than compensation for the success fee itself.

Whether that distinction remains straightforward in an era of increasingly sophisticated funding structures may prove fertile ground for future litigation.

Access to Justice and Modern Litigation Funding

The judgment may also be understood as part of a broader judicial recognition of the role litigation funding plays in securing access to justice.

The claimants in Mariana could not realistically have pursued litigation of this scale without substantial financial support. Whilst the Court of Appeal did not expressly frame its reasoning in access-to-justice terms, the decision reflects a recognition that modern litigation is increasingly dependent upon funding mechanisms that involve solicitors, insurers and third-party funders assuming significant financial risk.

If interest on costs were unavailable solely because a claimant lacked the resources to self-fund proceedings, funded litigants would arguably be placed at a systematic disadvantage compared with wealthier parties able to finance claims directly.

Viewed through that lens, Mariana promotes consistency in the treatment of different funding models whilst maintaining the statutory prohibition on recovery of success fees.

From a practitioner’s perspective, several consequences follow.

First, receiving parties in funded litigation should routinely consider seeking pre-judgment interest on costs at consequentials hearings. Applications should address the nature of the funding arrangement, the basis upon which legal services were supplied on credit, and an appropriate commencement date.

Secondly, the focus of future disputes is likely to shift from jurisdiction to discretion. Following Mariana, arguments based solely on the proposition that the receiving party has incurred no expenditure of its own are unlikely to gain traction. Greater emphasis is likely to be placed on the appropriate rate, commencement date and case-specific discretionary considerations.

Thirdly, the reasoning extends beyond CFAs. The court expressly referred to situations involving insurers and third-party funders. Whilst the precise boundaries of the principle remain untested, the judgment suggests a willingness to recognise the economic reality of a broad range of funding arrangements.

Finally, parties engaged in substantial commercial and group litigation should account for potential claims for pre-judgment interest when assessing costs exposure, reserve calculations and settlement strategy. In long-running proceedings involving significant costs expenditure, such interest will often represent a substantial additional liability.

Mariana is significant because it re-examines the theoretical foundation of costs interest in an era of sophisticated litigation funding.

The Court of Appeal’s analysis treats the extension of litigation credit as carrying an economic value capable of attracting compensatory interest, irrespective of whether the litigant has personally expended capital. In doing so, the judgment moves the law away from a narrow conception of being “kept out of money” and towards recognition of the financial realities of modern dispute resolution.

Whether this reasoning ultimately extends to funding arrangements in which the client bears no liability whatsoever remains unresolved. However, the decision represents an important step in the continuing adaptation of costs law to modern funding structures whilst preserving the integrity of both the Jackson reforms and section 58A(6).

Its longer-term significance may lie less in the law of costs interest itself than in what it reveals about the courts’ increasing willingness to treat litigation funding not as a collateral feature of proceedings but as an integral component of contemporary access to justice.

Holly Shaw joined Kingsley Napley in 2014 and is a Senior Associate in the Costs team. Holly’s practice covers a wide range of civil litigation, with a particular focus on costs in defamation and privacy proceedings.

Charlotte loannou is a Senior Associate and qualified Costs Lawyer with over 13 years’ experience supporting clients through complex, high-value costs litigation. She advises both receiving and paying parties across all court levels, including the Supreme Court, and is known for her practical, strategic approach to costs management and dispute resolution.