Costs

Question 1

What is the general rule regarding costs?

Answer 1

The general rule is that the unsuccessful party pays the other party’s costs.

Judges have discretion to make different order.

Question 2

What must party’s do prior to the case management conference?

Answer 2

File costs budget setting out costs incurred to date and those they anticipate to incur in the future.

Courts may also impose a costs management order giving greater control over the costs.

Question 3

What are the effects a cost management order in the multi-track?

Answer 3

Party awarded costs on the standard basis recover the amount of last approved or agreed budgeted costs.

On the standard basis, court may depart from the cost budgets only if it is persuaded there is good reason (eg costs of a phase weren’t incurred or were much less than budgeted).

Question 4

Explain the general procedure for determining costs in the small claims track.

Answer 4

Legal costs are not recoverable and so costs payable only relate to disbursements (ie court fees).

Question 5

Explain the general procedure for determining costs in the fast track.

Answer 5

Costs usually summarily assessed (ie immediately after the trial).

Question 6

Explain the general procedure for determining costs in the multi track.

Answer 6

Detailed assessment of the costs will be carrie out (usually in a separate costs hearing following conclusion of the substantive proceedings).

Question 7

Explain what is meant by fixed costs.

Answer 7

CPR fix the amount of costs recoverable for the opponent in some situations.

This is entirely separate from the arrangement between the party and their own lawyers.

Advantage is they know in advance how much will have to be paid to the other party should they lose the case. However, if a party wins this is less attractive as they may not be able to recover the total amount of their costs under a fixed costs process.

Question 8

To what sections proceedings are fixed costs order usually imposed?

Answer 8

Default judgments applied for by claimants (whatever sums spent to that point).

Advocate costs in fast track cases.

Costs incurred enforcing judgments.

Question 9

Explain the summary assessment process (ie where the costs are not fixed) typcially applied in the fast track.

Answer 9

Court determines amount payable immediately at end of hearing.

General rule - court should (unless there is good reason not to) make a summary assessment of the costs:

1) at the conclusion of a fast track trial ; and
2) at any other hearing that has not lasted more than one day.

Question 10

What must the parties usually do to assist the court in making a summary assessment of costs?

Answer 10

File and serve a statement of costs (detailing the breakdown) no less than 2 days prior to the start of the fast track trial.

They must also do this 24 hours before any interim hearing.

Question 11

What is the disadvantage of the judge making a summary assessment of costs in the fast track and how can the parties get around this?

Answer 11

There is uncertainty and parties should therefore seek to agree costs where possible.

Question 12

Explain the process of a detailed assessment of costs (usually used in the multi track).

Answer 12

Usually where insufficient time at end of hearing/ issues are too complex.

Within 3 months of the date of the judgment, receiving party must serve on the party paying costs, a Notice of Commencement of detailed assessment proceedings.

They must also include their bill of total costs and evidence in support of this (eg receipts).

Question 13

What steps does the paying party need to take if they wish to challenge the bill put forward by the other party under a notice of commencement of detailed assessment proceedings?

Answer 13

1) They have 21 days to serve points of dispute;

2) The receiving party then has 21 days to file a reply.

3) Receiving party must then file a request for an assessment hearing within 3 months of the expiry period for commencing detailed assessment proceedings.

4) If costs claimed were less than 75k, court will make a provisional assessment of what costs are allowable (in the absence of the parties).

5) If either party is unhappy with the provisional assessment, they can request an oral hearing within 21 days. Note that if party fails to achieve an adjustment in their favour by at least 20%, they will be ordered to pay the costs of this hearing.

Question 14

Explain inter-parties costs.

Answer 14

This means costs between the parties.

This will usually be interim hearings which have taken place up to (and sometimes during) the trial.

At the end of each interim hearing costs must be assessed.

Judge will determines who pays the costs of the particular hearing, and usually gives a summary judgment (instantly) as to the amount payable and by whom.

Question 15

What must the judge first determine before going into the detailed assessment of costs?

Answer 15

Whether the costs are being ordered on the standard or indemnity basis.

Question 16

Summarise standard basis for costs.

Answer 16

Each item claimed, court must decide whether:
1) Reasonably incurred; and if so
2) Reasonable in amount; and
3) Any doubt on either (1) or (2) resolved in favour of receiving party.

Having assessed each item:
1) Total costs for each phase only allowed if proportionate to maters in issue (even where reasonably and necessarily incurred); and
2) Any doubt resolved in favour of paying party

Question 17

List factors court considers to determine whether total costs of a phase are proportionate under the standard basis.

Answer 17

1) Sums at stake in proceedings;

2) Value of non-monetary relief at stake;

3) Complexity of case;

4) Additional work generated by conduct of paying party.

5) Wider factors in issue (eg public importance/ reputation).

Question 18

List factors court considers to determine whether costs are reasonable (note these are the same for both standard and indemnity basis).

Answer 18

1) Conduct of parties before and during proceeds;

2) Efforts made before and during proceedings to resolve dispute;

3) Amount/value of money/property involved.

4) Importance of matter to parties.

5) Complexity of case/ questions raised;

6) Skill, effort, knowledge and responsibility involved.

7) Time spent on case;

8) Place and circumstances work was done;

9) Receiving parties last approved/agreed budget.

Question 19

Summarise the indemnity basis.

Answer 19

For each item claimed, court must decide whether:
1) Reasonably incurred; and if so
2) Reasonable in amount; and
3) Any doubt for either (1) or (2) resolved in favour of receiving party.

Reasonableness factors are the same as those considered for the standard basis.

Question 20

What are the two key differences between the standard basis and the indemnity basis?

Answer 20

1) When assessing on standard basis court will only allow those costs that are propionate to the matters in issue. There is no such test on the indemnity basis.

2) Any doubts are resolved in favour of the receiving party on the indemnity basis, and the paying party on the standard basis.

Question 21

Can a third party costs order be made if the losing party is unable to pay all of the opponents cots?

Answer 21

Under part 46, the court has a discretionary power to order a third party to pay costs.

Question 22

Under what circumstances would a court make an order for a non-party to meet outstanding costs of the losing party under part 46 CPR?

Answer 22

Extreme order and therefore court must be satisfied the non-party was the real party interested in the litigation, or that they were ultimately responsible for brining the litigation.

Question 23

Give some examples of third party funders who would NOT be subject to a part 46 costs order.

Answer 23

External funders such as:

family;

friends; or

people who have given to a fund raising campaign and have no interest in the outcome.

Question 24

Give an example of a non-party which may be subject to a part 46 costs order.

Answer 24

Formal third party funders (eg under a third party funding agreement).

Question 25

Does it need to be found that the non-party acted improperly in order to make a part 46 costs order?

Answer 25

No.

Question 26

What must be done before a part 46 order can be made?

Answer 26

The third party must be added as a party to the proceedings.

Then then attend the hearing where court determines issue of costs.

Question 27

What is the aim of a part 25 order?

Answer 27

D has very little control over a claim as they have a claim imposed upon them.

Sometimes they may not be able to recover any or all of the costs even if they win (eg claimant refuses to pay or simply can’t pay).

Part 25 order is designed to help defendants in this situation.

Question 28

When does the court have the power to make a discretionary order for security of costs (ie a part 25 order)?

Answer 28

Court makes order for security of costs at their discretion if:

1) satisfied (having considered all circumstances) that it is just to make the order; and
2) one or more conditions of part 25 applies.

Question 29

List the three main conditions a defendant can use as grounds for a part 25 security of costs order.

Answer 29

1) Claimant is a resident outside a 2005 Hague Convention State;

2) Claimant is an impecunious company; or

3) Claimant has taken steps to make enforcement difficult.

Question 30

Explain the part 25 condition that the claimant is a resident outside a 2005 Hague Convention State.

Answer 30

D can apply for security of costs order where C (either an individual or company) is resident out of the jurisdiction, and is not a resident in a Hague Convention state (effectively a claimant outside the UK and EU).

For individuals this is where they normally and habitually live.

For companies this is where their central control and management is located.

Question 31

Explain the part 25 condition that the claimant is an impecunious company.

Answer 31

D must establish there is a reason to believe C will not be able to pay D’s costs if ordered to do so.

Evidence of C’s financial position/ assets/ likely total costs must be provided.

Question 32

Explain the part 25 condition that the claimant has taken steps to make enforcement difficult.

Answer 32

D must demonstrate C has taken steps in relation to assets such that, if they lose the case and a costs order is imposed, it would be difficult to enforce.

Court will consider the effect of the action and not the motivation.

Eg an order could be made if C was relocating to Saudi Arabia to take a new job.

Failure to disclose assets may even be sufficient to establish this requirement.

However, a freezing injunction may also be useful in these situations so court will consider all options.

Question 33

In addition to one of the part 25 conditions being met, what else must the court be satisfied of to direct a security of costs order?

Answer 33

It is just to make the order.

Question 34

List and briefly explain the factors the court will consider to determine whether security of costs order is just.

Answer 34

1) Strength of the claim and defence - the less likely D is to win at trial, the less justified they are in seeking security;

2) Claimants ability to provide security - where claimant has a reasonable prospect of success, courts will be reluctant to make order for security with which they can’t comply as this may stifle the claim.

3) Causes of claimants impecuniosity - C could persuade court their poor finances have been caused or contributed to by D’s behaviour during litigation.

4) Property within the jurisdiction - if application is against C (residing outside the UK) but C has significant assets within the jurisdiction, court is unlikely to grant the order as it would be clear they have sufficient assets to pay D where necessary.

Question 35

Is argument from C to security of costs order, that D has contributed to their poor financial state effective?

Answer 35

Yes.

Courts deem D’s conduct having effect on ability to pay to be weighty.

Question 36

Explain the procedure for applying for a security of costs order.

Answer 36

D should write to C first and ask for security to be provided voluntarily.

If not, D should then submit a notice of application to the court, with a witness statement in support.

Evidence must:
a) establish a condition exists;
b) persuade the court it is just to exercise its discretion in favour of D; and
c) justify amount sought.

Orders which are granted will specify the amount of security, the date by which C must provide it and form it will take. C is usually then required to make a payment into court.

Question 37

How are costs dealt with where settlement is reached before the commencement of litigation?

Answer 37

If settlement is reached prior to issuing of proceedings, prospective C will not be entitled to recover legal costs unless this is expressly agreed.

Question 38

How are costs dealt with where settlement is reached during litigation proceedings (ie after litigation has commenced)?

Answer 38

If settlements are reached after litigation is commenced, terms should be recorded in a consent or Tomlin order.

This ensures enforcement proceedings may be issues to recover any monies under the agreement including costs. Again, the order should contain provisions dealing with the issue of costs.

Question 39

What is a part 36 offer?

Answer 39

This is an offer to settle which the court will take into account if and when deciding on costs.

There are significant penalties attached to refusing a part 36 offer which the court deems suitable.

Question 40

List the formalities a part 36 offer must comply with.

Answer 40

1) Must be in writing;

2) Make clear it is an offer pursuant to part 36;

3) Specify a period of not less than 21 days during which, if offer is accepted, D will pay C’s costs (known as the relevant period); and

4) State whether it relates to the whole of the claim, or just part of it, and whether it takes into account any counter claim.

Question 41

What is the most common acceptance period for a part 36 offer?

Answer 41

Most offers state that acceptance is required within 21 days.

However, some specify a longer period.

Question 42

When is a part 36 offer deemed served?

Answer 42

The same rules of deemed service which apply to particular of claims apply.

Question 43

Is a part 36 offer inclusive of interest?

Answer 43

Yes it is inclusive of interest until the relevant period expires.

Question 44

When does the judge get to see the part 36 offer (or be made aware that such an offer has been made)?

Answer 44

The offer is treated as without prejudice save for costs.

This means the judge will form judgment on liability and quantum and only when deciding costs will the judge be presented with any relevant part 36 offer.

Question 45

Can an offeree accept the part 36 offer after the specified period (usually 21 days)?

Answer 45

Yes - only if offer is revoked then it cannot be accepted.

Question 46

Explain acceptance of a party 36 offer within the relevant period.

Answer 46

If D makes an offer and C accepts within the relevant period, sum must be paid to C within 14 days. If this does not happen, C can make an application for a judgement.

C is also entitled to the costs of the proceedings up to the date on which the acceptance was served on D.

If the parties cannot agree costs, judge will assess costs on the standard basis.

the above applies in the same way if it is C who makes the offer and D accepts. C will be entitled to their costs up to the date of acceptance on the standard basis.

Question 47

Explain the effect of C accepting D’s part 36 offer late.

Answer 47

1) D pays C’s costs up to the date the relevant period expired on standard basis; and
2) C pays D’s costs thereafter util the offer was accepted - on standard basis.

Question 48

Explain the effect of D accepting C’s part 36 offer late.

Answer 48

In absence of other agreement between parties:

D will be ordered to pay C’s costs of the proceedings up to the date of acceptance on standard basis.

Question 49

Explain split costs order.

Answer 49

C fails to get judgment more advantageous to d’s p36 offer.

D pays C’s costs up until relevant period for p36 expired (on standard basis)

C pays D’s costs from day after relevant period expired, to judgment date - on standard basis.

C pays interest on the costs they pay at usual commercial rate (1% or 2%).

Question 50

How does the court decide whether it is just to impose penalties for non-acceptance of a part 36 order?

Answer 50

Judge considers the following:

• terms of the offer;
• when it was made (particularly how close to the trial it was made);
• what info was available to parties at the time; and
• their conduct and whether it was a genuine attempt to settle proceedings.

Question 51

Give an example of where it may be unjust for a penalty to be imposed where the part 36 offer was not accepted.

Answer 51

It may be unjust where offeror has not provided sufficient disclosure to allow offered to make informed decision; or

The part 36 offer expired only days before the trial, and crucial allegations that had not been pleaded were raised in the opening of the case.

Question 52

What are the three possible outcomes at trial where a claimant makes a part 36 offer?

Answer 52

They could :

1) Win at trial and be awarded a sum equal or to, or that exceeds their own offer;

2) Win the case but obtain a judgment which is less than their own offer;

3) Lose at trial.

Question 53

Explain the effect of C winning at trial and obtaining a judgement equal to or better than their part 36 offer which was rejected by D.

Answer 53

Claimant receives good amount from the judgement + any penalties the judge imposes on D.

Claimant usually awarded extra due to following penalties which are imposed on D:

1) Additional amount (usually % of damages);
2) Enhanced interest on damages;
3) Costs on an indemnity basis; and
4) Interest on the indemnity costs.

Question 54

Where D loses at trial and has rejected a part 36 offer, explain how the additional amount they are liable to pay will be calculated?

Answer 54

D ordered to pay damages and interest in the usual way (which will be the judgment sum awarded).

D also required to pay the additional amount as follows:

1) On damages up to 500k, D pays additional amount of 10% of the sum awarded;

2) On damages in excess of 500k, 5% extra on any damages over 500k. Note the maximum of extra damages D will pay under this is 75k.

Eg C is awarded 950k after D refused settlement of 900k.

D will pay 10% on the 500k = 50k;and
5% on the 450k = 22,500.

Total extra damages D will pay is therefore 72,500 (in addition to the 950k judgment damages).

Question 55

What is the total amount D would pay on a 950k judgment where they refused C’s p36 offer for 900K?

Answer 55

Additional 10% on the 500k = £50k

Additional 5% on the 450k = £22.5k

Initial judgment count = £950k

Total (including initial judgment) = £1,022,500

Question 56

Is any interest payable on judgment amount over £1million?

Answer 56

No.

10% on first 500k and 5% on second 500k paid in usual way. No additional amount is paid on the damages over the £1million threshold.

Question 57

Explain how the judge will impose costs on the indemnity basis where D has rejected p36 offer which the claimant is awarded equal to or more than in the judgment.

Answer 57

Usual order would be to pay costs on standard basis up to the date the response period for the part 36 offer lapsed, and then to pay costs on the indemnity basis from the day after the response period lapsed onwards (usually from day 22 onwards unless the offer specified a longer acceptance period).

Question 58

Explain how the enhanced interest on damages is calculated (where D has refused a part 36 offer and C is awarded equal to or more than that offer in the judgment).

Answer 58

From day 22 onwards (or the day after the response period for acceptance elapsed) rate of interest that is charged on damages awarded increases to a rate not exceeding 10% above the base rate.

Question 59

What costs order is made where C receives offer better than D’s p36 offer, but not as good as their own p36 offer?

Answer 59

p36 has no effect.

C awarded costs to be [paid by D on standard basis for whole proceedings.

Question 60

Summarise costs order where D refuses C’s p36 offer, and C gets judgment for more or equal to offer amount.

Answer 60

D pays costs on standard basis from start date till offer lapse date.

D pays costs on indemnity basis from day after lapse date till judgment.

D pays up to 10% interest on indemnity costs (ie from day after period expired).

D pays additional damages (10% on first 500k of judgment, and 5% on amount between 500k and £1 million of judgment - ie a maximum amount of 75K).

Question 61

Explain the position where C wins their case, but the damages awarded are less than their own offer made under part 36.

Answer 61

No extra penalty is imposed on either party and therefore part 36 has no effect in this situation as neither party is deemed to be at fault.

Question 62

Summarise consequences of C losing case, having rejected D p36 offer.

Answer 62

C pays D’s costs on standard basis from when first incurred up to judgment; and

Unless unjust, interest on costs incurred by D from and including day after p36 relevant period expired.

Question 63

Summarise the additional costs D is liable to pay C where D rejected a part 36 offer (and C was awarded an amount in damages equal to or more than that offer).

Answer 63

C is awarded:
- damages; plus;
- an additional 10% on the damages up to 500k; plus
- an additional 5% on damages between 500k and 1 million; and
- the max amount of additional damages payable is 75k.

Also, up to day 21 D must also pay:
- interest on damages from date of loss as claimed in particulars of claim; and
- costs on the sntadrd basis;

And D also put pay from day 22:
- interest on damages at a maximum of 10% above the base rate; plus
- costs on an indemnity basis; plus
- interest on the costs at a maximum of 10% above the base rate.

Question 64

Explain the position where the claimant loses at trial and they have made a part 36 offer to D which D turned down.

Answer 64

C will not be awarded damages (as they lose the case) ad will be required to pay D’s costs on a standard basis in the usual way.

Part 36 therefore has no effect.

Question 65

What are the three possible outcomes where D makes a part 36 offer to C?

Answer 65

C wins at trial and beats D’s part 36 offer;

C wis at trial but does not beat D’s part 36 offer; and

C loses at trial.

Question 66

What happens if C wins at trial and beats D’s part 36 offer?

Answer 66

D is ordered to pay:

• amount of judgment plus interest as claimed in particulars of claim ; and
• claimants costs on the standard basis.