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How do the courts award costs at trial?

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Costs are always in the court’s discretion except in certain circumstances where they follow automatically. The general rule is that the loser will pay the winners costs. Although this is not always the case. A judge can make a contrary order or may make different orders relating to different issues or stages in the case. The court will consider all the circumstance of the case, which includes the parties conduct when deciding what order to make with regards to costs. The conduct of the parties may include:

  • The conduct before and during the proceedings and the extent to which they have followed the relevant pre-action protocol.
  • Whether it was reasonable for a party to raise, pursue, or dispute a particular allegation or issue.
  • The manner in which a party has pursued, or defended their case, or particular allegation or issue.
  • Whether the winning party has exaggerated their claim.
  • Settlement offers including Part 36 offers.

Costs budgets:

In April 2013, the courts introduced costs budgets which were updated in April 2016. The rules apply to all multi-track cases, except where the amount claimed is £10 million or more, or the value is £10 million or more, in non-monetary claims which are either not quantified or not fully quantified. However, even in these cases the courts have the discretion to order costs budgets.

Parties must prepare a detailed costs budget to be agreed with the other party, or subject to a case management order. If the parties are unable to agree their budgets, then a budget discussion report will have to be prepared for the court which details the areas that are and are not agreed.

Lawyers have to prepare a budget based on certain phases of the claim such as disclosure or witnesses, and provide a budget for barristers and solicitors time for each of those phases, which includes detailed disbursements. Contingencies also need to be budgeted for and the courts approval will be needed for any changes. Budgets should be proportionate to the claim and adhered to by both parties. Compliance with the budget is vital for recovery of costs from the other party. Any increase in budget needs to be agreed by the other party, or it will be necessary to get a variation order from the court before incurring the increase costs.

The bases of costs:

When determining the amount payable by one party to another for the costs incurred the court will assess how much is payable, unless a sum is fixed in the courts order. The assessment process is conducted on either the standard basis or indemnity basis. The standard basis is less generous to the receiving party. On both basis’s the court will not allow costs which are considered to be unreasonable.

On the indemnity basis, concern as to reasonableness is resolved in favour of the receiving party. There is no proportionality test.

On the standard basis, concern as to reasonableness is resolved in favour of the paying party and the court will only order costs which are proportionate. When determining what is proportionate the court will consider:

  • The amount of the costs compared to the value of the claim.
  • The value of any non-monetary relief in issue.
  • The complexity of the case
  • Any additional work created by the conduct of the paying party.
  • Any wider factors involved in the proceedings.

If the court believes one party or their legal representation has behaved improperly, or unreasonably, either before, or during the proceedings, it can disallow all or some of that party’s costs, or order the party at fault or their legal representation to pay costs which they may have caused the other party to incur.

Interim costs orders:

The Civil Procedure Rules (CPR) requires that the parties to litigation are aware of the costs of the litigation as the case progresses, and if appropriate should pay or receive costs according to the steps taken during the course of litigation. Essentially, pay as you go. If an interim costs order is successful, the assessed costs must be paid within 14 days.

Assessment of costs:

All costs which a party is ordered to pay are subject to a detailed assessment of costs, except in cases where the costs are assessed or fixed by the court. This is an assessment of legal costs by reference to technical rules, limits, and ceilings. When the paying party does not agree to the itemised bill of costs, all the receiving party’s solicitors’ papers have to be submitted to a Costs Judge. However, the increasing use of costs budgets is likely to diminish the need for a detailed assessment of costs.

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