Chapter 2: Costs

Question 1

1 An introduction to costs

Answer 1

There are certain concerns which run throughout civil litigation. You have already been introduced to three of them. This chapter focuses on the fourth, costs

Question 2

1.1 Two important considerations

Answer 2

The costs a party will incur in pursuing litigation are generally so sizeable that they will have an impact on how the party approaches the litigation and any possibilities for settlement and/or
alternative dispute resolution.
In this section, we will consider:
* The costs that a party might incur in pursuing litigation.
* Why a party is at risk of being ordered to pay an opponent’s costs – the topic of ‘inter partes’ (meaning ‘between parties’) costs.

Question 3

1.1.1 The costs that a party might incur in pursuing litigation

Answer 3

Solicitor’s fees - Solicitors almost always will charge for their work.
Fees other than the solicitor’s fees are generally called disbursements. The following are examples.
Court fees - Court fees need to be paid to pursue a claim. The most commonly are paid on issuing claim, making an application, and a ‘hearing fee’ notionally in relation to the costs of trial.

Question 4

Counsel’s fees

Answer 4

In many cases a client will need the help of counsel to provide specialist advice and/or to present an application or case in court. Counsel traditionally agree a fixed price for an
item of work in advance, but may also charge on an hourly basis.

Question 5

Expert’s fees

Answer 5

Experts may be needed to provide advice and/or evidence. For example, in a personal injury case, a medical expert may be needed to comment on the claimant’s prospects of recovery as this will have an impact on the level of damages.

Question 6

Other costs

Answer 6

There are many other types of costs that could be incurred, such as costs of photocopying documents, travel costs for legal representatives and expert witnesses and Land Registry or Companies House search fees

Question 7

1.2 Practical implications

Answer 7

A party to litigation needs to consider:
(a) How it will fund its own costs (not covered in this workbook)
(b) How it will pay the opponent’s costs in the event the court orders it to do so
(c) That even if successful, in the vast majority of cases it will only recover a proportion of its
costs from the opponent, not all of them. There are special rules for personal injury claims, which are not addressed in detail in this section,
but it is still true that in such claims the parties need to consider the risks of being ordered to pay an opponent’s costs.

Question 8

Example: Practical implications of a costs order

Answer 8

A party’s concerns in relation to costs are unlikely to be minor or peripheral. Let’s explore this through an example.
Let’s imagine a breach of contract claim, with several substantial disputed issues of fact and law,
and in which the claimant is claiming £100,000. The claimant’s costs of pursuing the matter to trial might be estimated to be £40,000. The diagram shows how this figure might be made up.

Question 9

1.3 Summary

Answer 9

• One concern that pervades litigation is the cost of it. A party will incur costs in a number of ways, for example instructing solicitors and barristers and paying court fees.
• Parties must always have in mind that they may be ordered to pay an opponent’s costs, and
  that even if successful in full, they are unlikely to recover all of the costs they have incurred.
• The general rule is that the unsuccessful party will be ordered to pay the costs of the
  successful party.
• The court can make a different order, and will consider a range of factors in deciding.
• Generally, a court will only allow a reasonable and proportionate sum to be recovered.

Question 10

2 Overview of costs

Answer 10

As already established, costs are an important consideration in litigation. Not only is the expense of litigation very significant, but the court’s power to order a party to pay an opponent’s costs is used to influence parties’ behaviour. To give you a greater understanding of how costs work within litigation this section will provide an overview of:

Question 11

2 Overview of costs

Answer 11

• The different types of litigation costs
• More on the general rule on costs and the court’s power to order one party to pay another party’s costs
• The basis upon which the court will award costs
• The factors the court will consider when making a costs order

Question 12

2.1 Court’s jurisdiction to order costs

Answer 12

The court has full power to determine by whom and to what extent costs of proceedings are to be paid. This includes costs prior to proceedings such as when complying with a pre-action protocol and spent negotiating in connection with pending litigation.
The court will consider making a costs order at the end of any interim hearing as well as at the end of trial.
If the judge does not make an order as to costs (or gives an order that there is ‘no order as to costs’), each party will simply pay its own costs.

Question 13

2.2 Different types of litigation costs

Answer 13

There are a number of definitions used for different types of costs associated with the conduct of litigation. The ones you are most likely to encounter in practice are as follows:
* Solicitor-client costs;
* Inter-party costs; and
* Non-party costs.

Question 14

2.2.1 Solicitor-client costs

Answer 14

Solicitor-client costs are the costs payable by the client to the solicitor under the contract of retainer. The client is primarily responsible for their solicitor’s costs. If a party is successful in the litigation, it is likely to want to seek an order from the court that the
other party should pay the legal costs it has incurred, but it is likely that there will be a shortfall (which is still payable from the client to its solicitor) between the sum recovered from the other party (by way of inter-party costs – see below) and the sum the client has to pay the solicitor as recorded on the solicitor’s bill. The indemnity principle provides that a party will not be able to recover a sum in excess of their
liability to their own solicitor.

Question 15

2.2.2 Inter-party costs

Answer 15

Inter-party costs is the term used for the actual figure for costs awarded by the court which one party has to pay the other party.

Question 16

2.2.3 Non-party costs

Answer 16

The court has jurisdiction to award costs against a non-party (ie to require a person who is not a
party to the proceedings to pay something towards the costs).
The most likely circumstances in which the court will order non-party costs is where there is a ‘funder’, who is not a party, who is funding the litigation. The principles to be applied by the court when considering whether to make an award of costs against a non-party are as follows:

Question 17

2.2.3 Non-party costs

Answer 17

• Costs orders against non-parties are ‘exceptional’ but the ultimate question the court will ask is whether it is just to make the order.
• Where the non-party both funds but also substantially controls or at any rate is to benefit from proceedings, justice will ordinarily require that if the proceedings fail the non-party will
  pay the successful party’s costs.

Question 18

2.3 Court’s discretion and the general rule

Answer 18

The remainder of this section focuses on inter-party costs. When determining costs the court has discretion as to:
(a) Whether costs are payable by one party to another;
(b) The amount of those costs; and
(c) When they are to be paid.
(CPR 44.2(1)).
You will look at each of these in turn, starting with whether costs are payable by one party to
another

Question 19

2.3.1 Whether costs are payable by one party to another – the general rule

Answer 19

The general rule governing whether costs are payable by one party to another is that ‘costs follow the event’. This means that the unsuccessful party (i.e. the loser) pays the costs of the successful party (ie the winner) (CPR 44.2(2)(a))

Question 20

2.3.1 Whether costs are payable by one party to another – the general rule

Answer 20

However, while costs will normally follow the event, the court has complete discretion in this area.
As such it can depart from the general rule and take a number of other factors into account (CPR
44.2(4) and (5)) to make a different costs order (such as an order that the successful party pays
the unsuccessful party’s costs, or they each just bear their own costs, or one party pays the other party’s costs for a specified period of the litigation only) in respect of some or all of the issues
under consideration. Matters it will take into account include

Question 21

2.3.1 Whether costs are payable by one party to another – the general rule

Answer 21

Matters it will take into account include:
* The parties’ conduct (including in relation to ADR / offers to settle)
* Whether a party has succeeded on only some issues / part of the claim

Question 22

Example: Whether costs are payable where there is an unreasonable refusal to
agree to alternative dispute resolution (ADR)

Answer 22

An example of party conduct that might have an impact on any costs award made by the court is that of an unreasonable refusal by one party to engage in ADR. Here case law has provided some helpful guidance. Although a successful party would generally be awarded its costs, the court can refuse to award those costs if the successful party failed to engage in ADR. However, the burden is
on the unsuccessful party to show why there should be a departure from the general rule for this particular reason. A finding of an unreasonable refusal does not automatically result in a costs penalty but is simply an aspect of the parties’ conduct which needs to be addressed in a wider balancing exercise.

Question 23

2.3.2 Amount of costs payable

Answer 23

When the court makes a costs order it must specify the basis of assessment ie the general principles to apply in calculating the exact amount of costs. There are two bases of assessment,
as follows:

Question 24

What is meant by proportionate?

Answer 24

Where costs are awarded on the standard basis they need to be proportionate. This relates back
to the overriding objective which states that litigation must be conducted ‘justly and at proportionate cost’. So what does proportionate actually mean?

Question 25

Costs will be proportionate if they bear a reasonable relationship to the following specified
criteria (CPR 44.3(5))

Answer 25

(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; and
(e) Any wider factors involved in the proceedings, such as reputation or public importance.

Question 26

Example: Amount of costs - proportionality

Answer 26

In a dispute worth £50,000, it is likely (although not automatically the case) that the court would consider legal costs of £60,000 to be disproportionate. However, just because a large sum is claimed this does not necessarily make large costs proportionate.

The discretionary nature of the proportionality test makes it hard to predict with any certainty the
eventual recovery of costs in any case. In short, it is the application of the above factors that will be important in each case

Question 27

Factors to be taken into account in deciding the amount of costs

Answer 27

In assessing the actual amount of costs (after having determined the basis – standard or indemnity), the court will take into account all the circumstances of the case including the conduct of the parties (again – having also considered this when considering whether one party
should pay the other party’s costs) , the complexity of the matter, the place where and circumstances in which the work was done and the receiving party’s last approved or agreed
budget (CPR 44.4(3)). Budgets are part of the court’s costs management process (as referred to briefly below).

Question 28

2.3.3 Time for complying with an order for costs

Answer 28

The final aspect of the court’s discretion relates to the time a party has to comply with an order
for costs. Unless the court orders otherwise, a party must comply with an order for the payment of costs
within 14 days of:
* the date of the judgment or order if it states the amount of costs;
* if the amount of those costs (or part of them) is decided later, the date of the certificate which states the amount; or
* in either case, such other date as the court may specify.
(CPR 44.7)

Question 29

2.4 Costs management

Answer 29

This section has been about the court’s power to determine by whom and to what extent costs are
to be paid at the end of any interim hearing or at the end of trial.
Note that costs are also controlled via the costs management regime.

Question 30

2.5 Summary

Answer 30

• The court has the power to determine who should pay the cost of and the costs incidental to
  litigation proceedings.
• There are different types of litigation costs that you will come across in practice including:
  solicitor-client costs, inter-party costs and non-party costs.
• The general rule on costs recovery is that the loser pays the winners costs (CPR 44.2(2)(a).

Question 31

2.5 Summary

Answer 31

• There are two bases for assessing how costs should be calculated: the standard and indemnity
  basis, the latter leading to an award of a greater proportion of costs.
• Conduct is a critical factor for the court when exercising its discretion as to a) what costs order to make (CPR 44.2(1)) and b) the amount of those costs (CPR 44.4(3)).

Question 32

3 Costs procedure

Answer 32

The main CPR which support the content of this section are:
* CPR 45 (in relation to fixed costs)
* CPR 44.6 (in relation to assessment generally)
* 44 PD 8-9 (in relation to assessment generally, and fixed costs)
* CPR 47 (in relation to detailed assessment)
* 47 PD (in relation to detailed assessment)

Question 33

3 Costs procedure

Answer 33

The procedure governing when and how costs are to be payable by one party to another is dependent on certain matters. This section will provide you with an overview of:
* The distinction between fixed and assessed costs;
* The procedure that applies when costs are summarily assessed; and
* A brief overview of the process for detailed assessment

Question 34

3.1 Fixed costs

Answer 34

As set out in an earlier section, having decided that one party should pay the other party’s costs, the court has to decide ‘how much’. However, sometimes that ‘how much’ question has a simple answer – the amount is fixed by the rules. These are called ‘fixed costs’ (CPR 45). Fixed costs generally apply to the following type of situations: uncontested disputes, enforcement proceedings and small claims. The CPR also provides for fixed costs in certain specialist areas (Sections II to VII of CPR 45) but
these are beyond the scope of this module. It should be remembered that the fixed costs regime only applies ‘unless the court orders
otherwise’ (CPR 45.1).

Question 35

3.2 Assessed costs

Answer 35

Where costs do not fall under the fixed costs regime the court will need to be involved with the decision and calculation of the amount payable by way of costs from one party to another. Assessment of costs generally only occurs when the parties are unable to agree the amount of
costs one should pay to the other.

Question 36

3.2 Assessed costs

Answer 36

As explained in the Overview of Costs section there are two bases of assessment: the standard basis and the indemnity basis. These govern the criteria to be adopted by the court when calculating costs. That section also explains the considerations the court will take into account when deciding the amount of costs. There are also two alternative procedures for assessment: summary and detailed assessment, and
this section will now address those procedures

Question 37

3.2.1 Summary assessment

Answer 37

This involves the court determining the amount payable by way of costs immediately at the end of
a hearing. To enable the court to carry out a summary assessment, the parties must prepare statements of costs, preferably on the standard form N260 (44 PD 1.2)) and file and serve them on each party not less than 24 hours before the time fixed for the hearing (44 PD 9.5(4)(b)). The court
will review these (in a relatively broad brush way) and hear the parties’ short submissions in relation to them, and then make a decision as to how much should be paid

Question 38

Unless there is good reason not to do so the court should use this summary assessment
procedure:

Answer 38

• In fast track cases at the end of the trial. In this situation, the costs of the whole case will be assessed; and
• At the end of a hearing of an interim application or matter which has not lasted more than a day. In this case, usually only the costs of the interim application will be assessed.

Question 39

3.2.2 Detailed assessment

Answer 39

Detailed assessment of costs is a more complex procedure for determining the amount of a
party’s costs to be paid. In outline, the procedure is as follows:
(a) The court, on deciding that one party should pay the other party’s costs, orders that they be subject to detailed assessment (if not agreed). At that point, the court makes no attempt to set a figure on them.
(b) To commence the detailed assessment proceedings, the receiving party serves a notice of
commencement and a copy of its bill of costs (a more detailed statement of costs than used in summary assessment) on the paying party.

Question 40

3.2.2 Detailed assessment

Answer 40

(c) Points of dispute in relation to any item in the bill of costs should then be served on the receiving party by the paying party within 21 days of service of the notice of commencement.
(d) If the parties cannot reach agreement, the receiving party should then file a request for a detailed assessment hearing at which a costs officer will determine the sum to be paid

Question 41

3.3 Interaction between the parties’ budgets and amount of costs payable

Answer 41

Any consideration of costs orders made by the court must include, where relevant, the role played by the parties’ respective budgets and the costs management procedure. The budgets can have an impact on the assessment of costs, even if a costs management order was not made.
This is covered in detail alongside Case and Costs Management and you must also be familiar with the costs management rules to fully understand the assessment of costs

Question 42

3.4 Summary

Answer 42

• Fixed costs are specific amounts that are recoverable by one party from another in certain circumstances in litigation; assessed costs are those where the court will need to be involved with the decision as to the amount payable (unless the parties agree the amount).
• Assessed costs requires there to be either a summary assessment or detailed assessment carried out by the court prior to a costs order being made

Question 43

3.4 Summary

Answer 43

• Summary assessment is used in fast track proceedings and in other cases where a hearing has lasted no more than a day.
• Detailed assessment is the appropriate option in most other cases where costs fall to be assessed.

Question 44

4 Interim costs orders

Answer 44

The court will consider making a costs order at the end of any interim hearing as well as at the end of trial. The court has the discretion to decide by whom and to what extent costs of proceedings are to be paid. And as set out in the section ‘Costs Procedure’, if the court does determine that costs should be paid by one party to another, it will normally summarily assess the amount, assuming the hearing of the interim application lasted not more than a day. This section explains particular costs orders available at an interim stage, and when they might be appropriate.

Question 45

4.2 Summary

Answer 45

There are certain types of interim costs orders that can be made following the hearing of an
interim application.
* The most common are:
- Costs in any event - the party in whose favour this order is made is awarded his costs of the
interim hearing.
- Costs in the case - the party who eventually gets its costs at trial (usually the winner) will recover its costs of the interim hearing from the other party.
- Costs reserved - the decision about who pays the costs of the interim hearing is put off to a later occasion.