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Who pays the legal costs of litigation in a commercial dispute? 

Litigation can be expensive, so it’s little wonder that legal costs are a cause for concern for many businesses involved in a commercial dispute. The general costs rule is that the losing party must pay the costs incurred by the successful party in addition to their own. Although, The Court has wide discretion when it comes to costs awards. Issues such as the extent of the winning party’s success, the proportionality of their costs, and the parties’ overall conduct can all have a bearing on the award the Judge makes. 

Here, our expert dispute resolution solicitors explain how Judges decide who pays the costs of a legal dispute, what those costs include, and how they are assessed. They discuss how you can recover your costs from the losing party and what you can do if they cannot pay. They also explore the costs caps that apply in specific cases, and the impact of costs budgeting. 

What are the typical costs associated with commercial litigation? 

The sums incurred by the parties to litigation are collectively known as ‘legal costs’. The term includes several different types of expenses, which can be broken down as follows: 

Solicitors’ charges: You are responsible for your solicitor’s fees from when you first instruct them until the conclusion of the matter. You will likely need to pay the fees as you go along, but you can recover them (or a proportion of them) from the other side if you succeed at trial. 

Court fees: The Court charges the claimant a fee to start the case, and both parties must pay a fee each time they make an application. Court fees are a type of costs referred to as ‘disbursements’. Disbursements are expenses that your solicitor pays out on your behalf, although they usually require you to deposit the funds with them.  

Counsel’s fees: Many commercial disputes, particularly high-value disputes or those including complex legal principles, require the input of a barrister, sometimes referred to as ‘counsel’. Counsel will also be responsible for presenting your case at Court if the matter reaches trial. 

Counsel’s fees are classed as a disbursement. As with your solicitors’ charges, you will likely need to pay them as you go along, but you can include them in the costs sought from the other side if you win. 

Expert’s fees: Some commercial disputes require the involvement of expert witnesses. Their role is to assist the Judge in understanding points outside their expertise and provide an opinion on specific issues.  

As long as payment of the expert’s fees was not reliant on the nature of their evidence or the outcome of the claim, and the fees were reasonable, they should be recoverable as a disbursement.   

It’s important to note that a successful party can only recover their costs as long as they are "of and incidental to the proceedings". and that Court proceedings must start for any costs liability to arise. This begs the question of who should cover the costs incurred by the winning party before the claim was issued. Many cases are governed by rules known as ‘pre-action protocols’, which encourage the parties to exchange information and documentation before heading to Court. The costs of complying with a pre-action protocol can be significant, but since they were incurred before proceedings were issued, are they recoverable? The answer seems to be it depends. Since issuing a claim brings the Court’s costs powers into play, the successful party is at liberty to seek their pre-action costs when the claim finishes.

The issue is more complicated when a claim is never issued. If one party was forced to incur pre-action costs before the other side backed down, can they recover those costs? Unfortunately, most of the time, the answer is no. Since there are no ongoing proceedings, the Court has no power to make a costs Order.  

Our dispute resolution solicitors, who have experience in costs management and recovery, will advise you on which costs might be recoverable with a view to maximising the contribution from the other side. 

How are costs determined in commercial litigation cases? 

The general rule is that the unsuccessful party should pay the winning party’s costs, but the Judge can deviate from this.  

Costs can be assessed on two bases: standard and indemnity. Costs are usually assessed on the standard basis, with the winning party can only recover those costs that were proportionate, reasonably incurred, and reasonable in amount. Any doubt over proportionality will be resolved in favour of the paying party. When costs are assessed on the standard basis, unless specific limitations apply, the receiving party can expect to recover around 2/3 of their total costs. 

Indemnity costs Orders are far rarer than standard ones. When assessing costs on the indemnity basis, a Judge will allow the receiving party to recover costs that were reasonably incurred and reasonable in amount. The Judge presumes proportionality in favour of the receiving party. As a general rule, a successful party whose costs are assessed on the indemnity basis can expect to receive around 80% of their total costs unless specific restrictions apply. Indemnity costs Orders are only made in exceptional circumstances, such as when the defendant rejected a settlement offer that the claimant went on to beat at trial. They are generally made to reflect the court’s disapproval of the paying party’s conduct. 

What factors does the court take into account when assessing costs? 

When deciding what costs award to make and when assessing costs, a Judge will consider various factors, including the following: 

Extent of success: Case law states that a Judge should give ‘real weight’ to the overall success of the winning party, which does not need to succeed on every point to be successful for the purposes of costs. A Judge may consider it appropriate to reduce the costs the losing party has to pay to reflect their success on some aspects of the litigation, particularly if it had been unreasonable for the overall winner to pursue those points.  

Parties’ conduct: The parties’ conduct both before and during the litigation can have a determinative effect on the costs Order and assessment. Some successful litigants have been refused their costs following unreasonable behaviour. 

Examples of the types of conduct the Judge will consider include the following: 

  • Conduct before and during the proceedings, with particular emphasis on the extent to which the parties followed any relevant pre-action protocol. 
  • Whether a party acted reasonably in pursuing or defending a specific issue. 
  • The manner in which a party pursued or defended their case or a specific issue. 
  • Whether a successful claimant exaggerated their claim. 

What role does the conduct of parties play in determining costs? 

The conduct of the parties plays a crucial role in determining costs. For a Judge to completely ignore the ‘loser pays’ rule and shift the costs liability onto a claimant on conduct grounds, there must generally be a complete failure on the issues, or the claimant must have refused a settlement offer that would have put them in a better position. The bases on which a Judge might deprive or disallow a successful party some or all their costs are wider. If a Judge believes the winning party ran up unnecessary costs, unreasonably refused to settle, or generally acted unreasonably, they may disallow that party all or some of their costs. 

The Orders which a Judge may make where a party is deemed to have acted unreasonably include an Order that a party must pay: 

  • A proportion or a stated amount of the other party’s costs. 
  • Costs from or until a specific date. 
  • Costs that were incurred before proceedings were issued. 
  • Costs relating to specific steps taken in the litigation. 
  • Costs incurred in relation to a distinct part of the case. 
  • Interest on costs between specific dates. 
  • Costs on an indemnity basis as explained above 

Impact of costs budgeting in higher value cases 

Under costs budgeting, the Court actively manages costs to ensure they are proportionate and relevant to the issues in dispute. 

The Court decides the extent to which the budgets are approved and actively manages the litigation in accordance with them. When the litigation ends, the winning party’s costs will be assessed in accordance with the approved budgets. Failing to file a costs budget may render your costs recovery limited to Court fees.  

Costs budgeting has several benefits. When the Court actively manages costs, there is less scope for them to get out of hand. Costs budgeting encourages an early settlement since both sides can see the extent of their potential liability were they to lose.  

Effective costs budgeting is crucial in safeguarding a party’s costs entitlement. It requires not only substantial litigation experience but also an understanding of the Court’s attitude to costs and what is likely to be deemed ‘reasonable’ whilst also being realistic. Our dispute resolution solicitors, with their decades of practical experience, will ensure prepare your initial budget and any revisions with the aim of providing the most comprehensive costs protection available. 

Who is responsible for paying litigation costs in commercial disputes and when are they paid? 

The losing party is usually responsible for paying litigation costs, although the Judge can vary this general rule. Unless the Court orders otherwise, the paying party must pay the costs within 14 days. 

Are there any caps on the amount that can be recovered? 

In high value claims, there are no limits on the costs that a successful party can recover provided the costs were reasonably incurred, are reasonable in amount, proportionate to the issues, and align with their budget. Specific rules apply to lower value claims, limiting the recoverability of a successful party’s costs. 

Small claims track cases, which are generally those with a value of less than £10,000, are subject to strict costs caps. Successful parties can expect to recover a minimal amount for legal fees, limited disbursements such as the issue fee, and miscellaneous other expenses. As a result, few parties in small claims track cases seek legal representation because it is not economic to do so. 

From October 2023 onwards, the fixed recoverable costs regime (FRC) was extended to apply to most claims with a value of up to £100,000. If you succeed in a case that falls under the FRC regime, your recoverability of costs from the other side will be limited to those applicable to the complexity band your case falls under. Whilst still fixed, the costs recovery under this regime is more generous than that allowed in the small claims track. 

What are your options for recovering litigation costs? 

The losing party must generally pay the costs assessed by the court within 14 days of the Order. If they don’t, you may need to take steps to recover the sums. Examples of the types of enforcement action you may consider include sending bailiffs to recover goods to the value of the amount owing, securing the debt with a charge over the other side’s property, or taking the money directly out of their wages.  

How long does it typically take to recover litigation costs after a judgment? 

Once the Judge has decided who should pay the costs of the litigation, the exact amount must be finalised. It is always better for the parties to settle the issue through negotiation if possible. This can encourage quicker payment and prevent the parties from incurring the costs of further Court proceedings.  

If the parties can’t agree on a costs figure, they must go to a detailed assessment by the court. The receiving party has three months to start detailed assessment proceedings. If the costs involved are £75,000 or less, the Court may assess the costs without a hearing. For costs exceeding that amount, the parties will need to attend a hearing. 

How long it takes to recover litigation costs through the detailed assessment process depends on the size and complexity of the receiving party’s bill, the extent to which the paying party disputes it, and the Court’s availability. The sooner the receiving party starts the process, the quicker the matter will likely be resolved. The parties can save themselves time and money by seeking to agree on an amount for costs without the Court’s involvement.   

What happens if the losing party cannot afford to pay? 

Obtaining a costs Order against the other side can be of little use if they cannot pay it. Whilst they may not have the cash available to cover their liability, they may own assets which, if sold, would do so. In these cases, you can instruct bailiffs to remove and sell goods to satisfy the costs Order. Alternatively, you may take a charge over their property, apply for an Order for Sale, and take the money owed to you from the proceeds. 

Our dispute resolution solicitors are well versed in eliciting payment of costs from parties claiming impecuniosity. They will investigate the party’s financial situation and take all appropriate action to collect any money or realise assets to satisfy the costs Order. 

Summary 

Litigation can be costly, so understanding the costs rules applicable to legal proceedings is as important as understanding the merits of your legal position. Our expert solicitors will help you understand the extent of your potential costs liability from the outset, and advise on the costs consequences of any proposed course of action in plain English so you can make informed decisions on the conduct of the claim. They will actively manage your costs throughout the matter, and devise a litigation strategy that not only gives your case the best chance of success, but also ensures you do nothing that may hamper your ability to secure the maximum costs recovery.  


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