What is CPR 44.5?

Civil Procedure Rule (CPR) 44.5 governs the assessment of costs where there is a contractual agreement between the parties regarding the payment of legal costs. This rule applies in cases where a contract stipulates that one party is liable for the costs of the other, and can override the usual rules that apply pursuant to CPR 44.2(2)(a).

Under CPR 44.5, the Court retains discretion in assessing whether the costs claimed under a contract are reasonable, even if the contract specifies that costs should be paid on an indemnity basis. This means that while contractual provisions including costs are given significant weight, they do not override the Court’s discretion to assess the issue, and ensure that costs are not unreasonably incurred.  It also prevents the benefiting party from any contractual agreement to costs, from conducting themselves in an inappropriate manner throughout proceedings.

This rule is particularly relevant in litigation where one party seeks to recover costs based on a contractual obligation, ensuring that such claims are subject to judicial scrutiny.

Civil Procedure Rule 44.5 states the following:

“(1) Subject to paragraphs (2) and (3), where the court assesses (whether by summary or detailed assessment) costs which are payable by the paying party to the receiving party under the terms of a contract, the costs payable under those terms are, unless the contract expressly provides otherwise, to be presumed to be costs which –

(a) have been reasonably incurred; and

(b) are reasonable in amount,

and the court will assess them accordingly.

(2) The presumptions in paragraph (1) are rebuttable. Practice Direction 44 – General rules about costs sets out circumstances where the court may order otherwise.

(3) Paragraph (1) does not apply where the contract is between a solicitor and client.”

The Detailed Assessment Process under CPR 44.5

Establishing Contractual Entitlement to Costs

Before any assessment takes place, there must be a clear contractual basis for the costs claimed. CPR 44.5 states that where a contract provides for one party to pay costs of another in litigation, the court will uphold this agreement unless it is unreasonable or contrary to public policy.

Once the contractual basis is confirmed, the receiving party (the party claiming costs) must submit their costs for assessment if the amount is disputed.

Such contractual obligations to pay costs often arise in tenancy agreements, whereby there may be a clause for the landlord to be paid costs of assessing the requirement for any repairs on termination/ending of a tenancy, or in dealing with any legal dispute under the scope of the tenancy.

It is also common for such contractual costs clauses to also allow for costs to be assessed on an indemnity basis, meaning that the issue of proportionality is irrelevant, and will allow the landlord to recover a higher proportion of their costs.

Commencing the Detailed Assessment Process

If the paying party does not voluntarily settle the costs claimed, the receiving party must begin the detailed assessment process under CPR Part 47. This involves:

• Serving a Notice of Commencement under CPR 47.6, informing the paying party that the costs incurred will be assessed.
• Submitting a Bill of Costs, which provides a breakdown of the legal fees and disbursements being claimed. This bill must reference the contractual provision that entitles the receiving party to costs.

The Paying Party then has 21 days to respond by filing Points of Dispute under CPR 47.9, challenging any part of the costs claimed. If they fail to do so, the receiving party can apply for a Default Costs Certificate under CPR 47.11, meaning the full amount may be granted without a hearing.

Negotiation and Replies to Points of Dispute

If the paying party files Points of Dispute, the receiving party can respond with Replies to Points of Dispute under CPR 47.13. This stage is often used to negotiate and potentially reach a settlement without requiring a court hearing.

The Court encourages parties to resolve cost disputes at this stage using dispute resolution, but if they cannot agree, the process moves to a detailed assessment hearing.

Detailed Assessment Hearing

If the costs remain in dispute, either party can apply for a detailed assessment hearing under CPR 47.14. The hearing takes place before a Costs Judge or Master, who will:

• Review the contract to confirm the entitlement to costs under CPR 44.5.
• Assess the Bill of Costs to determine whether the amounts claimed are reasonable, even if indemnity costs apply.
• Consider the parties’ arguments, including whether any reductions should be made.

Court Decision and Final Costs Certificate

After assessing the bill, the court issues a Final Costs Certificate under CPR 47.17, confirming the amount payable. If either party disagrees with the decision, they can appeal under CPR 47.20, but only on limited grounds, such as legal errors or miscalculations.

CPR 44.5: Contracting out of Fixed Costs and Contractual Indemnity Costs

CPR 44.5 plays a crucial role in litigation by allowing parties to contractually agree on costs, either by opting out of fixed costs (which from 1 October 2023 applies to the vast majority of Fast and Intermediate Track litigation) and instead agreeing on an hourly rate, or by enforcing pre-existing contractual provisions requiring one party to pay the other’s legal costs on an indemnity basis in the event of a dispute.

Fixed costs typically apply to specific categories of cases where the amount recoverable in legal fees is limited to ensure proportionality. However, CPR 44.5 allows parties to agree on alternative arrangements, such as payment of legal costs based on an hourly rate, provided there is a clear contractual basis for doing so. This is particularly beneficial in commercial litigation, where legal fees can be substantial, and parties may prefer to have greater control over cost recovery rather than being bound by restrictive fixed-costs rules.

Another significant aspect of CPR 44.5 is its recognition of indemnity cost clauses in existing contracts. Many commercial agreements, leases, and tenancy agreements contain provisions stating that if a dispute arises, one party (often the tenant or the losing party in a commercial arrangement) must pay the legal costs of the other party on an indemnity basis.

This means that the successful party in litigation can recover all reasonable legal costs without being subject to the usual test of proportionality that applies to standard costs assessments. Although, courts retain discretion when assessing costs, particularly under CPR 44.3.

How can ARC Costs Assist with Costs Disputes under CPR 44.5?

ARC Costs are an experienced and independent team of specialised Costs Draftsmen and Costs Lawyers. As independent experts, we can assist either Paying or Receiving parties in resolving costs matters. We regularly assist in the recovery of costs under CPR 44.5, and as independent experts, we can also assist Paying Parties in challenging any costs claims received.

For Receiving Parties, we provide assistance with anything relating to your legal costs claim, whether it be preparing a Costs Budget, to preparing the Bill of Costs and negotiating recovery of your outstanding fees.

If you require any free initial advice, or our assistance with regards to any aspect of costs, please email us at info@arccosts.co.uk, or contact us via the Contact Us page and one of the team will get in touch on the same working day.  Alternatively, speak to one of the team on 01204 397302.

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