Costs are obviously a very important part of a case. As a solicitor, it is essential that you manage costs properly. You are under a professional obligation to manage the costs effectively for your client. As we mentioned above, on the multi track, the parties can be obliged to submit a cost budget for the case which will illustrate the level of costs that the parties anticipate in a given case.
There are separate procedures for depending on the track on which the claim has been allocated.
On the small claims track, costs are not recoverable so the costs payable will be limited to the party’s disbursements.
On the fast track, costs will normally be summarily assessed.
On the multi – track, a detailed assessment of the costs will normally be carried out.
In certain situations, the CPR will fix the costs that a party may recover from their opponent. Fixed costs cover particular steps in the proceedings. For example, the CPR fix the costs for enforcing a judgment.
Where costs are not fixed then different processes can apply. A summary assessment is where a Court decides immediately, at the end of the case, that a given sum is payable. The Court should usually make a summary assessment of costs at the conclusion of a fast-track trial and at any other hearing which has not lasted more than one day.
A detailed assessment will be carried out in more complex cases. The party who wins becomes known as the ‘receiving party’ as they will be receiving the costs of the proceedings. Within three months of the date of the judgment order, the receiving party must serve on the paying party a notice of Commencement of Detailed Assessment proceedings together with a bill of costs and evidence in support. If the paying party wishes to challenge then then the paying party must serve points of dispute within 21 days. The receiving party then has 21 days to reply. If the costs are less than £75,000 then the Court undertakes a provisional assessment where the Judge decides what is to be allowed in the absence of the parties. If either party is unhappy with the provisional assessment then either party can apply for a hearing. However, if that party fails to achieve an adjustment in costs by more than 20 percent then they will be ordered to pay the costs of the hearing.
It is usually best for everyone that the costs be agreed without the need to proceed to an oral hearing.
The complete rules dealing with detailed assessment proceedings can be found here.
There may have been costs awarded in the earlier stage of proceedings. These are known as interim costs. Once a case has been resolved then these interim costs have to be properly awarded. CPR 44.4 sets out the factors to take into account when assessing the sum of costs that the party should be entitled to.
These factors are listed as follows:
(1) The court will have regard to all the circumstances in deciding whether costs were –
(a) if it is assessing costs on the standard basis –
(i) proportionately and reasonably incurred; or
(ii) proportionate and reasonable in amount, or
(b) if it is assessing costs on the indemnity basis –
(i) unreasonably incurred; or
(ii) unreasonable in amount.
(2) In particular, the court will give effect to any orders which have already been made.
(3) The court will also have regard to –
(a) the conduct of all the parties, including in particular –
(i) conduct before, as well as during, the proceedings; and
(ii) the efforts made, if any, before and during the proceedings in order to try to resolve the dispute;
(b) the amount or value of any money or property involved;
(c) the importance of the matter to all the parties;
(d) the particular complexity of the matter or the difficulty or novelty of the questions raised;
(e) the skill, effort, specialised knowledge and responsibility involved;
(f) the time spent on the case;
(g) the place where and the circumstances in which work or any part of it was done; and
(h) the receiving party’s last approved or agreed budget.
The Judge also has to consider whether the costs were awarded on the standard or the indemnity basis. The standard basis will apply in most costs. This basis allows costs to be awarded in a manner which is proportionate to the matter in issue. The CPR provide that the costs will be proportionate if they bear a reasonable relationship to the sums in issue, the value of any non-monetary relied, the complexity of the litigation and any additional work generated by the conduct od the paying party.
The indemnity basis
The alternative to the standard basis is the indemnity basis. This will be awarded where the Court wants to show displeasure to a manner in which a party has conducted itself. Where costs are awarded on the indemnity basis, the Court is only concerned with whether the costs were reasonably incurred and reasonable in amount. This basis means there is no test for proportionality applied to the costs. Any doubt as to whether the costs were reasonably incurred is resolved in favour of the receiving party. In practice, this means that the costs for the paying party are likely to be higher when awarded on the indemnity basis.
The Court has a discretion to order that a non-party pays the costs of the litigation. This discretion is governed by part 46. An order for non-party costs would be exceptional and the Court would have to be satisfied that the non-party were the real party interested in the litigation and they were in fact responsible for bringing the proceedings in the first place. Before such an order can be made, the third party must be added as a party to the proceedings and may attend the hearing when the court determines the issue of costs.
Qualified One-way Costs Shifting
Qualified One Way Costs shifting is a mechanism whereby a defendant can only enforce a judgment for costs against a claimant where permission of the Court is given. These mechanisms are usually deployed in personal injury cases. The defendant may only be able to claim costs where the claim was fundamentally dishonest. The impact of this is currently limited as they are only usually used in cases where defendants are backed by an insurance company. They are used to reflect an assumption that large companies backed by insurance should not be able to claim, as of right, costs of proceedings against individual claimants.