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SECTION 2 |
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2.1 |
The Meaning of "Costs" |
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| (a) |
The word "costs" is defined in CPR 43.2. Costs normally fall into two
categories:
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| (i) |
expenses of a type which solicitors frequently incur when acting on behalf of clients (such as counsel's fees, court fees, witness expenses etc). These are
known as "disbursements".
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| (b) |
Costs payable by one party to another can, in appropriate circumstances, include costs incurred before the issue of proceedings ( In re Gibson's Settlement Trusts [1981] Ch 179).
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2.2 |
Liability to Pay Costs |
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| (a) |
In litigation, no party has a right to costs. Costs are in the discretion of the court.
If, however, the court sees fit to make an order as to the costs of the litigation, the general rule is
that the unsuccessful party will be ordered to pay the costs of the successful party (CPR
44.3(2)(a)). The court may make an order for costs which reflects the extent to which each party
has been successful in relation to different issues.
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| (b) |
Costs as between solicitor and client are payable to the solicitor according to the
terms of any contract he has made with the client or, alternatively, in the case of an LSC funded client, according to the Regulations made under the Legal Aid Act 1988Acts and the Access to
Justice Act 1999.
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2.3 |
Orders Which the Court May Make |
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| (a) |
In deciding what order to make about costs the court is required to have regard to
all the circumstances including the conduct of all the parties; whether a party has succeeded on
part of his case, even if not wholly successful; and whether or not there has been a payment into
court or an offer of settlement: (CPR 44.3(4)).
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| (b) |
The court has complete discretion as to what order for costs to make but those
orders may include an order that a party must pay:
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| (i) |
a proportion of another party's costs;
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| (ii) |
a stated amount in respect of another party's costs;
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| (iii) |
costs from or until a certain date;
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| (c) |
The court has, in addition, the power to order a party to pay an amount on
account of costs before the costs are assessed (CPR 44.3(8)).
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2.4 |
Bases of Assessment |
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| (a) |
The court may order costs between the parties to be assessed on either the
standard basis or the indemnity basis. The court will not allow costs which have been
unreasonably incurred or which are unreasonable in amount.
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| (b) |
On the standard basis, the court will only allow costs which are proportionate to
the matters in issue and will resolve any doubt which it may have as to whether costs were
reasonably incurred or reasonable and proportionate in amount in favour of the paying party:
(CPR 44.4(2)).
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| (c) |
Where the court assesses costs on the indemnity basis it will resolve any doubt
which it may have as to whether costs were reasonably incurred or were reasonable in amount in
favour of the receiving party (CPR 44.4(3)).
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| (d) |
In LSC funded cases, costs are payable to solicitors and counsel on the standard
basis subject to Regulations which prescribe the amounts to be allowed in certain cases.
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| (e) |
In respect of costs payable to a solicitor by his client, the basis of assessment is
the indemnity basis to which certain presumptions and limitations apply (see CPR 48.8 and CPD Section 54).
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2.5 |
Methods of Assessment of Costs |
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| (a) |
When the court makes an order about costs, it may carry out a summary
assessment then and there and order the payment of a sum of money in respect of costs, or it
may order a detailed assessment of the costs. If a detailed assessment is ordered the receiving
party must, amongst other things, prepare a bill setting out the work done and, ultimately, the
court will go through that bill, hearing argument from both sides as to what items and amounts
should and should not be allowed.
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| (b) |
The general rule is that the court will make a summary assessment of the costs at
the conclusion of the trial of a case which has been dealt with on the fast track and at the
conclusion of any other hearing which has lasted for not more than one day. In certain cases
the Court of Appeal will also carry out a summary assessment. Summary assessment will be
carried out unless there is good reason for not doing so, for example where the paying party shows substantial grounds for disputing the sum claimed for costs that cannot be dealt with
summarily, or there is insufficient time to carry out a summary assessment (CPR 44.7; CPD Sections 12, 13 and 14).
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2.6 |
The Indemnity Principle |
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The principle is that a successful party cannot recover from an unsuccessful party more by
way of costs than the successful party is liable to pay his or her legal representatives. There
are several exceptions to the principle including the statutory exceptions concerning legal aid
and conditional fee agreements. There have been calls for the total abolition of the principle.
Unless and until that occurs the following three propositions continue to apply:
| (i) |
A party in whose favour an order for costs has been made may not recover more than he
is liable to pay his own solicitors: Harold v Smith [1865] H&N 381 at 385 and Gundry v
Sainsbury [1910] 1KB 645 CA.
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| (ii) |
Where a party puts a statement of costs before the court for summary assessment that
statement must be signed by the party or a legal representative. The form states: "The costs estimated above do not exceed the costs which the [party] is liable to pay in respect
of the work which this estimate covers."
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| (iii) |
The signature of a statement of costs or a bill for detailed assessment by a solicitor is in
normal circumstances sufficient to enable the court to be satisfied that the indemnity
principle has not been breached in respect of costs payable under a conventional bill:
Bailey v IBC Vehicles Ltd [1998] 3 All ER 570 CA. However, the same may not be true
in respect of costs payable under a conditional fee agreement: Hollins v Russell [2003]
1 WLR 2487.
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2.7 |
Duty to Notify Clients of Adverse Costs Orders |
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Where the court makes an order for costs against a person who is legally represented but is not
present when the order is made, that party's solicitor must notify the client in writing of the costs order no later than seven days after the solicitor receives notice of the order (CPR 44.2).
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2.8 |
Some Special Cases |
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| (a) |
In certain cases a right to costs on the standard basis arises even though the court
does not make a specific order for costs. The occasions when this happens are under:
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| (i) |
CPR 3.7(4) (defendant's right to costs where claim struck out for non payment of fees);
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| (iv) |
CPR 38.6 (defendant's right to costs where claimant discontinues).
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| (b) |
In any other case, where the court makes an order but does not mention costs, no
party is entitled to costs in relation to that order (CPR 44.13(1)).
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| (d) |
Where proceedings are transferred from one court to another, the court to which
they are transferred may (subject to any order made by the transferring court) deal with all the costs, including the costs before the transfer (CPR 44.13(3)).
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| (e) |
In a probate claim where a defendant has in his defence given notice that he
requires the will to be proved in solemn form (as to which see CPR 57.7(5)), the court will not
make an order for costs against the defendant unless it appears that there was no reasonable
ground for opposing the will. The term "probate claim" is defined in CPR 57.1.
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2.9 |
Costs Where Money is Payable by or to a Child or Patient |
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| (a) |
Where a child or patient is ordered to pay money to another party the court may
make a summary assessment of those costs or may order a detailed assessment.
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| (b) |
Where a child or patient is liable to pay money to his or her solicitor the court
must order a detailed assessment of those costs (CPR 48.5) unless the case falls within one of
those circumstances described in CPD Section 51 (eg another party has agreed to pay a specified
sum in respect of costs and the solicitor acting for the child or patient has waived the right to
claim further costs).
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2.10 |
Costs of Trustees and Personal Representatives |
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Trustees and personal representatives who are parties to litigation are generally entitled to their costs, so far as not recovered from any other party, out of any fund which they hold as trustee or
personal representative. The costs are assessed on the indemnity basis. If a trustee or
personal representative has acted for a benefit other than that of the fund the court may make a
different order (CPR 48.4).
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2.11 |
Mortgagees Costs |
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Depending on the terms of the mortgage, a mortgage lender is likely to be able to recover any costs incurred in litigation (except for costs which are unreasonably incurred or which are
unreasonable in amount) as a matter of contract between the lender and the borrower. CPD Section 50 sets out the principles which apply to litigation costs relating to a mortgage (CPR
48.3).
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2.12 |
Group Litigation Orders |
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CPR Part 19 deals with Group Litigation Orders. CPR 48.6A provides that unless the court
otherwise orders group litigants are severally (not jointly) liable for an equal proportion of the
"common costs". ("Common costs" are defined in CPR 48.6A(2).) In addition, a group litigant is liable for the individual costs of his or her own claim. A group litigant coming late to the group register may be ordered to be liable for a proportion of the costs incurred before that
litigant's name is entered on the register (CPR 48.6A(6)). Paragraph 16 of the Practice
Directionpdp-19Supplementing Part 19 provides that the Costs Judge will apportion the amounts of common costs and individual costs, if the court has not already done so.
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2.13 |
Costs in the Companies Court |
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In the Companies Court "the usual compulsory order" made on a winding-up petition includes
provision for the payment of the petitioner's costs and one set of costs for the supporting
creditors out of the assets of the company. Thus in a simple case if the usual compulsory order is made it will not generally be necessary to ask for a separate order for costs. If however
there are opposing creditors and the petition succeeds, the costs of the opposing creditors are not
paid out of the company's assets unless they are expressly allowed by the court.
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2.14 |
Costs in Family Proceedings |
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In family proceedings CPR Parts 43, 44 (except CPR 44.9 to 44.12), 47 and 48 apply to the
assessment of costs; CPR 44.3(2) (costs follow the event) does not apply (Family Proceedings
(Miscellaneous Amendments) Rules 1999 SI 1999 No.1012). The Costs Practice Directionpdp-43
applies to the extent that the CPR apply and references in the Direction to "claimant" and
"defendant" should be read as references to the equivalent terms used in family proceedings.
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2.15 |
Success Fees and Insurance Premiums |
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In certain cases the Access to Justice Act 1999 permits the recovery of costs under a conditional
fee agreement which provides for a success fee and permits the recovery of sums paid or
payable in respect of after the event insurance. Further information about these items of costs is given in Section 19 (below) and the procedures to be followed to deal with possible success
fee disputes between legal representatives and clients are given in Section 20, below. It should
be noted that, although family proceedings cannot be the subject of an enforceable conditional
fee agreement (with or without a success fee) the reasonable cost of after the event insurance
premiums in such proceedings may be recoverable.
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2.16 |
Costs in Relation to Pre Commencement Disclosure and Orders for Disclosure Against a Non Party |
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Sections 33 and 34 of the Supreme Court Act 1981Acts and Sections 52 and 53 of the County Courts
Act 1984 give the court powers, exercisable before commencement of proceedings, in relation to
disclosure, and the power to make an order against a non party for disclosure of documents and
inspection of property. The general rule is that the court will award the person against whom
the order is sought, his costs of the application and of complying with any order which is made.
If however that party has unreasonably opposed the application or failed to comply with any
relevant pre-action protocol the court may well make a different order (CPR 48.1).
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2.17 |
Costs Orders in Favour of or Against Non Parties |
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| (a) |
proceedings in which those costs have been incurred. Such an order is likely to be made only in
exceptional circumstances. Where the court is considering making such an order, that person
must be added as a party to the proceedings and must be given a reasonable opportunity to
attend the hearing at which the court will consider the matter further (CPR 48.2 and see CPR
Part 19 as to adding a person as a party). When the court makes such an order, the costs awarded can only be those incurred in the proceedings before it.
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| (b) |
funders, who have financed part of a Claimant's costs of litigation, to pay a contribution towards
the costs of a successful defendant (see Arkin v Borchard Lines Ltd & Ors [2005] 1 WLR 3055;
[2005] 3 All ER 613).
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2.18 |
Costs Following Acceptance of an Offer to Settle |
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| (a) |
CPR Part 36 deals with offers to settle and payments into court. Where a
defendant's Part 36 offer or Part 36 payment is accepted without needing the permission of the
court, the claimant is entitled to the costs of the proceedings up to the date of serving notice of
acceptance (CPR 36.13(1)). Where a claimant's Part 36 offer is accepted without needing the
permission of the court, the claimant is entitled to the costs of the proceedings up to the date
upon which the defendant serves notice of acceptance (CPR 36.14). In these cases an order for costs is deemed to be made (see para 2.8 above).
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| (b) |
Where a claimant fails to do better than the defendant's Part 36 offer or Part 36
payment, the court will, unless it considers it unjust to do so, order the claimant to pay any costs incurred by the defendant after the latest date on which the payment or offer could have been
accepted without needing the permission of the court (CPR 36.20).
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| (c) |
Where a claimant does better than was proposed in the claimant's Part 36 offer,
the court may order interest at a rate not exceeding 10% above base rate, on the whole or part of
the sum of money awarded to the claimant, for some or all of the periods starting with the latest
date on which the defendant could have accepted the offer without needing the permission of the
court. The court also has the power to order that the claimant is entitled to costs on the
indemnity basis (as to which, see para 2.4, above) and to award interest on those costs at a rate
not exceeding 10% above base rate (as to which, see Section 15, below). The court will make
an order in such terms unless it considers it unjust to do so (CPR 36.21(4)).
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| (d) |
In deciding whether or not it would be unjust to make such an order, the court
will take into account all the circumstances including the terms of the Part 36 offer, the stage in
the proceedings when the offer was made, the information available to the parties at the time
when the offer was made and the conduct of the parties with regard to the giving or refusing to
give information for the purpose of enabling the offer to be made or evaluated (CPR 36.21(5)).
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2.19 |
Costs in Small Claims |
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| (a) |
In a case which has been allocated to the small claims track, the court may not
order a party to pay costs to another party except in the limited circumstances set out in CPR
27.14(2). These include the fixed costs attributable to issuing the claim payable under CPR Part
45, and any costs which the court summarily assesses and orders to be paid by a party who has
behaved unreasonably.
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| (b) |
The court also has the power to order a party to pay court fees paid by another
party and expenses which a party or a witness has reasonably incurred in attending court.
Paragraphs 7.2 and 7.3 of the Practice Directionpdp-27Supplementing CPR Part 27 set out the
maximum amount which the court may allow.
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| (c) |
The limits on costs also apply to any fee or reward for acting on behalf of a party
to the proceedings, charged by a lay representative exercising a right of audience (CPR
27.14(4)).
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| (d) |
Where the parties consent to a claim being allocated to the small claims track,
even though the amount of the claim exceeds the financial limit for small claims, the claim is
treated for the purpose of costs as if it were proceeding on the fast track. In those
circumstances the trial costs are in the discretion of the court but will not exceed the appropriate
amount (having regard to the size of the claim) of fast track trial costs (CPR 27.14(5)).
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| (e) |
The effect on costs on allocation and reallocation to the small claims track is
described in para 2.21, below.
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2.20 |
Costs in Fast Track Cases |
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| (a) |
In fast track cases the court's power to award trial costs is limited in accordance
with CPR Part 46. Where the value of the claim does not exceed £3,000 the trial costs which the
court may award will be £350. Where the value of the claim is more than £3,000 but not more
than £10,000 the trial costs are £500 and where the value of the claim is more than £10,000 the
trial costs are £750. The court may not award more or less than those amounts unless it decides
not to award any trial costs or the circumstances set out in CPR 46.3 apply. The court has the
power to apportion the amount awarded between the parties to reflect their respective degrees of
success on the issues at trial (CPR 46.2(2)).
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2.21 |
Costs Following Allocation and Reallocation |
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The special rules which apply to small claims and fast track trial costs do not apply until the
claim is allocated to a particular track. Once the claim is allocated to a particular track those
special rules apply to the period before as well as after allocation except where the court or a
Practice Direction provides otherwise (CPR 44.9). Any costs orders made before a claim is
allocated to the small claims or fast track will not be affected by the allocation (CPR 44.11(1)).
Where a claim is allocated to one track and subsequently re-allocated to a different track then,
unless the court orders otherwise, any special rules about costs applying to the first track will
apply to the claim up to the date of reallocation, and the rules applying to the second track will
apply from the date of reallocation (CPR 44.11(2)).
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2.22 |
Time for Complying With Orders for Costs |
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When the court makes an order for the payment of costs the paying party must make the
payment within 14 days of the date of the order specifying the amount payable (CPR 44.8).
The court may extend the time for payment, but if it does not do so and the costs are not paid
within the 14 day period, the receiving party may take steps to enforce the order.
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2.23 |
VAT |
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| (a) |
On an
assessment
of costs between the parties the receiving party must ensure
that no claim for VAT is made in the bill if that party is able to recover it as input tax. Disputes
as to the recoverability of VAT in bills between the parties are usually resolved by the making of
a certificate as to the VAT position by the solicitors or auditors of the party receiving costs or by
H M Revenue & Customs.
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| (b) |
Cases in which the receiving party cannot recover VAT on the costs payable by
the paying party include the following:
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the receiving party is a VAT registered taxable person and the supply of legal services
was obtained for the purpose of his business;
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| (iii) |
the receiving party is domiciled outside the UK but is domiciled in the European Union
and received the supply of legal services for the purposes of his business; or
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| (c) |
CPD Section 5 sets out some special provisions relating to VAT.
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