Maintaining Your Entitlement to Costs

If you want to recover any legal costs from your opponent at the successful conclusion¹ of a contentious legal action then it is imperative that there is a mechanism in place to allow for this.

Arguably, two of the most important conditions that must be satisfied to be able to claim any costs from your opponent are: -

• a valid and enforceable retainer; and
• an agreement/Order for your costs

Without both of the above, you will be at risk of failing to recover even a penny!²

The steps you need to take to avoid too much difficulty in recovery of your costs depends on the time at which settlement is being contemplated.

Pre Issue of Proceedings

Prior to the issue of proceedings, it is important to ensure that any “full and final settlement” agreement provides for recovery of your legal costs. If the claim has settled and the agreement does not included a provision for costs then considerable difficulties can arise.

To avoid any potential challenges when you are attempting to recover your legal costs, it is prudent to make sure that you have written evidence which accurately portrays any agreement to costs. Without written evidence, complications can arise which can increase the amount of time and/or money you spend on agreeing your costs (which itself may not be recoverable).

It is important to remember that where proceedings have not been issued, you will not have an automatic right to serve a Bill of Costs and commence Detailed Assessment proceedings. To commence Assessment proceedings, it is necessary to obtain an Order from the Court by commencing Part 8 proceedings³. The Court is only going to grant the necessary Order if you can evidence that your opponent has entered into an agreement to pay your legal costs. Thus, if there has been no agreement to costs, the Court will not grant the Order and you will not be able to commence Assessment proceedings to recover any costs⁴.

It may be that you have decided to settle the matter via a 'Part 36 offer' made and accepted prior to the issue of proceedings; however, it is advisable to tread with caution when dealing with offers which purport to be 'Part 36 offers' since they throw up 2 distinct issues, which are: -

• They do not allow for automatic service of a Bill of Costs for costs to be assessed on the standard basis⁵. This is because a Part 36.10 of the CPR needs to be initiated to be able to make use of the provisions under Part 44.12(1). Technically, Part 36.10 only relates to the costs of the proceedings and therefore it is arguable that it cannot apply to a case where proceedings have not yet been commenced⁶. Thus, if you accept an offer pre issue of proceedings which purports to be a Part 36 offer, it is likely that you will still need to issue a Part 8 claim to obtain an Order which will allow you to serve a Bill of Costs and commence Detailed Assessment proceedings⁷.
• Unless the offer specifically refers to costs incurred pre issue of Proceedings, the costs incurred will not automatically fall to be recovered in accordance with the standard basis as evidenced by the recent case of Udogaranya v. Nwagw [2010] EWHC 90186 (Costs)⁸. The reasoning is similar to point 1 above, Part 36.10 specifies the costs of proceedings and not the costs incurred prior to proceedings. Thus, for example, in cases where fixed costs would normally apply ⁹, the usual rules in relation to the fixed costs will still apply unless the offer specifically mentions pre-action costs.

The case of Udogaranya highlights the need to ensure that any agreement (especially if made via Part 36) specifies exactly what costs are to be recovered. If there is any doubt that pre-action costs may fail to be recovered, then it is imperative that the agreement includes specific provision for the recovery of your costs.

If you want an easy way to view the process, see our handy flowchart.

Post Issue of Proceedings

Following the conclusion of an action post issue of Proceedings, the right to claim legal costs will invariably arise from a Court Order¹⁰ or acceptance of a Part 36 offer. If you want to recover your legal costs then it is important to ensure that your right to costs is included within any final Order made and/or appropriately included within the Part 36 offer¹¹.

Whilst it is essential to consider recovery of your legal costs at the end of the claim, it is equally imperative that you don't lose sight of them when you are conducting the claim. During the course of a substantive action, you may have become involved in complex and/or convoluted legal argument and various aspects may have been hotly contested by your opponent leading to Applications or Hearings where Orders are made (or agreed to) which directly impact upon the amount of costs which you can ultimately recover. Section 8.5 of the Cost Practice Direction sets out some of the Orders which a Court may make during the case¹², these include:

• Costs in any event: this may also be referred to simply as 'costs'. The Party in whose favour the Order is made in respect of the part of the proceedings to which the Order relates, is entitled to the costs incurred in relation to that part of the proceedings. The effect of this Order is that regardless of the outcome of any other part of the proceedings, the costs incurred by the Party in whose favour the Order has been made will always belong to that Party. The Order is arguably salubrious to the Party benefiting from it, however not so much if you are on the other side since you will not receive your costs and will have to pay those of your opponents.
• Costs in the case: any Orders made allowing for 'costs in the case' will ultimately follow the Order made at the conclusion of proceedings. Thus, the Party in whose favour the Court makes an Order for costs at the end of the claim will be entitled to the costs of any part of the proceedings where an order for 'costs in the case' has been made. On the face of it, this Order acts in favour of the overall 'winner', however, there may be a considerable wait before any costs are received.
• Costs reserved: the Court's decision in relation to the costs is deferred to a later date. It should be noted that where no later decision is made, any costs subject to a 'costs reserved' Order become 'costs in the case'.
• Costs thrown away: contrary to the wording, the costs most definitely are not thrown away! Whilst this terminology has been known to be hotly contested, certainty finally arrived with the definition of the phrase set out in the CPR. Orders might include the phase 'costs thrown away' where, for example, a Judgment or Order previously made has been set aside. The Order provides for the Party in whose favour the costs Order has been made to be entitled to the costs which have been incurred as a consequence of the setting aside¹³.
• Costs of and caused by: for example, applies where there has been an Application to amend a Statement of Case. The Party in whose favour the costs Order is made will be entitled to the costs of preparing for and attending the Application and also the costs of amending the Statement of Case.
• Costs here and below: provides for the recovery of costs for the proceedings in which the Court made the Order and also for the costs incurred for proceedings in any lower Court¹⁴.
• No order as to costs: each Party bears their own costs in relation to the part of the proceedings to which the Order relates regardless of the final costs Order made at the conclusion of the proceedings.

It is useful to remember that where any Order is silent as to costs, it is the equivalent of there being 'no order as to costs' and you will not be able to recover your costs in relation to the part of the proceedings to which the Order relates¹⁵.

If you believe that your Order is incorrect or doesn't portray the Judge's decision adequately, you still might have an option to remedy the situation.

Rule 3.1(7) of the CPR: this Rule gives the Court the power to vary or revoke an Order made under the Rules.

The Slip Rule: mistakes or omissions can be rectified by using the Slip Rule¹⁶. The Court might use the Slip Rule to amend an Order, for example, where the mistake is administrative. Alternatively, an Application can be made. Consequently, it is important to carefully check any Orders made for errors or omissions. It is worth remembering that if there has been a failure to ask the Judge for an Order which would have been made if he had been asked, then it might be appropriate to make an Application under the Slip Rule.

If you want an easy way to view the process, see our handy flowchart.

1 The costs implications associated with discontinuance are not considered in this article.

2 Please see our article “Retainers – Don't Get Short Changed” for further information on retainers

3 See Part 44.12A of the CPR.

4 Depending on the circumstances, you may be able to issue a Part 7 claim on the basis that the claim has not in fact settled because the issue of costs is outstanding.

5 As would be possible post issue of proceedings – see Part 44.12(1)(b) of the CPR

6 Part 36.10(1) of the CPR - if the claim has not been issued then there are no costs of the Proceedings!

7 Although the 'Part 36' offer and acceptance may act as evidence of the agreement to pay costs.

8 The case also gave some very interesting comments in respect of LVI claims and the meaning of “exceptional circumstances” as per Part 45.12 of the CPR.

9 e.g. Road traffic accidents valued at less than £10,000.00

10 Including Orders made at the end of a Hearing and/or as approval of Consent Order/Tomlin Order

11 i.e. make sure that the offer properly complies with Part 36 to allow the costs consequences to follow

12 The list is not exhaustive

13 Which includes the costs incurred in attending/preparing for the original hearing at which the Judgment or Order which has been set aside was made and costs incurred in taking any steps to enforce the original Judgment or Order. See Section 8.5 of the Cost Practice Direction supplementary to Part 44.3 of the CPR for full details.

14 Be careful if the Order has been made in an appeal from a Divisional Court, since the Party will not be entitled to the costs incurred in any Court below the Divisional Court!

15 See CPR Rule 44.13(1) as evidenced in Griffiths v. Metropolitan Police Comr [2003] EWCA Civ 313. Also general exceptions to the Rule are permission to appeal, permission to apply for judicial review or without notice applications – Rule 44.13 (1A)

16 Rule 40.12 of the CPR – correction can be made at any time and a Party can make an Application for correction without notice.