23. Costs

Question 1

In respect of which aspects of costs does the court have a discretion?

Answer 1

Pretty much all of it, specifically:

(1) Whether costs are payable by one party to another;
(2) The amount of those costs; and
(3) When these costs are to be paid

Question 2

What is the general rule as to costs? When does it NOT apply?

Answer 2

General rule: the unsuccessful party will be ordered to pay the costs of the successful party

Does not apply:

• Whenever the court makes a different order
• In CA proceedings on an application or appeal made in connection with proceedings in the Family Division; or
• CA proceedings from a judgment, direction, decision or order given or made in probate proceedings or family proceedings

Question 3

What are the factors that the court will consider in determining what costs order to make?

Answer 3

It will consider all the circumstances. The ones specifically listed in the CPR:

(1) The conduct of the parties - this is said to include (but is not limited to):

• Conduct before, as well as during, the proceedings and in particular the extent to which the parties followed the Pre-Action protocols
• Whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue
• The manner in which a party has pursued or defended its case or a particular allegation or issue
• Whether a claimant who has succeeded in the claim, in whole or in part, exaggerated its claim

(2) Whether a party has succeeded on part of its case, even if that party has not been wholly successful

(3) Any admissible offer to settle made by a party which is drawn to the court’s attention, and which is not an offer to which costs consequences under Pt 36 apply

Question 4

What kinds of orders can the court make in relation to costs?

Answer 4

An order that a party must pay -

(a) a proportion of another party’s costs;
(b) a stated amount in respect of another party’s costs;
(c) costs from or until a certain date only;
(d) costs incurred before proceedings have begun;
(e) costs relating to particular steps taken in the proceedings;
(f) costs relating only to a distinct part of the proceedings; and
(g) interest on costs from or until a certain date, including a date before judgment

Question 5

What will a court consider before making an order to pay only those costs relating to a distinct part of the proceedings?

Answer 5

Whether it is practicable to make an order for a proportion of another party’s costs or costs from or until a certain date only.

Question 6

To which costs does the court’s discretion to make a costs order apply?

Answer 6

All the “costs of” and “the costs incidental to” the proceedings.

Question 7

Are costs incurred by a party in seeking funding either for the prosecution or the defence of a claim costs that may be recoverable (i.e. costs of or incidental to the proceedings)?

Answer 7

No

Question 8

What guidance do we have regarding costs incurred in relation to the preparation of proceedings of one type when proceedings of a different (esp. a narrow scope) subsequently ensued?

Answer 8

Disputes antecedent to the proceedings which bear no real relation to the subject of the litigation, could not be regarded as part of the costs of the proceedings, but disputes which are in some degree relevant to the proceedings, as ultimately constituted on the other parties’ attitude made it reasonable to apprehend that the litigation would include them, could be allowed.

Question 9

What should a judge do when making an order as to costs?

Answer 9

State their reasons

If the reasons are not clear from the judgment, counsel may seek a note from the judge regarding the reasons

Question 10

What is the indemnity principle? What is a consequence of that? What is the court’s attitude towards indemnity principle challenges?

Answer 10

Indemnity principle = costs are awarded as an indemnity to the party incurring them

A consequence of this is that costs cannot be incurred in excess of the liability of the party being compensated to their solicitor.

An indemnity principle challenge is where a party argues that the order doesn’t accurately reflect the other party’s liability to their solicitor (e.g. it was never realistic that they would actually have to pay). The courts are hostile to such challenges - they will find the principle satisfied even if the liability of the beneficiary of the order is close to notional. The relevant question for the court is whether the receiving party has become liable to pay the costs claimed; who actually pays the costs is not relevant.

Question 11

What happens to costs if the court chooses not to make an order (as it is entitled to in the exercise of its discretion)?

Answer 11

The costs lie where they fall - the parties can agree amongst themselves what to do about them

Question 12

What are ‘issue-based’ costs orders and what guidance can we get from the case law as to when the court consider using them?

Answer 12

What it is: a costs order in respect of a particular issue within the proceedings.

The court should consider making it: where a party that has been successful overall (and is therefore generally speaking entitled to a costs order in its favour) has been unsuccessful on an issue (or issues), provided it is an issue which the successful party raised, pursued or contested

N.B. it can take the form of ordering the successful party to pay the other side’s costs or simply that the successful party does not get its costs in relation to that issue or issues. Which of these options is most appropriate will depend on the case: no real guidance on this

Question 13

What would be the consequence of a judge finding that there is no clear ‘successful party’?

Answer 13

There would be no presumption that the general rule applies.

Question 14

What is the correct approach to costs where both the claim and counterclaim are successful?

Answer 14

In principle, the presumption applies such that the parties on either side are entitled to their costs from the other. However, instead of making two such costs orders it is often desirable to make a special order instead because the issues are often very intertwined.

The appeal of a special order is further emphasised by the fact that in determining which costs are attributable to the claim and which are attributable to the counterclaim the approach is as follows: the claim is considered in isolation and costs determined, the court then asks ‘how much more expensive have the proceedings become by virtue of the counterclaim?’. Only the extra costs incurred by virtue of the counterclaim are properly attributable to the counterclaim, even if many of the issues of the claim/counterclaim overlap. Consequently, orders either way can often be very harsh on the defendant. The remedy is to apply for a special costs order.

Question 15

Can you adduce evidence for costs purposes that was not previously before the court during the trial?

Answer 15

Yes - it is a matter for the court in its unfettered discretion to admit any evidence (oral or written) which it considers relevant

Example: a doc that had no probative value on what was in issue at the trial but which is of considerable relevance on costs

But often the judge will have heard everything they need to during the trial

Question 16

What is the significance of refusing to agree to ADR for costs purposes and what guidance can we get about how the court will approach this issue from the case law?

Answer 16

• Refusal to agree to ADR can result in the successful party being deprived of some or even all of its costs, but ONLY if the refusal was unreasonable (could even lead to the successful party paying the unsuccessful party’s costs, but this Draconian measure should be reserved for the most serious and flagrant failures to engage with ADR)
• In considering the reasonableness of the refusal the court will have regard to all the circumstances, including: (1) the nature of the dispute, (2) the merits of the case, (3) the extent to which other settlement methods have been attempted, (4) whether the costs of ADR would be disproportionately high, (5) whether any delay in setting up and attempting ADR would have been prejudicial, and (6) whether the ADR had a reasonable prospect of success

Question 17

Is it reasonable not to reply to an invitation to participate in ADR?

Answer 17

No - generally, silence in the face of such an invitation is, of itself, unreasonable even if there would have been good reasons for refusing ADR

Question 18

If the court finds that ADR was unreasonably refused, does this automatically have effects on costs?

Answer 18

No, it is just one factor to consider

Question 19

Can the court order the disclosure of “without prejudice” negotiations against the wishes of one of the parties for the purpose of determining the reasonableness of refusing ADR?

Answer 19

No

Question 20

Is pre-action conduct only relevant to costs if it caused the bringing of an unsuccessful claim or increased the overall costs?

Answer 20

No, but the effect of the pre-action conduct on the costs incurred will naturally be at the forefront of the judge’s mind

Question 21

What are Sanderson and Bullock orders?

Answer 21

If C sues two (or more) defendants, but is only successful against one of them (or several, but not all), the unsuccessful defendant can be made liable for the costs that C would (upon application of the general principle) usually owe to the successful defendant. The unsuccessful defendant can be made liable either directly (as a Sanderson order) or indirectly (a Bullock order).

• Sanderson order = the unsuccessful defendant is ordered to pay the costs of the successful defendant directly
• Bullock order = C can recover the costs that C has to pay to the successful defendant from the unsuccessful defendant, as part of the costs that the unsuccessful defendant has to pay to C anyway

Question 22

What guidance do we have regarding when Sanderson or Bullock orders will be made?

Answer 22

• No general rule - entirely within the court’s discretion to decide whether any such order, and if so which one, should be made
• Dominant consideration = whether it was reasonable to join the successful defendant
• If it was unreasonable = C cannot get either a Sanderson or a Bullock order
• If it was reasonable = C may be entitled to such an order, but not automatically
• Factors to consider (none of them are conclusive): (i) whether the claims against D1 and D2 were in the alternative; (ii) whether the causes of action relied on against D1 and D2 were connected; (iii) did one D blame the other?; (iv) did the unsuccessful defendant do something to cause the joinder of the successful defendant?

Question 23

What is the time limit for complying with a costs order?

Answer 23

Within 14 days of -

(1) the date of the judgment or order if it states the amount of those costs;

(2) if the amount of those costs (or part of them) is decided later, the date of the certificate which states the amount; or

(3) in either case, such other date as the court may specify

Question 24

What can the court do where a party or that party’s legal representative, in connection with a summary or detailed assessment of costs, fails to comply with a rule, PD or court order or it appears to the court that the conduct of a party or that party’s legal representative, before or during the proceedings or in the assessment proceedings, was unreasonable or improper (i.e. this is the ‘court’s power in relation to misconduct’)?

Answer 24

It can:

(a) disallow all or part of the costs which are being assessed; or

(b) order the party at fault or that party’s legal representative to pay costs which that party or legal representative has caused any other party to incur

What does this rule add to the court’s powers to make costs orders?

My understanding is that this really adds two things to the normal costs rules. (1) It targets the legal representative as well - i.e. a legal representative who has been found to have acted unreasonably or improperly may be ordered personally to pay costs which another party has been caused to incur. (2) The rule applies to the assessment of costs stage (i.e. enables a court that has already determined who should bear the costs to make orders reflecting conduct between that decision and assessment).

Question 25

If an order is made pursuant to the court’s power in relation to misconduct against a legally represented party, what must the legal representative do?

Answer 25

If the party was not present when the order was made, they must inform the party in writing no later than 7 days after the legal representative receives notice of the order.

Question 26

Where a party is entitled to costs but is also liable to pay costs, what can the court do?

Answer 26

(a) set off the amount assessed against the amount the party is entitled to be paid and direct that party to pay any balance, or

(b) delay the issue of a certificate for the costs to which the party is entitled until the party has paid the amount which that party is liable to pay

Question 27

What is ‘qualified one-way costs shifting’ and when does it apply?

Answer 27

It applies in 3 circumstances in which proceedings include a claim for damages:

(1) for personal injuries;
(2) under the the Fatal Accidents Act 1976; or
(3) which arises out of death or personal injury and survives for the benefit of an estate by virtue of s. 1(1) of the Law Reform (Miscellaneous Provisions) Act 19834

Where it applies, an order for costs made against the claimant may be enforced without permission of the court but only to the extent that the aggregate amount in money terms of such orders does not exceed the aggregate amount in money terms of any orders for, or agreements to pay or settle a claim for, damages, costs and interest made in favour of the claimant. Moreover, orders for costs in these cases can only be enforced after the proceedings have been concluded and the costs have been assessed or agreed.

A very simplistic way to think about this is: C cannot be left worse off by virtue of costs they have to pay than if they had not sued in the first place. The purpose of the rule is obvious: you don’t want to deincentivise the bringing of these kinds of proceedings.

Question 28

Which exceptions to qualified one-way costs shifting do not require the court’s permission?

Answer 28

Where the proceedings have been struck out on the grounds that:

(a) C has disclosed no reasonable grounds for bringing the proceedings;

(b) the proceedings are an abuse of the court’s process; or

(c) the conduct of (i) the claimant or (ii) the person acting on C’s behalf and with C’s knowledge of such conduct, is likely to obstruct the just disposal of the proceedings

I.e. in these cases the costs order against C can be enforced to the full extent

Question 29

Which exceptions to qualified one-way costs shifting require the court’s permission?

Answer 29

(1) Where the claim is found to be fundamentally dishonest

• Test: whether the dishonesty goes to the root of either the whole of the claim or a substantial part of it
• A court may conclude that a claim is fundamentally dishonest even if that has not been pleaded, provided that the claimant had fair notice of the challenge to his or her honesty and an opportunity to deal with it
• Example 1: where C was found to have failed to disclose evidence as to his ability to pay car hire charges, which formed a substantial part of his claim following a road traffic accident, the claim was fundamentally dishonest and the claimant was not entitled to costs protection
• Example 2: where a claimant had lied to his medical expert and to the court about the extent of his injuries, the claim was fundamentally dishonest because the extent of the injuries was not merely incidental or collateral but formed the very basis of the claim

(2) Where the proceedings include a claim which is made for the financial benefit of a person other than the claimant or a dependant within the meaning of s. 1(3) of the Fatal Accidents Act 1976

• In this case the order can be enforced in full with permission or to the extent that the court considers just
• In these cases, the court may make an order for costs against a person, other than the claimant, for whose financial benefit the whole or part of the claim was made

(3) Where the claim is made for the benefit of the claimant other than a claim to which this section applies

• I.e. in the same proceedings, the claimant has brought a claim for damages for personal injuries and has also brought a claim or claims other than a claim for damages for personal injuries
• If proceedings can fairly be described in the round as a personal injury case then, unless there are exceptional features, it is likely that the court will exercise its discretion in such a way that qualified one-way costs shifting will continue to apply to the whole claim

Question 30

What does a receiving party have to do if there is a difference of more than 20% between the costs that they are claiming and the costs shown in a budget filed by them?

Answer 30

Provide a statement of the reasons for the difference with the bill of costs

Question 31

What can a paying party do if

(a) it claims to have reasonably relied on a budget filed by a receiving party; or

(b) it wishes to rely upon the costs shown in the budget in order to dispute the reasonableness or proportionately of the costs claimed?

Answer 31

It must serve a statement setting out the case in this regard in their points of dispute.

Question 32

What is the significance of approved or agreed budgets in the court’s assessment of costs?

Answer 32

The court can take all budgets that have been filed by a party (even ones that aren’t the most recent one) into account in assessing the reasonableness and proportionality of any costs claimed.

Where there is a difference of 20% or more between the costs claimed by a receiving party and the costs shown in a budget filed (i.e. any budget, not just the most recent one) by that party two rules applies:

(1) If it appears to the court that the paying party reasonably relied on the budget, the court may restrict the recoverable costs to such sum as is reasonable for the paying party to pay in light of that reliance, notwithstanding that such sum is less than the amount of costs reasonably and proportionately incurred by the receiving party

(2) If it appears to the court that the receiving party has not provided a satisfactory explanation for the difference, the court may regard the difference between the costs claimed and the costs shown in the budget as evidence that the costs claimed are unreasonable or disproportionate

Question 33

At what stage in the proceedings can costs orders be made?

Answer 33

At any stage

Question 34

What can the court do in respect of the attendance of counsel at a hearing for fee purposes?

Answer 34

It can state an option as to whether the hearing was fit for the attendance of one or more counsel.

If the court does so, the court conducting the detailed assessment of costs will have regard to the opinion stated.

The court will generally only do this where:
(a) the paying party asks it to do so;
(b) more than one counsel appeared for a party; or
(c) the court wished to record its opinion that the case was not fit for the attendance of counsel

Question 35

Which party bears the costs in relation to an ADR process?

Answer 35

Each party bears its own costs, unless the parties have agreed otherwise.

Question 36

Can the costs be shifted in and in relation to ADR?

Answer 36

Yes:

• as part of a settlement reached in negotiation or mediation
• through the use of a Part 36 offer
• in an adjudicative ADR process as part of an award made by a third party, if the third party has been given power to award costs by agreement
• if a case is litigated, through the general powers of the court in relation to costs where there has been a failure to make reasonable use of ADR (but note that the costs of an ADR process that are not ‘incidental to litigation’ may not be the subject of a court order);
• if proceedings have been issued and the action is discontinued the claimant will be liable for the defendant’s costs: CPR, r 38.6 (1). Unless this outcome is intended, if a case is settled after issue it is important that the claimant should not agree to discontinue the action, but take an alternative course such as staying the action. The court power to order some other outcome has been interpreted restrictively, though a failure to reply to pre-action correspondence may justify a departure from the normal rule.

Question 37

On what bases can the court assess costs? What is the difference between them and in what respect are they the same?

Answer 37

Standard or indemnity basis

In BOTH cases the court will not allow costs which have been unreasonably incurred

But there are 2 differences:

(1) Where the costs are assessed on the standard basis any doubt that the court may have as to reasonableness is resolved in favour of the paying party (i.e. when in doubt you don’t have to pay). By contrast, when costs are assessed on the indemnity basis, doubt is resolved in favour of the receiving party (i.e. you do have to pay).

(2) When assessing on the standard basis, the court will (in addition to reasonableness) also consider the proportionality of the costs and will only allow costs that are proportionate to the matters in issue. When in doubt, the question of proportionately is also resolved in favour of the paying party.

Question 38

What is the basis of the assessment of costs if (a) the court makes an order about costs without indicating the basis on which the costs are to be assessed or (b) the court makes an order for costs to be assessed on a basis other than the standard basis or the indemnity basis?

Answer 38

In either case, costs are assessed on the standard basis

Question 39

What must costs be to qualify as ‘proportionate’?

Answer 39

They must bear a reasonable relationship to:

(a) the sums in issue in the proceedings;
(b) the value of any non-monetary relief in issue in the proceedings;
(c) the complexity of the litigation;
(d) any additional work generated by the conduct of the paying party;
(e) any wider factors involved in the proceedings, such as reputation or public importance; and
(f) any additional work undertaken or expense incurred due to the vulnerability of a party or any witness

Question 40

Which factors will the court have regard to in determining whether the costs incurred were proportionate/reasonableness (as the case may be)?

Answer 40

1. the conduct of all the parties before and during the proceedings including efforts made to settle
2. amount or value of any money or property involved
3. importance of the matter to all the parties
4. particular complexity of the matter or the difficulty or novelty of the questions raised
5. skill, effort, specialised knowledge and responsibility involved
6. time spent on the case
7. the place where and the circumstances in which work or any part of it was done; and
8. the receiving party’s last approved or agreed budget

Question 41

What guidance do we have regarding the question when costs will be awarded on the indemnity rather than the standard basis?

Answer 41

• The court has a very wide discretion - the list of circumstances to consider and possible variations is effectively infinite
• But it has been held that the case should fall ‘outside of the norm’. This does not mean that what occurred cannot occur quite often. Instead this phrase reflects that what happened must reflect “something outside the ordinary and reasonable conduct of proceedings” (e.g. the bringing of a dishonest claim).
• In some cases we’ve been told that what happened should be “disgraceful or deserving of moral condemnation” or unreasonable “to such a high degree that it could be categorised as exceptional”

Question 42

What are the two methods (not bases) of assessment of costs? Which is the default position?

Answer 42

Detailed and summary assessment

If the court’s order does not specify which one applies, the default position is that the amount will be decided by detailed assessment.

N.B. costs can also be ‘fixed’ in which case the court does not decide the quantum and neither detailed nor summary assessment applies. But fixed costs are not on our syllabus.

Question 43

What rules govern when summary assessment should be ordered instead of detailed assessment?

Answer 43

• The court should always consider whether summary assessment would be appropriate (unless all the costs are fixed)
• There is a general rule that it should make a summary of assessment of costs in 2 circumstances:

(1) At the conclusion of the trial of a case which has been dealt with on the fast track -> in this case the order will deal with the costs of the whole claim; and

(2) at the conclusion of any other hearing, which has lasted not more than one day -> in this case the order will deal with the costs of the application or matter to which the hearing related. If this hearing disposes of the claim, the order may deal with the costs of the whole hearing.

• The general rule DOES NOT apply if there is good reason not to apply it (e.g. the paying party shows substantial grounds for disputing the sum claimed that cannot be dealt with summarily).

Question 44

What are the duties of the parties and legal representatives in relation to the assessment costs where they are assessed by summary assessment?

Answer 44

• Must assist the court in making a summary assessment where the general rule for when summary assessment is to be ordered applies
• In all cases, a party who intends to claim costs must prepare a written statement of those costs showing separately in the form of a schedule:

(a) the number of hours claimed;
(b) the hourly rate to be claimed;
(c) grade of fee earner;
(d) the amount and nature of any disbursement to be claimed, other than counsel’s fee for appearing at the hearing;
(e) the amount of legal representative’s costs to be claimed for attending or appearing at the hearing;
(f) counsel’s fees; and
(g) any VAT to be claimed on these amounts

• This statement must be filed at the court and copies served on any party against whom an order for payment of those costs is intended to be sought as soon as possible and in any event: (a) for a fast track trial, not less than 2 days before the trial, (b) for all other hearings, not less than 24h before the time fixed for the hearing
• Failure to comply with these rules can be taken into account by the court in deciding what order to make about the costs of the claim, hearing or application, and about the costs of any further hearing or detailed assessment hearing that may be necessary as a result of that failure

Question 45

If a court orders a party to pay costs subject to detailed assessment, what else will it order prior to detailed assessment?

Answer 45

Order the paying party to pay a reasonable sum on account of costs, unless there is good reason not to do so.

I.e. basically the paying party already has to pay a sum to the receiving party pending the quantification of the costs. The purpose of this is to enable a receiving party to recover part of his expenditure before the possibly protracted process of carrying out a detailed assessment. This is an order that is routinely made.

Question 46

Can detailed assessment take place before the conclusion of proceedings?

Answer 46

General rule = not until the conclusion of the proceedings

BUT the court may order detailed assessment to take place immediately

Question 47

Is detailed assessment stayed pending an appeal?

Answer 47

No - not unless the court orders this

Question 48

Who bears any costs incurred if a claim is discontinued after proceedings have been issued?

Answer 48

If proceedings have been issued and the action is discontinued the claimant will be liable for the defendant’s costs: CPR, r 38.6 (1). Unless this outcome is intended, if a case is settled after issue it is important that the claimant should not agree to discontinue the action, but take an alternative course such as staying the action. The court power to order some other outcome has been interpreted restrictively, though a failure to reply to pre-action correspondence may justify a departure from the normal rule.