How do the courts deal with costs in civil disputes?
An important aspect of litigation for any client is the costs associated with the proceedings, specifically the likelihood of recovering those costs from the other party.
Either the Claimant or Defendant in the proceedings may be ordered to pay costs – the usual provision is that the losing party will pay the successful party’s costs but as you will see below, this is not always the case and rarely does the winner, if ever, get all costs claimed.
As with all aspects of civil disputes, getting a court order, including a court order for costs, does not mean you are guaranteed that the order will be complied with.
Legal costs in court disputes – how does it work?
Costs are split into several categories. This can include solicitors’ legal fees, disbursements, court fees, expert fees.
The general rules relating to costs can be found in the Civil Procedure Rules (“CPR”) at Part 44 which provides that the unsuccessful party shall pay the successful parties’ costs. However, the Judge has the discretion to make a different cost order if he or she believes it is appropriate.
An example of judge discretion can be seen in the case of Nicole Chapman v Tameside Hospital NHS Foundation Trust (unreported, 15 June 2016). In this case the Claimant had issued proceedings after being informed, in response to a pre-action protocol letter, that the Defendant had no documents. In the proceedings the Defendant disclosed documents which supported the Defendant’s defence. The Claimant therefore agreed to discontinue the proceedings as she knew that she would not be successful. Ordinarily, the Claimant would be liable for the Defendant’s costs. However, the Claimant submitted that, had those documents been disclosed earlier, as required by the pre-action protocol, she would not have commenced the proceedings and incurred her costs. The Court agreed and ordered that the Defendant pays the Claimant’s costs.
Legal costs depend on the value and type of claim
As can be seen from the above, the issue of costs are dealt with on a case-by-case basis. Recoverability and amount of costs also depend on which track (disputes are allocated to 1 of 3 tracks depending on value and type of claim) the claim has been allocated. Below is a summary:
- Small Claims Track: legal costs are not recoverable, only disbursements.
- Fast Track: The costs will usually be summarily assessed which means dealt with at the same time as judgment.
- Mult-track: A detailed costs assessment will take place. Early in the proceedings the parties must file a costs budget which sets out costs incurred to date and anticipated costs. The court may also impose a cost management order giving greater control over the costs.
Where costs are determined, 100% of the court fees incurred by a party would be recovered – it is only the legal costs that are generally arguable.
In some situations, the CPR fixes the amount of costs that can be recovered from the other party. The advantage of this is that if a party loses a case, they will know in advance how much they are likely to pay to the other party. This also allows a party to make a better-informed decision on whether to proceed with the claim.
Where fixed costs apply this could result in the successful party being left with a substantial shortfall. For example, the fixed costs for issuing a claim for possession of property, where the Claim Form is served by the Court, is £69.50, however, the legal costs in drafting and sending the Claim Form to the Court would be substantially more. In those circumstances, where the Claimant is given possession of the property, this would result in the Claimant having a shortfall in his legal costs.
Impact of offers to settle on whether costs are recovered
Another factor that would be taken into account in relation to costs is where a Offer to settle (known as a Part 36 offer under the Civil Procedure Rules) is made but is not accepted, yet the party who made the Part 36 Offer is not successful. For example, if a Defendant makes a Part 36 Offer but the Claimant does not accept it, and the amount awarded to the Claimant is the same or less than the amount in the Part 36 Offer, despite the Claimant being successful, the Claimant would be liable to pay the costs incurred by the Defendant from 21 days after the Part 36 Offer was given, up to and including the hearing.
Set out below, in brief, are the different procedures for determining legal costs:
If the costs are not fixed, summary assessment may apply. This involves the court determining, at the end of the hearing, how much costs are payable and by which party. The general rule that apples is that the Court should, unless there is reason to not do so, carry out a summary assessment of costs at the conclusion of a fast-track trial and at any other hearing that has lasted for no more than a day. For the costs to be summarily assessed, the parties must file a statement of costs which includes a detailed breakdown of their costs, no less than 48 hours before a fast-track hearing or 24 hours before an interim hearing.
Detailed Costs Assessment
In the event the Court cannot make a summary assessment, such as where there is insufficient time or the hearing has been in excess of day, and the parties are unable to agree the costs, the costs will then be subject to a detailed assessment. This is the usual way that costs are dealt with in multi-track claims.
The procedure requires that, 3 months within the date of judgement or of the 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 any evidence in support, such as receipts for disbursements and fee-notes. On some occasions, the paying party will want to challenge the bill. In these circumstances, the following steps will occur:
- The paying party will have 21 days to dispute the bill, serving their points on the receiving party.
- The receiving party will have 21 days to reply.
- The receiving party must then file a request for an assessment hearing within three months of the expiration of the period for commencing detailed assessment proceedings.
- If the costs claimed are less than £75,000.00, the Court will make a provisional assessment where the Judge decides which costs are permitted and those costs which will be disregarded without the presence of the parties.
- If either party disputes the provisional assessment, they may request an oral hearing within 21 days. If that party fails to achieve a 20% or above adjustment of costs, they will be ordered to pay for the cost of that hearing.
Recovery of costs is not a simple a case of the losing party paying the winning party’s costs. As can be seen from the above, the award of costs can be at the discretion of the Court and the Judge will consider the parties compliance with matters such as pre-action protocol.
Legal costs are very much part of the overall tactics and strategy of a civil dispute. Tactical offers to settle made at the right time and at a strategic level can and often do change the dynamics and psychology of a dispute. No matter how strong you beloive your cliam is, legally and factually, you should never assume you will be awarded costs, either in full or part. Nor should you think you are guaranteed to receive an amount awarded by a court, whether damages or costs.
If you require any advice on recovery of costs or a legal dispute generally, please contact our Dispute Resolution department.