Questions Regarding Costs
- Bills of Costs and service (Format, time for service, documents to be served, and recovery)
- Costs Budgeting and Management (Time for filing, recoverable costs, scope, significant developments, revising the budget, and exceeding the budget)
- Estimates of Costs (Increasing the estimate and exceeding the estimate)
- Negotiations (Interim payments, offers, proportionality, and detailed and provisional assessment)
- Points of Dispute and Reply (Period for service, failure to serve, and level of detail)
- Statements of Costs (Period for filing and service, summary assessment, failure to serve, and the new N260)
- Costs Lawyers and Law Costs Draftsmen (What they are, what they do, and why use them)
Bills of Costs and service
Does a bill of costs need to be in electronic format?
An electronic bill of costs must be served in Part 7 multi-track claims where the costs claimed were incurred post 6 April 2018. There are three exceptions: cases in which the proceedings are subject to fixed costs or scale costs; cases in which the receiving party is unrepresented; or where the court has otherwise ordered.
Where costs are claimed both pre and post 6 April 2018, the receiving party has two options. They may prepare a traditional paper bill of costs for the costs incurred pre 6 April 2018 and an electronic bill of costs for those costs incurred post 6 April 2018, or they may prepare an electronic bill of costs for all costs incurred. The latter tends to be more cost-effective and the preferred option in practice.
When must the bill of costs be served by?
The time by which detailed assessment proceedings must be commenced is 3 months after the date of the judgment, order, award or other determination; 3 months after the date of service of notice of discontinuance under rule 38.3; or 3 months after the date when the right to costs arose following an acceptance of a Part 36 offer.
Where the receiving party fails to commence detailed assessment proceedings within the three month period, the paying party may apply for an order requiring the receiving party to commence detailed assessment proceedings within such time as the court may specify.
If the paying party does not make such an application in accordance with paragraph and the receiving party commences the proceedings later than the three month period, the court may disallow all or part of the interest otherwise payable. However, the court will not impose any other sanction unless there is misconduct.
What supporting documentation is required to be served with the bill of costs?
Paragraph 5.2 of CPR Practice Direction 47 provides that on commencing detailed assessment proceedings, the receiving party must serve on the paying party and all the other relevant persons the following documents:
(a) a notice of commencement in Form N252;
(b) a copy (or, where paragraph 5.A4 applies, copies) of the bill of costs;
(c) copies of the fee notes of counsel and of any expert in respect of fees claimed in the bill;
(d) written evidence as to any other disbursement which is claimed and which exceeds £500;
(e) a statement giving the name and address for service of any person upon whom the receiving party intends to serve the notice of commencement;
(f) if a costs management order has been made (and if the same information is not already fully provided in an electronic bill), a breakdown of the costs claimed for each phase of the proceedings. Precedent Q in the Schedule of Costs Precedents annexed to this Practice Direction is a model form of breakdown of the costs claimed for each phase of the proceedings.
How much of the bill of costs will generally be recovered?
The amount of costs that will be recovered will largely depend on whether the costs are to be assessed on the standard basis or indemnity basis. On the standard basis, any doubt as to whether costs are reasonable and proportionate will be resolved in favour of the paying party. Furthermore, the court will only allow costs which are proportionate to the sums in issue, value of any non-monetary relief, complexity of the litigation, the paying party’s conduct, and any wider factors, such as reputation or public importance. On the indemnity basis, there is no such proportionality requirement, and any doubt as to whether costs are reasonable and proportionate will be resolved in favour of the receiving party.
It is widely considered that receiving parties can generally expect to recover 70 – 80% of the bill of costs, however, there are many factors that influence the level of recoverable costs.
Are the costs of preparing the bill of costs recoverable?
The costs of preparing the bill of costs are claimed within the bill of costs itself and are recoverable from the paying party.
Costs Budgeting and Management
When must costs budgets and budget discussion reports be filed?
Unless the court otherwise orders, where the stated value of the claim on the claim form is less than £50,000, all parties except litigants in person must file and exchange budgets with their directions questionnaires; or in any other case, not later than 21 days before the first case management conference.
All parties except litigants in person must then file an agreed budget discussion report no later than 7 days before the first case management conference.
What are the recoverable costs of preparing a costs budget?
CPR 3.15(5) provides that the recoverable costs of initially completing Precedent H shall not exceed the higher of £1,000 or 1% of the total of the incurred costs and the budgeted costs. However, we never charge the full 1%. Instead, we ensure that our clients are able to recover sufficient costs for any time that they incur reviewing and checking the costs budget, and any other input they put into preparing the initial costs budget.
All other recoverable costs of the budgeting and costs management process shall not exceed 2% of the total of the incurred costs and the budgeted costs.
Which costs fall outside the scope of the costs budget?
Paragraph 7.9 of CPR Practice Direction 3E provides that if there are interim applications during the claim that were not provided for in the budget, then any costs that arise from them are treated as additional to the budget.
What constitutes a significant development in the litigation and therefore warrants a revision to the costs budget?
There is little guidance as to what constitutes a significant development, but it is likely that such a development would require further court directions.
In Sharp v Blank  EWHC 3390 (Ch) it was ruled that interim applications may constitute significant developments as may the consequences that flow from an interim application. The judge provided further guidance as to what constitutes a significant development as follows:
The extension to the trial timetable was a significant development.
If an application for specific disclosure results in many documents that must be reviewed and assimilated, that may be a significant development in the litigation.
The claimants served, without having obtained permission from the court, an additional expert report. The Defendants could not have predicted such a report would be served when preparing the costs budget. Service of the additional report was a significant development as it was a change from the agreed basis upon which expert evidence was to be provided.
The application for third-party disclosure was not a significant development. Such applications are common, and the Defendants knew of the likelihood of such an application before they prepared their budget.
There must be something more than a modest increase in the anticipated costs of the work to amount to a significant development.
In Al-Najar and Ors v The Cumberland Hotel (London) Ltd  EWHC 3532 (QB) disclosure became of a scale and complexity much greater than reasonably envisaged. This constituted a significant development and entitled the claimants to revise their budget.
Finally, in Churchill v Boot  EWHC 1322 (QB) doubling the value of the claim to £2million did not constitute a significant development in the litigation. The case had taken a predictable course following the original budget. As such, there had been no significant development.
What is the process for revising a costs budget?
The Civil Procedure (Amendment No. 3) Rules 2020 introduced a new rule CPR 3.15A, which took effect from 1 October 2020. This new rule sets out the process for revising and varying a costs budget as follows:
(1) A party must revise its budgeted costs upwards or downwards if significant developments in the litigation warrant such revisions.
(2) Any budgets revised must be submitted promptly to the other parties for agreement, and subsequently to the court.
(3) The revising party must—
(a) serve particulars of the variation proposed on every other party, using the form prescribed by Practice Direction 3E;
(b) confine the particulars to the additional costs occasioned by the significant development; and
(c) certify, in the form prescribed by Practice Direction 3E, that the additional costs are not included in any previous budgeted costs or variation.
(4) The revising party must submit the particulars of variation promptly to the court, together with the last approved or agreed budget, and with an explanation of the points of difference if they have not been agreed.
(5) The court may approve, vary or disallow the proposed variations, having regard to any significant developments which have occurred since the date when the previous budget was approved or agreed, or may list a further costs management hearing.
(6) Where the court makes an order for variation, it may vary the budget for costs related to that variation which have been incurred prior to the order for variation but after the costs management order.
What happens if a phase within an approved costs budget has been exceeded?
Where the costs budget has been approved (or agreed) and a costs management order has been made, when assessing costs on the standard basis, the court will have regard to the budgeted costs for each phase of the proceedings and not depart from the same unless there is good reason to do so.
Therefore, if good reason to depart from the costs budget can be demonstrated, the receiving party may recover more than the costs budget. If the receiving party cannot demonstrate good reason, the budgeted costs will be immediately reduced to the level of the approved costs budget.
There is no definition of ‘good reason’ and there has been little guidance as to what constitutes good reason. However, the ‘good reason’ test comes with a high threshold (Nash v Ministry of Defence  EWHC B4 (Costs) refers) and ultimately the Court of Appeal guidance in Harrison v University Hospitals Coventry and Warwickshire NHS Trust  EWCA Civ 792 leaves the test wide so as to not to fetter the judge’s discretion and allow good reason to be determined on a case-specific basis.
Where however costs are assessed on the indemnity basis, the costs budget plays no part in the assessment of costs. This is because under CPR 3.18 the court will only have regard to the costs budget where costs are assessed on the standard basis.
Estimates of Costs
When should an estimate of costs be increased?
The best approach is always to increase the estimate of costs before the costs are incurred. Clients should be informed immediately if it becomes apparent that the estimate will be, or is likely to be, exceeded. This should happen before undertaking the work that exceeds the estimate of costs.
What happens if an estimate of costs is exceeded?
Where an estimate of costs is given but the costs claimed subsequently exceed the estimate, it does not automatically follow that the solicitor is restricted to recovering the estimated sums. It will largely depend on the explanation for the divergence. Generally, the greater the difference between the estimate of costs and the final bill, the greater the explanation required. However, if there were no unexpected developments in the case and no satisfactory explanation for the difference, the costs may be limited to the estimate.
What is a reasonable level of interim payment to request?
Where the claim for costs is reasonable and there are no concerns with regard to the proportionality of the costs, it is reasonable to seek an interim payment for 65 – 70% of any costs that are subject to detailed assessment and 90% of any budgeted costs that have already been approved by the court.
What is the difference between a Calderbank offer and Part 36 offer?
A Calderbank offer is headed ‘without prejudice save as to costs’. The costs consequences of Calderbank offers are governed by CPR 44. The court will have discretion over costs of assessment. A Calderbank offer provides greater flexibility than a Part 36 offer; it allows the party making the offer to be flexible when making terms about the length of time the offer remains open for acceptance, costs of assessment and payment terms.
Part 36 goes beyond Part 44 in that it sets highly prescriptive terms. Part 36 offers must be open for acceptance for at least 21 days. They also cannot be withdrawn or amended without the court’s permission. Despite the rigidness of Part 36, it provides more certainty as to how costs will be treated. The Court does not have the same level of discretion as when a Calderbank offer is made. Furthermore, where the offeror beats their own Part 36 offer at detailed or provisional assessment, they will also be entitled to the Part 36 benefits set out under CPR 36.17 in relation to costs and interest.
When will costs be adjudged disproportionate?
Where costs are assessed on the standard basis, costs incurred will be deemed disproportionate if they do not bear a reasonable relationship to the following factors:
- The sums in issue in the proceedings;
- The value of any non-monetary relief in issue in the proceedings;
- The complexity of the litigation;
- Any additional work generated by the conduct of the paying party; and
- Any wider factors involved in the proceedings, such as reputation or public importance.
How frequently do cases proceed to detailed or provisional assessment?
In most cases we are able to reach an agreement on costs. Only a very small percentage of cases proceed to detailed assessment. It is more common for cases to proceed to provisional assessment (where the costs claimed are £75,000 or less) because provisional assessments are undertaken on the papers only and the parties are not required to make oral submissions.
Points of Dispute and Reply
What is the period for serving points of dispute and reply?
The period for serving points of dispute is 21 days after the date of service of the notice of commencement. Thereafter, the receiving party may serve points of reply within 21 days after being served with the points of dispute.
What happens if the paying party fails to serve points of dispute?
If the receiving party has not been served with any points of dispute, it may file a request for a default costs certificate. A default costs certificate orders the paying party to pay the full amount of costs claimed in the receiving party's bill of costs.
How detailed should points of dispute and reply be?
Points of dispute should be short and to the point. They should identify specific points, stating concisely the nature and grounds of dispute, and once a point has been made it should not be repeated. Judges can be put off by points of dispute or replies that are excessive in length. The costs of the detailed assessment can also be driven up when submissions quote lengthy parts of the CPR or case law, especially those served by paying parties as the usual consequence is that the receiving party feels compelled to serve lengthy arguments in response. With that said, it is imperative for parties to properly explain the reasons as to why they dispute an item in the bill of costs as it is not enough to simply state that an item is disputed.
Statements of Costs
When must a statement of costs be filed and served for summary assessment?
The statement of costs must be filed at court and served on any party against whom an order for payment of those costs is intended to be sought as soon as possible and in any event not less than 24 hours before the time fixed for the hearing. For a fast track trial, the statement of costs must be served and filed not less than 2 days before the trial.
How will the court summarily assess the costs?
The costs will be assessed by the judge who has heard the case or application. The court will consider the costs in the same way that it would at a detailed assessment but will do so within a much shorter timeframe, which is generally 30 minutes. The parties should raise the same arguments as routinely seen within points of dispute and reply, including the indemnity principle, proportionality, hourly rates, amount of time spent, counsel’s fees and disbursements. The court will consider the factors set out at CPR 44.4(3) in deciding the amount of costs.
What are the sanctions for failing to file and serve a statement of costs?
The failure by a party, without reasonable excuse, to file and serve a statement of costs on time will be taken into account by the court in deciding what order to make about the costs of the claim, hearing or application, and about the costs of any further hearing or detailed assessment hearing that may be necessary as a result of that failure.
The failure by the receiving party to file and serve a statement of costs may result in an adjournment or order for detailed assessment. The paying party could then seek its costs of the adjourned hearing if they had spent time preparing for a summary assessment. They may also argue that the receiving party should be liable for the costs of the detailed assessment proceedings.
Where a statement of costs is provided on the day of the hearing, MacDonald v Taree Holdings (2000) AII ER (D) 2204 provides that the court will take the failure into account, but its reaction should be proportionate. If the only factor against awarding costs was merely the failure to serve a statement of costs without aggravating factors, a party should not be deprived of all their costs. However, if aggravating factors did arise then the receiving party may be deprived of all or a proportion of their costs.
What is different about the new statement of costs for summary assessment under the pilot scheme?
CPR Practice Direction 51X provides for a pilot of a new statement of costs for summary assessment. The pilot scheme will operate from 1st April 2019 to 31st March 2021 and apply to all claims in which costs are to be summarily assessed, whenever they were commenced.
There are two new forms. The N260A applies when the costs have been incurred on an interim application, whereas the N260B applies when the costs have been incurred up to trial.
The new statements of costs are detailed electronic spreadsheets with information set out across various tabs, similar to the new electronic bills of costs (Precedent S). The new forms allow costs to be split into costs budget phases, which provides a greater level of transparency and allows the costs claimed to be compared against the costs budget.
The new statements of costs are likely to take longer to prepare given the additional detail they provide. However, utilising our experience in preparing statements of costs, we are able to prepare them expeditiously and with great accuracy.
Costs Lawyers and Law Costs Draftsmen
What is a costs lawyer and law costs draftsman?
Costs lawyers and law costs draftsmen are highly specialist legal professionals working in the law and practice area of legal costs. A costs lawyer is a qualified and regulated lawyer, whereas a law costs draftsman may not be regulated. This means that costs lawyers can undertake the following reserved legal activities:
- Conduct litigation;
- Appear in court; and
- Swear oaths
Costs lawyers and law costs draftsmen are considered to be the only branch of the legal profession with detailed knowledge and expertise in the legal costs field. They predominantly work with firms of solicitors, but are also often instructed by members of the public, including both businesses and individuals.
What do costs lawyers and law costs draftsmen do?
Costs lawyers and law costs draftsmen deal with a wide range of legal costs matters. Their work includes:
Legal costs between the parties - in litigation, the unsuccessful party is usually ordered to pay the successful party's costs.
Solicitor and client costs - clients who are unhappy with their solicitor's bill of costs can challenge it. Costs lawyers and law costs draftsmen are often instructed to advise on law and cost procedure and may argue in support of or against the bill of costs.
Legal aid or public funding - where a solicitor is acting on behalf of a publicly funded client, a detailed bill of costs is usually required to be assessed by the Legal Services Commission before payment can be made out of the public legal fund.
Costs lawyers and law costs draftsmen regularly undertaken the following exercises:
Draft bills and schedules of costs;
Draft points of dispute and replies to claims for costs;
Assist in the preparation of costs budgets and advise on costs budgets presented by an opposing party;
Advise on retainers and fee arrangements between clients and their legal advisors;
Advise on and prepare claims for costs from public funds (Legal Aid);
Advise on disputes between solicitors and their clients; and
Act as costs mediators or arbitrators in costs disputes.
Why should you instruct a costs lawyer or law costs draftsman?
Legal costs is a very complicated and niche area of law. Costs lawyers and law costs draftsmen are experienced in providing pragmatic advice in relation to complex aspects of legal costs in a digestible form. Utilising their expertise, costs lawyers and law costs draftsmen are able to prepare costs pleadings with a high level of accuracy, which is essential to either justifying or opposing legal costs. The law surrounding legal costs has evolved with increased complexity in recent years following the emergence of a number of high profile court decisions concerning proportionality, costs budgeting and Part 36, and experienced costs lawyers and law costs draftsmen are well-versed in the arguments that should be advanced on such issues.
For law firms, instructing a costs lawyer or law costs draftsman allows the solicitor to focus their attention on case management, leaving the costs management to the costs professional with expertise in the same. Moreover, the hourly rates of costs lawyers and law costs draftsmen are invariably less than solicitors so they can delegate the work to specialists at a lower cost.