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Recovery of legal costs in the Courts of England and Wales

View profile for Jonathan Haydn-Williams
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This is for guidance only and not legal advice. Before relying on anything stated below, the reader should take independent legal advice.

1. In England and Wales, the courts apply what American lawyers call ‘costs shifting’ (although the US courts generally do not apply it). This means that the courts in England and Wales usually order the loser in litigation to reimburse the winner with the costs which the winner has incurred with his or her solicitors and counsel. At least that’s the starting point. However, there are many ‘ifs and buts’, as follows.

2. The court has a discretion whether to make a costs order at all or to make a partial costs order. If the conduct of the winner in relation to the litigation is subject to the court’s criticism, the loser might not be ordered to pay any of the winner’s legal costs, or perhaps ordered to pay only some of them.

3. If the winning party has won overall, but has lost on an issue, the court may make a split costs order under which the overall winner has to pay the loser the loser’s costs of that issue, with the loser paying the winner’s costs on all other aspects.

4. If a costs order is made against a party, how much of the other party’s costs has to be paid?

5. The court will usually order that “X pays Z’s legal costs, to be assessed if not agreed”. ‘Assessment’ is a technical procedure under which Z submits a lengthy and detailed ‘Bill of Costs’ to a court official (perhaps a ‘costs judge’) who then assesses how much of it X should pay.

6. There are two basic scales for assessment: ‘standard’ and ‘indemnity’. The old rubric was that under standard costs ‘any doubt rules it out’ and under indemnity ‘any doubt rules out nowt’. Indemnity costs will be higher than standard basis costs, but not usually a true full indemnity. Indemnity costs are only awarded where there is a special factor, such as a party acting badly in the proceedings or bringing a hopeless case. The rest of this note will therefore focus on standard basis costs.

7. On assessment, a Bill of Costs can be reduced for many reasons, including the following:

(i) Hourly rates claimed by solicitors are too high. The starting point is that rates will not be allowed above those appropriate in the locality where the solicitors’ client is located. E.g. a London firm’s hourly rate is unlikely to be allowed for a client in Devon in proceedings in Plymouth;

(ii) Too much time spent on an activity, e.g. many hours charged on documents might be reduced considerably;

(iii) Unnecessary tasks carried out, e.g. two conferences with a barrister, instead of one.

As a solicitor for a winning party, it can feel quite odd to have won and yet having to appear in front of a costs judge to justify your actions which resulted in the case being won!

8. For many years, solicitors would tell their clients that, as a rule of thumb, if they won they might expect to be awarded between 2/3 and ¾ of their actual legal costs. Then, in standard basis costs, the courts introduced the principle of ‘proportionality’, i.e. that only costs that are proportionate to the dispute should be recoverable by one party from another under a costs order.

9. What is proportionate is intended not to be limited to a comparison between the amount of the costs and the amount of the claim. Indeed, it is intended to be possible for a complex claim to result in legal costs which might be otherwise disproportionate to the amount of the claim. However, in practice, there is no clear guidance from the courts as to what proportionality means and courts often apply it as a simple comparison between the amount of the costs and the amount of the claim or the value of property at issue.

10. Costs judges first carry out the reduction of a Bill of Costs as described in para 7 above and then apply proportionality, sometimes reducing the Bill of Costs to well under half of its amount.

11. Where a Bill of Costs is reduced, the paying party (usually the loser) will only have to pay the reduced amount to the receiving party (usually the winner), leaving the winner to have to pay out of his/her own pocket the balance of his or her solicitors’ charges (often known as the ‘irrecoverable element of costs’).

12. Finally, if a party who is ordered to pay some of the opponent’s legal costs does not pay or cannot afford to do so, the opponent will have to take enforcement action, at more cost, which might not succeed in any recovery.

This guide is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact the author or call 0207 404 0606 and ask to speak to your usual Goodman Derrick contact.