costs n : pecuniary reimbursement to the winning party for the expenses of litigation
- Plural of cost
- third-person singular of cost
In civil litigation in England and Wales, after judgment has been given, the judge has the power to order who will pay the attorney's fees and other disbursements of the parties. The law of costs defines how such allocation is to take place.
"Costs follow the event"The law of costs in England and Wales is typical of common law jurisdictions, save that of the United States. In general "costs follow the event" so that the successful party to litigation is entitled to seek an order that the unsuccessful party pay his or her costs. Recoverable costs are limited to:
- Hourly, fees and charges of the solicitor (attorney);
- Disbursements, including barristers' fees;
- Witness allowances (conduct money), including fees paid to expert witnesses;
- Some professional fees for non-witnesses; and
- Lawyers' "success fees" allowable by the court under a valid conditional fee agreement (CFA).
In-house corporate legal teams can conduct litigation and have rights of audience. They can claim the remuneration and expenses of the lawyers involved. Litigants in person must prove their own financial loss in conducting the action or they will otherwise be awarded £9.25 per hour. The costs awarded to a litigant in person cannot exceed 2/3 of what could be claimed by a professional lawyer.
Litigants often benefit from Before the Event Insurance (BTE) against paying the other party's legal costs as part of their domestic or car insurance policies. However, many are unaware of that fact. Otherwise, they can purchase After the Event Insurance (ATE) at the start of litigation.
The law of costs, as it applies in England and Wales, is often known as the English rule. The situation contrasts with that in the U.S. where legal fees may be sought only if the parties agree by contract before the litigation, or if some special act or statute allows the successful party to seek such fees, the American rule. Generally, U.S. judges have no common law right to award such fees against the losing party. It has been suggested that the American rule contributes to making the U.S. a litigious society. Individuals have little to lose beyond filing fees and a retainer to start a lawsuit, and they are not at risk of having to pay their opponent's fees if they lose. Conversely, the English rule has been criticised. It is sometimes pointed out that the English approach potentially hinders access to justice by increasing the risks of litigation, both by setting up the risk of having to pay both parties' full costs in the event of losing, and by creating incentives for parties to sink ever increasing resources into their respective cases in order to win the action and avoid paying any fees, a strategy that cannot succeed under the American rule, thereby increasing the overall cost-risk of litigation. The German costs rule, which allows for fixed recoverable costs, avoids this unfortunate consequence of full-fees recovery.
ReasonablenessCosts must be "reasonably incurred and reasonable in amount". Costs must be reasonable, even if they are specified by contract, save if contract expressly provides that they need not be reasonable. Reasonableness is assessed against "all the circumstances" and in particular the "seven pillars of wisdom":
- Conduct of the parties:
- Before as well as during proceedings;
- Efforts made to resolve the dispute;
- Value of the property at issue;
- Importance of the matter to the parties;
- Complexity, difficulty or novelty of the case;
- Skill, effort, specialised knowledge or responsibility required;
- Time spent on the case;
- Geographical location where work the work was done.
ExceptionsThe rule that "costs follow the event" is observed on the MultiTrack and Fast Track. However, on the Small Claims Track, only specific limited costs such as fixed court fees are usually awarded. Further, on the Fast Track, the actual costs of the trial, as opposed to preparatory work, are fixed. There are also fixed costs for road traffic accident (RTA) claims that settle before they are issued, and fixed success fees for RTAs and employment claims.
The court will take account of the conduct of the parties and may vary the usual costs order in the event of misguided or dishonest behaviour. In particular, claimants are expected to give the defendant an opportunity to settle, and the parties are expected to exchange essential information and details before starting a claim. The court will especially be aware of any formal offers to settle made under Part 36 of the Civil Procedure Rules. Such offers are withheld from the judge during the trial but, during assessment of costs, the judge will compare them with the final damages awarded.
If the defendant rejects an offer to settle from the claimant and the claimant equals or betters that offer at trial, the judge can award:
- Indemnity costs against the defendant; or
- Punitive interest up to 10% above base rate against the defendant;
- The whole or part of the costs awarded; or
- For some or all of the time.
If the claimant rejects an offer to settle from the defendant and fails to better that offer at trial:
- The defendant is entitled to costs from the time the offer expired; and
- Interest on the costs.
Other exceptions to the general rule include:
The judge has considerable discretion to apply or disapply these rules if the result would otherwise be unjust. The paying party can appeal against the costs order by the usual routes of appeal.
The indemnity principleThe indemnity principle, a term unrelated to the concept of indemnity costs, stipulates that a paying party cannot be ordered to pay more than the receiving party has already agreed to pay his solicitor, the retainer.
The principle causes anomalies for pro bono representation where, because the lawyers have agreed to represent the party for no cost, they cannot subsequently ask the court for a costs award when they win. However, when section 194 of the Legal Services Act 2007 comes into force, the court will be able to order a party who loses against pro bono representation to make an appropriate charitable donation in lieu of costs.
There are specific exceptions to the principle for:
- In-house lawyers;
- Conditional fee agreements;
- Legal aid; and
- Litigants in person.
Standard and indemnity basesCosts awarded on the standard basis must be proportional. Any doubt as to the costs is resolved in favour of the paying party.
Costs awarded on the indemnity basis need not be proportional. Any doubt as to the costs is resolved in favour of the receiving party.
ProportionalityIn considering proportionality, the court should have regard to the seven pillars of wisdom. The court should adopt a two-stage approach:
- Compare the total costs claimed against the total benefits gained by the successful party:
- If the total costs are proportionate to the total benefits:
- a) Perform an item by item test of reasonableness;
- b) Perform an item by item test of necessity.
Assessment of inter partes costsWhere a party is awarded costs against another they are known as inter partes costs or between party costs. Such costs are usually assessed on the standard basis. The successful party may not be awarded the entirety of their legal costs, as the costs incurred will be assessed by an officer of the court. This can be done in one of two ways.
Summary assessmentThe simplified procedure is known as summary assessment under which the court will consider a schedule of the costs incurred which will usually be no more than two pages long and is often only a single page. This is the usual method on the Fast Track, for hearings lasting no longer than a single day, for certain appeal hearings and for the costs of the paying party in detailed assessment hearings.
However, summary assessment is not permitted for claims:
- On behalf of children or mental patients; or
- Funded by the Legal Services Commission;
- Paying party can raise substantial grounds; or
- Costs have been agreed by the parties.
Detailed assessmentFor more complex cases a process, formerly called a taxation of costs, now known as detailed assessment, is used. It is unrelated to "tax" in the sense of a method of raising government revenue. The successful party must file with the court a detailed breakdown of the costs and disbursements incurred, known as a bill of costs which sets out the successful party's claim. The bill is usually prepared by a law costs draftsman, whose skill is often as essential to successful litigation as that of a solicitor or barrister. An officer of the court, Costs Judge or District Judge will then assess the reasonableness of the costs with reference to a statutory schedule of limits of entitlements of costs, together with legal precedents, unless the costs cannot be agreed between the parties. The level of reduction can mean that the bill is reduced in some instances substantially, but in most cases at least 80% of the costs originally sought will be allowed. A court order for costs is enforceable as a debt against the unsuccessful party.
Either party can appeal against a detailed assessment, to a Costs Judge or District Judge of the High Court if the assessment was made by a court officer, or by the usual routes of appeal if the assessment was made by a judge.