8.1 Introduction

1.  Costs have always been important, but prior to the advent of the Civil Procedure Rules (‘CPR’) in 1999 they were substantially the preserve of Taxing Masters in the Supreme Court Taxing Office in London, and district judges elsewhere. The CPR brought them very much to the fore, making it essential for judges at all levels, both full and part-time, to be fully conversant with the principles, rules and procedures relating to costs, including the process of assessing the value of items of work, from interim hearings to full trial.

2.  These notes are intended as a general introduction to contentious costs, but no more, and certainly should not be treated as a substitute for practice books. If detailed information is required reference should be made to the White Book or Green Book, or specialist works such as Hurst: Civil Costs 2nd Edition (currently under revision); Butterworths Costs Service; Cook on Costs 2000; or Greenslade on Costs.

3.  Costs in family proceedings are dealt with in the Family Bench Book.

4.  Costs practice has been very extensively revised as a result of the civil procedure reforms, an extremely complex structure having been created in place of what in the county court at least were relatively straightforward procedures, and which might have been very effective if carried forward, albeit with modification.

5.  It is important to note that further changes can be expected, so referring to the rules and practice direction will be essential.

6. The Costs Practice Direction is in itself a comprehensive guide. It is very long, divided into 57 sections, many having several paragraphs. A number of costs precedents are annexed, and any judge not wholly familiar with bills of costs will benefit from going through in particular Precedents A-D. In these notes references to the Practice Direction are expressed, e.g. Practice Direction, paragraph 11.8.

7.  Annexed to these notes is a copy of the updated Guide to the Summary Assessment of Costs, published by the Supreme Court Costs Office. The Appendices setting out guideline figures have not been included. The Guide has been extended beyond guideline figures for solicitors by providing guidance on counsel’s fees, based on statistics gathered by the Supreme Court Costs Office in respect of run-of-the-mill cases in the Queen’s Bench and Chancery Division and in the Administrative Court. The figures provided are not recommended rates, but included as a helpful starting point for judges assessing counsel’s fees.

8.   Benchmark fees may be introduced in the foreseeable future, a form of quasi-fixed costs regime for a number of different types of application, albeit possibly capable of being regarded as more advisory than mandatory. The concept is currently in the research and planning stage, but needs to be borne in mind as a probable future development.

9.   As a preliminary to explaining procedures it is necessary to identify the rules dealing specifically with costs, and mention a number of definitions.

8.2 The costs rules

10. The costs rules are contained in Parts 43 to 48 CPR, supplemented by Practice Directions, which are integral to understanding the rules, so both need to be referred to if a point is to be fully addressed. In summary the rules relating to costs are:

Part 43 Scope and definitions

Part 45Fixed costs
Part 46 Fast Track Trial Costs
Part 47 Detailed Assessment
Part 48 Special cases (including pre-commencement disclosure; children or patients; litigants in person, etc).

8.4 What do costs include?

12. Part 43 defines ‘costs’ as including fees, charges, disbursement, expenses, remuneration, reimbursement allowed to a litigant in person as provided for under Rule 48.6, any additional liability (under a funding arrangement), and any fee or reward charged by a lay representative for acting on behalf of a party in proceedings allocated to the small claims track. Lay representatives will be encountered only in cases allocated to the small claims track, so will not concern judges dealing with matters before allocation, or where judgment has been entered for an amount to be decided by the court; fast-track cases; or cases allocated to the multi-track.

13.‘Costs officers’ are costs judges, district judges or authorised court officers, the last-mentioned being experienced civil servants authorised by the Lord Chancellor to assess costs, employed in the Supreme Court Costs Office and Principal Registry Family Division. At present there are no authorised court officers elsewhere in the court system. The judge at whatever level dealing with a summary assessment at the end of a hearing performs the functions of a costs officer.

14. ‘Receiving party’ means a party entitled to be paid costs, and ‘payment party’ means a party liable to pay costs, whilst ‘assisted person’ or ‘LSC funded client’ mean respectively persons within the statutory provisions relating to legal aid provided with funding by the Legal Services Commission as part of the Community Legal Service.

15. If ‘fixed costs’ are awarded these are the amounts provided for under Part 45, and do not include fixed trial costs under Part 46.

16. In effecting recovery of costs from another party a successful litigant is unable to obtain payment of a larger sum than he himself has to pay his solicitor. In other words, is not permitted to make profit in costs from litigation, and historically a solicitor who agreed to act without fee would be likely to find himself well out of pocket at the end of the case, even if the client succeeded, for the potential paying party would be able to defend himself against a costs order by arguing that as the client had no liability for costs to the solicitor there were no costs to be paid.

17. This is not an appropriate text for discussion of the indemnity principle, and reference to the specialist publications will be rewarding, as will reading a number of the authorities that deal with the subject. Cook on Costs 2000 includes an interesting and very straightforward exposition on the subject, whilst Hurst: Civil Costs at Chapter 17 discusses the indemnity principle in some detail. Providing useful and illuminating illustrations of how the indemnity principle can operate are a trio of authorities: Gundy v Sainsbury [1910] 1 KB 99; British Waterways Board v Norman [1993] 26 HLR 232; and Thai Trading v Taylor [1998] 3 All ER 65. These cases are given as useful points of reference only, and should not be considered as dealing exhaustively with the subject.

8.6 Abandonment of the indemnity principle 18. In September 2000 the Government published its conclusions following consultation on collective conditional fees, and announced their intention to bring section 31 of the Access to Justice Act into force. Although no timescale, the Government recommended ‘the early introduction of any necessary rules.’ 19. Section 31 reads:

‘In section 51 of the Supreme Courts Act 1981 (costs), in subsection (2) (rules regulating matters relating to costs), insert at the end ‘or for securing that the amount awarded to a party in respect of the costs to be paid by him to such representatives is not limited to what would have been payable by him to them if he had not been awarded costs.’

20. It is possible, therefore, that within a short time of publication of this Bench Book the indemnity principle will cease to apply. The court will then no longer be concerned with whether the lay receiving party is under any contractual obligation to pay his legal advisor, but possibly only with whether the costs claimed are reasonable and, as regards the standard basis, proportionate. Neither will a paying party be able to argue that the other side’s costs should be reduced because the agreed charging rate is lower than that sought to be recovered and, as costs belong to the client rather than the solicitor, if a sum in respect of costs is recovered beyond what the receiving party has to pay his solicitor, there will be an element of windfall. This, as well as a number of other factors, requires consideration before introduction of a costs procedure free of the indemnity principle. 21. These notes contain several references to the indemnity principle, and if this is abandoned most will cease to be relevant, although some points may have continued validity in qualified form. Costs are certainly likely to become more complicated and contentious than at present!

8.7Funding arrangements 22.Rule 43.2(1)(k)-(o) describe what is meant by ‘funding’, ‘percentage increase’, ‘insurance premium’, ‘membership organisation’, and a likely to be much-used expression, ‘additional liability’. The circumstances in which this group of definitions will be relevant is when a receiving party has entered into a conditional fee agreement providing for a success fee within the meaning of section 58(2) of the Courts and Legal Service Act 1999, and/or has taken out an insurance policy to which section 29 of the same Act applies; or has an agreement to meet costs with a membership organisation, such as a trade union. 23. ‘Additional liability’ is the percentage increase, insurance premium, or additional amount in respect of provision made by a membership organisation as appropriate. 24. Part 43 also includes definitions of ‘summary assessment’ and ‘detailed assessment’. ‘Summary assessment’ means the procedure by which the court, when making an order about costs, orders payment of a sum of money instead of fixed costs or ‘detailed assessment’. ‘Detailed assessment’ means the procedure by which the amount of costs is decided by a costs officer in accordance with Part 47.

8.8 Commonly made costs orders: Practice Direction, paragraph 8.5.

25.The meaning of each of the above is self-evident, but attention is drawn to ‘claimant’s/defendant’s costs in the case/application’, which can be a useful form of order in situations where a party who may not ultimately succeed at trial, but has nonetheless achieved a substantial element of success on an interim application, may be granted greater protection than a ‘costs reserved’ or ‘costs in the case’ order would provide. 26. ‘Costs reserved’ at one time had a different meaning in family proceedings, but the same definition now applies to family as well as non-family civil proceedings.



8.9 Basis of assessment 27. Costs may be assessed on the standard basis or on the indemnity basis, but on no other. The court will not allow costs which have been unreasonably incurred or are unreasonable in amount. In deciding whether costs were, as regards the standard basis, proportionately and reasonably incurred; or were proportionate and reasonable in amount, the benefit of the doubt will be given to the paying party. When assessing on the indemnity basis the court must decide whether the costs were unreasonably incurred; or unreasonable in amount, and will give the benefit of the doubt to the receiving party. Proportionality is not mentioned. However, the entire CPR are governed by Rule 1.1, ‘the overriding objective’, which means that in every circumstance the court is required to have regard to the concept of proportionality.

28. If the court makes an order for costs without indicating the basis on which they are to be assessed, or for assessment on any basis other than the standard or indemnity basis, costs will be assessed on the standard basis (Rule 44.4(4)). The judge is not later able to amend by asserting the form of order was a ‘slip’, for he meant something other than his actual words (Smith v Cohen (1992) The Times, 26 November, CA). For example, were a judge to order costs to be paid on ‘the solicitor and client basis’, with the intention that the receiving party should recover rather more than on a standard basis costs order, he will fail in his endeavour, and the costs will be assessed on the standard basis. Rule 40.12 (the ‘slip rule’) enables the court to correct ‘an accidental slip or omission in a judgment or order’, not facilitate amendment because of a change of mind. 29. You have power to order costs be paid on the standard basis, or on the indemnity basis. However attractive any proposal for an alternative may appear, you are bound to reject it.



8.10 Will there be an order for costs? 30.  Before deciding, or even considering how much might be payable, you must first conclude whether one or more of the parties should have any liability imposed upon them to pay the other’s costs, and if so whether it should be for the whole of the costs (a ‘full order’), or for a proportion only.

31. If neither party has succeeded to the extent that they should be awarded a full order for the costs of a particular exercise, consider an order for ‘costs in the case’ or ’for claimant (or defendant’s) costs in the case’. If neither party is to be awarded costs, either say nothing about costs, or order that ‘there be no order for costs’. Both will have the intended result. 32. In a pre-CPR case where either the judge ordered ‘no order as to costs’, or was silent as to costs, this takes effect as an order for costs in the case, the party with the final order for costs in his favour being entitled to recover from the other side. 33. Costs orders can be apportioned to reflect the measure of success. An apportioned order may be contemplated instead of orders in favour of each. A single order to one party may reflect the level of success having taken into account the findings in favour of the other party. It is of particular importance to consider the point where there have been claim and Part 20 claim, or counterclaim, for if you fail to do so it is possible an injustice will be created.



8.11 Discretion as to costs 34. Rule 44.3 provides clear and comprehensive guidance upon the matter of deciding whether costs should be awarded, and if so how any entitlement or liability should be approached. All judges should be reasonably familiar with what it says, and the complete text is set out below. All the component parts are of consequence, but you need to be particularly aware of paragraphs (4), (5) and (6). The rule is concerned with deciding upon entitlement of the base costs, not additional liabilities. If there is a funding arrangement (a conditional fee agreement or the like) you will also need to refer to Rule 44.3A. Rule 44.3 reads:

(1) The court has discretion as to:

(a)whether costs are payable by one party to another;
(b)the amount of those costs; and
(c)when they are to be paid.

(2) If the court decides to make an order about costs:

(a)the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; but
(b)the court may make a different order.

(3) The general rule does not apply to the following proceedings:

(a)proceedings in the Court of Appeal on an application or appeal made in connection with proceedings in the Family Division; or (b)proceedings in the Court of Appeal from a judgment, direction, decision or order given or made in probate proceedings or family proceedings.

(4) In deciding what order (if any) to make about costs, the court must have regard to all the circumstances including:

(a)the conduct of all the parties;
(b)whether a party has succeeded on part of his case, even if he has not been wholly successful; and
(c)any payment into court or offer to settle made by a party which is drawn to the court’s attention (whether or not made in accordance with Part 36).

(5) The conduct of the parties includes:

(a)conduct before, as well as during, the proceedings, and in particular the extent to which the parties followed any relevant pre-action protocol;
(b)whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;
(c)the manner in which a party has pursued or defended his case or a particular allegation or issue;
(d) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim.

(6)The orders which the court may make under this rule include an order that a party must pay:

(a)a proportion of another party’s costs;
(b)a stated amount in respect of another party’s costs;
(c)costs from or until a certain date only;
(d)costs incurred before proceedings have begun;
(e)costs relating to particular steps taken in the proceedings;
(f)costs relating only to a distinct part of the proceedings;
(g)interest on costs from or until a certain date, including a date before judgment.

(7) Where the court would otherwise consider making an order under paragraph (6)(e), it must instead, if practicable, make an order under paragraph 6(a) or (c).

(8) Where the court has ordered a party to pay costs, it may order an amount to be paid on account before the costs are assessed.

(9) Where a party entitled to costs is also liable to pay costs the court may assess the costs which that party is liable to pay and either:

(a) set off the amount assessed against the amount the party entitled to be paid and direct him to pay any balance; or
(b)delay the issue of a certificate for the costs to which the party is entitled until he has paid the amount which he is liable to pay.’

8.12 Do costs normally follow the event?

35.  The familiar rule that costs follow the event has not been abandoned, but has been significantly modified, and costs orders are required to be more ‘issues based’ than under pre-CPR procedures. Rule 44.3(2) states the general rule that the unsuccessful party will be ordered to pay the costs of the successful party, but goes on to say that the court may make a different order, considering, first Rule 44.3(4) and (5) and, having done so, Rule 44.3(6). Only after having carried out this exercise should you make your decision.

8.13 Conduct: Rule 44.3(4) and (5)

36.  The court must consider the conduct of all the parties, including whether a party has succeeded on part or all of his case. Conduct includes what took place before, as well as during, the proceedings, with particular regard to the extent to which the parties followed any pre-action protocol. A judge should consider whether it was reasonable to raise, pursue or contest a particular issue, the manner in which a party dealt with the case, and whether the successful claimant exaggerated his claim.

37.  Exaggeration may be deliberate, and where apparent it may not be too difficult for the court to decide that it will be appropriate to decline an order for costs, or make a restricted order. Not infrequently, however, exaggeration of a claim or issues within the claim is unintentional, a claimant having been advised, and believed quite sincerely, that he is entitled to pursue a number of heads of claim. In these circumstances, the court may consider a restricted order for costs to be justified. Defendants who have pursued false points may fall within the definition of exaggeration. In any event, their conduct should also be considered.

38.   It should be noted that under the CPR a defendant who, by non-disclosure of relevant matters, has not enabled the claimant to assess properly whether to accept an offer might be ordered to pay the costs (see Ford v GKR Construction and Others [2000] 1 All ER 802). Although this case concerned a claimant awarded less than the amount paid into court, the principles apply as equally to claimants as to defendants. Failure to disclose all material factors facilitating an informed decision upon, for example, proposing a course of action leading to settlement is likely to result in an adverse costs order. In Ford, Lord Justice Judge observed that civil litigation was developing into a system designed to enable the parties to know where they stood in reality at the earliest possible stage and at the lowest practicable costs, so that they might make informed decisions about their prospects and the sensible conduct of their cases.

39.  If at conclusion of a case you are satisfied that although the claimant succeeded in full, he had ignored any relevant pre-action protocol, or to a significant extent failed to conduct the proceedings so as to further the overriding objective, you will be entitled to reflect this in the costs order, reducing or, in a very extreme case, refusing costs. Again, Ford is an illustration of the relevance of conduct to costs. In Mars (UK) Ltd v Teknowledge Ltd (No. 2) [1999] TLR 510, the claimant succeeded overall, but upon considering costs the judge reviewed the pre-action conduct of both parties, concluding that the claimants, apparently the larger of the two concerns, had behaved in a heavy-handed way when the defendants were trying to negotiate. This conduct had the effect of reducing the claimant’s costs entitlement.

40. Conduct is not limited to the proceedings themselves, but may be considered in a more general context.

41.  Rule 44.3(4)(c) introduces a concept whereby a party failing to comply with the rules as to offers and payments into court may nevertheless avoid or at least mitigate liability for costs. The costs consequences of Part 36 depend upon offers and payments into court being made in accordance with the rules in the Part, but Rule 36.1(2) reads: ‘Nothing in this Part prevents a party making an offer to settle in whatever way he chooses, but if that offer is not made in accordance with this Part, it will only have the consequences specified in this Part if the court so orders.’

42. Without a decided authority to which to refer, it is difficult to give an example of the circumstances that might give rise to consideration of the effect of the interaction of Rules 44.3(4)(c) and 36.1(2). A defendant may be in a strong position, however, where a claimant asserts he is entitled to a substantial sum of money for whatever reason, the defendant countering that the claimant is incorrect, and that whilst monies are due, the amount is of a lesser sum. Say the defendant offers to make payment of the sum he contends is due by an instalment plan, the claimant rejects the offers, both as to amount and mode of payment, and the matter proceeds to trial, where the claimant is awarded the amount offered by the defendant. Applying Rules 44.3(4)(c) and 36.1(2), there should be a very real possibility of the defendant recovering costs from a date in the vicinity of his proposal for settlement.