Costs

Question 1

What is meant by the ‘receiving party’ and ‘paying party?’

Answer 1

Successful party is the ‘receiving party’ - entitled to payment from unsuccessful party who is the ‘paying party’

Question 2

What is the general rule as to who pays costs?

Answer 2

‘Costs’ include solicitor’s charges, disbursements and pre-action costs

General rule is that the unsuccessful party pays the successful party’s costs

• Judge can make different costs orders

Question 3

How does the court ensure that costs are managed and budgeted for throughout civil proceedings?

Answer 3

In multi-track cases, before the CMC, the parties must file a costs budget, setting out costs incurred to date and those anticipated for the future

Court may impose a costs management order, which means:

• 1a) A party awarded costs on the standard basis will recover the amount of its last approved or agreed budgeted costs
• 1b) May depart from budgeted costs if there is a good reason, like where costs of a phase were not incurred at all or much less than budgeted
• 2) A party awarded costs on the indemnity basis and incurred costs are assessed in the usual way by the court

Court will always consider costs budgets when assessing costs, even if no CMO made

Question 4

What are the general rules around the procedure for determining costs on each track?

Answer 4

• Small claims track - legal costs are not recoverable and so the costs payable will only relate to disbursements
• Fast and intermediate tracks - fixed costs apply
• Multi-track - a detailed assessment of the costs will be carried out

Question 5

How do fixed costs work in the fast and intermediate tracks? What are the principles behind them?

Answer 5

Fixed recoverable costs apply to all cases on the fast and intermediate tracks

Cases on these tracks are assigned a complexity band, which determines the amount of legal costs that can be recovered – costs ascend with complexity

• The higher the band of claim and the later the settlement is reached or the closer to trial, the higher the costs payable by the loser

Disbursements may also be allowed if reasonably incurred

Costs greater than what is fixed will only be ordered in ‘exceptional circumstances’

• Fixed costs may be increased as paying party or decreased as receiving party by 50% for ‘unreasonable conduct’

Question 6

What are the fixed recoverable costs for the fast track for Stages 1 and 2?

Answer 6

Stage 1 – on or after date that the court issues the claim, but before the date that the court allocates the claim

• Complexity Band 1 - £2168
• Complexity Band 2 - £1445 + 20% of damages
• Complexity Band 3 - £3303 + 20% of damages
• Complexity Band 4 - £3097 + 40% of damages + £785 per extra defendant

Stage 2 – on or after date that the court allocates the claim, but before the date the court lists the claim for trial

• Complexity Band 1 - £2581
• Complexity Band 2 - £2374 + 20% of damages
• Complexity Band 3 - £4129 + 25% of damages
• Complexity Band 4 - £6607 + 40% of damages + £785 per extra defendant

Question 7

What are the fixed recoverable costs for the intermediate track for Stages 1 and 2?

Answer 7

Stage 1 - From pre-issue up to and including the date of service of the defence

• Complexity Band 1 - £1,652 + an amount equivalent to 3% of the damages
• Complexity Band 2 - £5,162 + an amount equivalent to 6% of the damages
• Complexity Band 3 - £6,607 + an amount equivalent to 6% of the damages
• Complexity Band 4 - £9,601 + an amount equivalent to 8 of the damages

Stage 2 - Specialist legal representative providing post-issue advice in writing or in conference or drafting a statement of case

• Complexity Band 1 - £2,065
• Complexity Band 2 - £2,065
• Complexity Band 3 - (a) £2,374; or (b) £3,613 if counsel is also instructed to draft a defence to a counterclaim
• Complexity Band 4 - (a) £2,374; or (b) £3,613 if counsel is also instructed to draft a defence to a counterclaim

Question 8

What are the fixed recoverable costs for the intermediate track for Stages 3 and 4?

Answer 8

Stage 3 - From the date of service of the defence up to the earlier of the date set for CMC or the order giving directions under 28.2

• Complexity Band 1 - £4,129 + an amount equivalent to 10% of the damages
• Complexity Band 2 - £7,949 + an amount equivalent to 12% of the damages
• Complexity Band 3 - £9,394 + an amount equivalent to 12% of the damages
• Complexity Band 4 - £13,420 + an amount equivalent to 14% of the damages

Stage 4 - From the end of Stage 3 up to and including the date set by the court for inspection of documents

• Complexity Band 1 - £4,749 + an amount equivalent to 12% of the damages
• Complexity Band 2 - £9,704 + an amount equivalent to 14% of the damages
• Complexity Band 3 - £11,356 + an amount equivalent to 14% of the damages
• Complexity Band 4 - £16,517 + an amount equivalent to 16% of the damages

Question 9

What is summary assessment of costs?

Answer 9

Where costs are not fixed, a different process applies - might happen at interim hearings

SA involves the court making an immediate determination of amount payable, at the end of the hearing

• Unless there is a good reason not to, the court should make an SA at any other hearing that has not lasted more than 1 day

Parties must file and serve a statement of costs (detailed breakdown of costs) at least 24 hours before an interim hearing

• Parties should seek to agree costs if possible

Question 10

What is detailed assessment?

Answer 10

If the court cannot make a SA, an order will be made for DA of those costs – most common in multi-track

• Better for parties to agree costs if possible

Within three months of the date of the judgment or order, the receiving party must serve on the paying party a Notice of Commencement of detailed assessment proceedings together with their bill of costs and evidence in support, such as receipts

Question 11

If the paying party wishes to challenge a bill received in relation to detailed assessment proceedings, what steps must they take?

Answer 11

If the paying party wishes to challenge the bill, the following steps occur:

• (a) The paying party has 21 days to serve points of dispute.
• (b) The receiving party has 21 days to file a reply.
• (c) The receiving party must then file a request for an assessment hearing within 3 of the expiry of the period for commencing DA proceedings.
• (d) If the costs claimed are less than £75,000, the court undertakes a provisional assessment where the judge decides what costs are allowable in the absence of the parties.
• (e) If either party is unhappy with the provisional assessment, they may request an oral hearing within 21 days; but if the party fails to achieve an adjustment in their favour by at least 20% they will be ordered to pay the costs of the hearing

Question 12

How will ‘inter-partes’ (between the parties) costs be determined for interim hearings?

Answer 12

At the end of each interim hearing, the question of costs is considered

• Unless fixed costs apply (fast and intermediate tracks), the judge will decide who pays the costs of the application and will usually summarily assess the amount

Question 13

Once settlement reached or judgment passed, it must be decided who pays and how much

The loser usually pays the winner, but amount of costs is usually discussed.

What factors will be considered when the judge assesses costs?

Answer 13

Fast and intermediate track – fixed costs, so judge’s role in determining costs is greatly reduced

Multi-track – judges consider various factors (Part 44 CPR) to decide receiving party’s costs – these factors help to determine whether items are reasonably incurred and reasonable in amount:

• (a) the conduct of the parties and the efforts made to try and resolve the dispute;
• (b) the value of any money or property involved;
• (c) the importance of the matter to the parties;
• (d) the complexity of the matter;
• (e) the skill, effort, specialised knowledge and responsibility involved;
• (f) the time spent on the case;
• (g) the place and circumstances in which the work was done; and
• (h) the receiving party’s last approved or agreed budget

The judge will also need to check what basis they were ordered on – standard or indemnity

Question 14

What is the standard basis for assessing costs?

Answer 14

Applies in most multi-track cases and costs awarded must be proportionate to matters in issue

Total costs will be proportionate if they bear a reasonable relationship to:

• The sums in issue
• The value of any non-monetary relief in issue
• The complexity of the litigation
• Any additional work generated by the conduct of the paying party
• Any wider factors (reputation/public importance)

Costs that are disproportionate may be disallowed or reduced, even if reasonably incurred and reasonable in amount

Any doubts are resolved in favour of the paying party

Question 15

There is a two stage approach to determining costs on the standard basis.

What is Stage 1?

Answer 15

Judge goes through bill line by line

Any items deemed to be unreasonably incurred (UI) or unreasonable in amount (UA) will be disallowed (UI) or reduced (UA)

• The Part 44 list of factors will assist in determining reasonableness

Question 16

What is Stage 2 to determining costs on the standard basis?

Answer 16

Proportionality of the overall figure for each phase must be assessed

1) If deemed to be proportionate – no further assessment required

2) If not proportionate – judge will scrutinise various categories of cost, such as disclosure or factual evidence and decide whether they should be further reduced

• Once reductions are made, the resulting figure is the final amount of the costs assessment

Even if an item is reasonable, the costs for that item might be reduced

Question 17

What is an important point to remember about payment of solicitors costs/expert’s fees etc?

Answer 17

The costs payable to the solicitor/expert are unaffected by these processes and are a matter of contract, so separate

• Example – if A must pay an expert, B, £25,000, but is only awarded £20,000, they will need to fund the £5000 shortfall themselves

Question 18

Give a summary of the standard basis assessment

Answer 18

1) Is the item reasonably incurred?

• If no – disallowed and non-recoverable
• If yes:

2) Is the item reasonable in amount?

2a) If no – recoverable, but reduced + consider if the figure is proportionate for each phase

• If proportionate, the total reduced costs will be allowed
• If not proportionate, the total reduced costs disallowed or reduced

2b) If yes + proportionate for each phase – total costs allowed

2c) If yes + not proportionate for each phase – total costs disallowed or reduced

Question 19

What is the indemnity basis for assessing costs?

Answer 19

Costs on indemnity basis are awarded as a penalty

Costs on this basis must be:

• Reasonably incurred; and
• Reasonable in amount

1) If both met - item recoverable in full

1a) If not reasonably incurred - item disallowed + non-recoverable

1b) If reasonably incurred, but not reasonable in amount - item recoverable, but reduced

Any benefit of the doubt is given to the receiving party

Question 20

What are the 2 main differences between the standard and indemnity basis?

Answer 20

No test of proportionality on the indemnity basis, whereas, on the standard basis, only costs that are proportionate to the matters in issue will be allowed

Doubts resolved in favour of receiving party on indemnity basis and for paying party on standard basis

Question 21

When will a non-party costs order be made?

Answer 21

Exceptional for a non-party to be ordered to meet the losing party’s costs

Can happen where court satisfied that the non-party was the real party interested in the litigation or that they were responsible for bringing the proceedings

Would likely only affect formal 3rd party litigation funders

If the non-party, in addition to funding the unsuccessful litigation, also substantially controls it and/or benefits from it, they will usually be ordered to pay the costs.

Question 22

What is a necessary prerequisite to a non-party costs order?

Answer 22

To make an order:

• 3rd party must be added as a party to the proceedings
• They may attend the hearing when the issue of costs is determined

Question 23

What is a security for costs order and what is required for one to be made?

Answer 23

Helps the defendant, or claimant defending a counterclaim, ensure they can get costs if C is unable to pay

Court can make order if:

• It is satisfied, having regard to all circumstances, that it is just to make an order; and
• One or more of the conditions in Part 25 applies

Question 24

What are the most common conditions that a defendant will rely on to get a security for costs order?

Answer 24

1) C resident outside a 2005 Hague Convention State – outside the UK and EU, Mexico, Singapore and Montenegro

2) C is an impecunious company

• D must establish that there is reason to believe C will be unable to pay D’s costs
• Evidence of company’s financial assets + likely total litigation costs will be needed

3) C has taken steps to make enforcement difficult

• D must show C has make steps with their assets, so that, if they lose and a costs order is made, the order will be difficult to enforce
• When and why steps were taken is irrelevant
• Freezing injunction might also be appropriate

Question 25

What factors will the court consider to determine if it is **just** to make a security for costs order?

Answer 25

* Strength of the claim and defence – if defence unlikely to succeed, less justified in seeking security * C’s ability to provide security – where C has a reasonable prospect of success, courts less likely to make order * Causes of C’s impecuniosity - if D is the cause, this might defeat an application * Property within the jurisdiction – unlikely to grant order if C has sufficient assets within jurisdiction * Timing of the application – order should be applied for ASAP

Question 26

When may C oppose a security for costs application?

Answer 26

C may oppose an application by saying there is **no prospect of raising funds from any realistic source to pay security** – burden lies on C to provide sufficient evidence to show this

Question 27

What is the procedure to apply for a security for costs order?

Answer 27

* D should write to C first and ask for security voluntarily * If not, D should submit a notice of application to the court with a witness statement in support * If order granted, it will specify the amount of the security, the date by which the claimant must provide it and the form it will take * Most commonly, the claimant is required to make a payment into court

Question 28

Generally, how do offers to settle relate to costs?

Answer 28

Where a settlement is reached **prior to the issue** of proceedings, prospective C will **not be entitled to recover their legal costs** unless this has been agreed Settlements after litigation has started should have their terms agreed in a consent order or Tomlin order

Question 29

Where a **Part 36 offer** to settle is made, there are significant penalties attached if the offer is rejected when the court deems it suitable. What **form** must a Part 36 offer to be valid?

Answer 29

Offer must: * Be in writing * Make clear it is made pursuant to Part 36 * Specify a period of **at least 21 days** where, if the offer is accepted, D will pay C’s costs (‘relevant period’) - Often, offers state that acceptance is needed within 21 days, but it can be longer * State whether it relates to the whole or part of the claim and whether it considers any counterclaim Offer is **made when it is deemed served** (rules of deemed service apply) Offer is ‘**without prejudice save as to costs**,’ so the trial judge won’t know about it until the issue of costs is dealt with

Question 30

When can a Part 36 offer be accepted?

Answer 30

Can be accepted **anytime**, unless notice of its withdrawal has been given

Question 31

What is the effect of acceptance **within** the relevant period?

Answer 31

1) If D makes an offer which C accepts in relevant period – **sum must be paid to C within 14 days**; if not, C can enter judgment 1a) C also entitled to costs up to date of acceptance being served on D 1b) If costs not agreed: * Fixed recoverable on fast and intermediate tracks * Assessed on standard basis on multi-track 2) If C makes an offer which D accepts within 21 days – sum must be paid to C within 14 days 2a) C entitled to costs up to date of acceptance being served on D

Question 32

What is the effect of acceptance **outside** the relevant period? (late acceptance)

Answer 32

1) If C accepts D’s offer after the relevant period has expired and costs aren’t agreed, court normally orders: * D pays C’s costs up to date relevant period expired; and * C pays D’s costs thereafter till acceptance and their own costs 2) If D accepts C’s offer late, D has to pay C’s costs up to date of acceptance In all cases, **proceedings stayed until sums and costs paid**

Question 33

Penalties will be imposed if an offer is rejected or ignored after relevant 21 day period for acceptance expires, *unless* court rules it is **unjust** to do so How is justness assessed under Part 36?

Answer 33

Order for penalties for non-acceptance will be made in almost all cases Will be **unjust if offeror did not provide enough information** to allow the offeree to make an informed decision To decide justness, court will consider: * Terms of offer * When it was made (closeness to trial) * Information available to parties * Parties' conduct * Whether the offer was a genuine attempt to settle proceedings

Question 34

What are the **consequences for the defendant** when the claimant wins at trial and equals or beats their own Part 36 offer? Consequences are imposed because D was wrong to refuse and they have wasted time and costs for the court + claimant

Answer 34

1) Additional amount (usually a percentage of the damages) * For damages up to £500k, D must pay an extra 10% of sum awarded * For damages over £500k up to £1 million, 10% of first £500k is payable and 5% thereafter, **up to a max of £75k** 2) Enhanced interest on damages * From end of relevant period onwards, percentage rate of interest that is charged on damages awarded increases to a rate **not exceeding 10% above base rate** * From Day 22 up to the day of judgment, enhanced interest payable 3a) Multi-track: costs on an indemnity basis * D ordered to pay costs on **indemnity basis from Day 22 to judgment** 3b) Fast and intermediate tracks: enhanced fixed costs * C entitled to an amount equivalent to 35% of the difference between the fixed costs for the stage applicable when the relevant period of their Part 36 offer expired and the stage applicable at the date of judgment * Not a straight uplift on all costs 4) Interest on costs * Interest awarded on these indemnity or enhanced fixed costs **up to 10% above base rate** * Sanction runs from Day 22

Question 35

Give a summary of the **consequences for the defendant** when the claimant wins at trial and equals or beats their own Part 36 offer

Answer 35

C awarded damages + plus additional damages Up to Day 21: * Interest on damages from date of loss as claimed in PoC * Costs on standard basis (multi-track) or fixed costs (fast and intermediate) from date C incurred them From Day 22 to judgment: * Interest on damages at a max of 10% above base rate * Costs on indemnity basis (multi-track) or 35% uplift on C’s fixed recoverable costs (fast and intermediate) * Interest on these costs at a max of 10% above base rate

Question 36

What are the consequences where C wins at trial, but **does not beat their own Part 36 offer**?

Answer 36

C awarded damages below their own offer = no extra penalty on either party **Part 36 has no effect**

Question 37

What are the consequences when C loses at trial after serving a Part 36 offer?

Answer 37

**Part 36 has no effect** No penalties if C makes Part 36 offer, even if it is ill-judged, but if it is equalled or beaten, sanctions for D are severe

Question 38

What are the consequences when C wins at trial and **beats the defendant's Part 36 offer**?

Answer 38

**Part 36 has no effect** C was right to refuse

Question 39

What are the consequences where C wins at trial, but **fails to beat D's Part 36 offer**?

Answer 39

Where damages awarded are the same or less than the offer, C is financially punished, unless it is unjust to do so Effect of Part 36 is: * D pays C’s costs (standard basis or fixed costs) from when they were incurred until relevant period expired * C pays D’s costs (standard basis or fixed costs) **from the expiry of relevant period until judgment + interest** on those costs (commercial rate of 1 or 2% above base rate) * This is called a 'split costs' order

Question 40

What are the consequences when C loses at trial after refusing D's Part 36 offer?

Answer 40

C would have to pay D’s costs as the losing party (as normal) As a penalty, they would have to **pay interest on the costs from Day 22 until judgment** (usually 1 or 2% above base rate)