If a claim is successful, the Court will usually order the losing party to pay the winner their “costs”. What is meant by “costs” is a complex area, and has important implications for anyone contemplating or involved in litigation. The introduction of the Civil Procedure Rules has also radically changed how costs are ordered and assessed (for more information about the Civil Procedure Rules go here). Under the terms of the retainer between the solicitor and the client, the responsibility for paying the solicitor’s costs and disbursements such as barristers’ and experts’ fees rests with the client, whether or not the claim is successful. If an order for costs is made, unless the parties agree how much the costs will be, the Court will decide how much the loser should pay.

Even if a costs order is made, this does not guarantee that payment will be made; if it is not, the successful party may have to use enforcement methods to recover the money and may be unsuccessful if the loser does not have the means to pay. In addition, if the losing party has a Public Funding Certificate (which used to be called “Legal Aid”), the Court may still make a costs order, but may also order that payment of the costs will not be enforced without the Court’s permission.

Disbursements

These include barristers’ fees, Court fees and experts’ fees. Often a party’s solicitor will require payment in advance of the disbursement being incurred, as it is usually the solicitor that is responsible for payment of these fees. these fees may be recoverable at the end of the case.

Costs orders

The Court has the power to make any award of costs it thinks appropriate, and at any time a Court order is made. Consequently the Court may make costs orders during the proceedings, not just at the final hearing. Usually no order for costs is made in small claims trials save for the issue fee and the fee of any expert instructed, unless one of the parties has behaved unreasonably. The rules also provide for “fixed costs” in some cases; for the issue of proceedings for instance, and also for some types of claim such as possession proceedings.

The normal rule is that “costs follow the event”; in other words, the loser pays the winner’s costs. However, the Court is required to take the conduct of the parties into account as well as who is successful, and make an order that does justice to the parties in the circumstances.

The Civil Procedure Rules impose a duty on the parties to proceedings to assist the Court in achieving the “overriding objective”, which is to deal with cases justly. One aspect of the overriding objective includes saving expense, and cost. As a result, the Court may penalise a party that has not complied with the spirit of the Rules, by for example failing to serve a pre-action protocol letter if required. In addition the Court will take into account offers to settle and payments into Court; for more details see our note on the Court system.

If a Costs order is made, it will state whom the “paying party” (usually the loser) and the “receiving party” (usually the winner) is, and also what basis of assessment is to be used if no agreement can be reached.

Agreement

The Court will expect the parties to attempt to agree the costs between them, as far as possible. The receiving party will prepare a schedule of its costs and submit this to the paying party, and invite comments on it. Often the parties will not be far apart, and agreement may be reached. If no agreement can be reached, the receiving party must draw up a formal bill of costs which summarises precisely what was done and when. A costs draftsman normally does this, who will charge a percentage of the bill for doing so (normally 2%).

This is then sent to the paying party, who must serve a formal response within 21 days, stating what elements of the bill are disputed. If no response is served, the receiving party may apply to the Court for a “default costs certificate”. This is an order requiring payment within 21 days of the certificate, and can be enforced as a judgment against the paying party. If a response is served, the receiving party may either negotiate, or ask the Court to set a date for assessment. The receiving party must make the application for assessment within 3 months of the costs order, unless the parties agree an extension.

The basis of assessment

The Court must be satisfied that the costs that are being sought are not unreasonably incurred or unreasonable in amount. However there are two different bases of assessment that the court may order.

The usual order is that costs are assessed on the “standard basis”. This means that the paying party must pay only an amount of costs that is “proportionate to the matters in issue”; in other words, it will not sanction a large bill for a small dispute. It will resolve any doubts it may have as to whether the costs are reasonably incurred, or reasonable in amount and proportionate, in favour of the paying party.

In unusual cases the Court will order that costs are to be assessed on the “indemnity basis”, which means that it is the receiving party who receives the benefit of any doubt.

Summary assessment

The Court has the power to make a summary assessment of costs during the proceedings, without needing to go through the lengthy detailed assessment procedure. It is also required to do so at the conclusion of a “fast track” trial.

The parties will both prepare costs summaries for the hearing, and serve these on each other prior to it. The Judge will consider the summary at the conclusion of the hearing and decide the amount of costs to be awarded.

Detailed assessment

If the parties cannot agree the costs, the receiving party will ask the Court to set a date for the detailed assessment of the bill. District Judges undertake the assessment, but in London the Supreme Court Costs Office deals with cases in the High Court.

Representatives of both parties attend the hearing. The District Judge will consider the submissions of both parties and decide whether the work done was reasonably necessary, and if so, whether the time taken and the solicitor’s hourly rate claimed was reasonable (different rates apply in different parts of the country, and are set by the Court). The District Judge will also decide which party should pay for the costs of the hearing itself, and summarily assess them.

Offers to settle

The CPR encourages the parties to settle the claim by negotiation before and during the proceedings. Both the Claimant and the Defendant may make offers to settle (these are not disclosed to the Judge hearing the trial). If, after the trial, the Court awards the Claimant more in damages than he or she claimed in the offer, then the Court may in addition award the Claimant indemnity costs, interest on those costs, and also interest on the damages. This is known as a “part 36 offer”

To take an example, a defendant in a personal injury action might think that the claim is worth say £10,000 and offer to settle the claim for that amount. If the amount awarded at trial is less than the offer, the Court may order the Claimant to pay the Defendant’s costs from the date of the payment into Court. As a result, a payment into Court early in the proceedings may cause a Claimant to swallow up any award the Court might give by having to pay a large proportion of the Defendant’s costs. . A claimant might use the same tactical step to force a defendant to consider settlement very early on in the proceedings, so that the Defendant would then have to pay an enhanced rate of interest on the damages from that point as well as more costs. This can be a very effective tactic if used correctly.

Legal Costs in Litigation cases