Legal Costs Assessment: How Are Legal Costs Assessed by the Court?

A legal costs assessment determines how much one party must pay towards another party’s legal costs following court proceedings. It is often necessary when a court has made a costs order but the parties cannot agree how much should be paid.

The court considers whether the fees and expenses claimed are reasonable, whether the work was necessary and, where applicable, whether the overall costs are proportionate to the case.

In England and Wales, the assessment of costs is governed by the Civil Procedure Rules (CPR), particularly Parts 44 and 47.

ARC Costs provides specialist legal costs services for solicitors, receiving parties seeking to recover costs and paying parties who wish to challenge them.

What is a Legal Costs Assessment?

A legal costs assessment is the process of deciding how much of a party’s legal expenditure can be recovered from another party. For example, a claimant might obtain a costs order after winning a commercial dispute. Their solicitor may have incurred £60,000 in legal fees, but the defendant might argue that only £40,000 is reasonable.

If the parties cannot agree, the court can assess the costs and determine the amount payable.

The court may examine:

• The solicitor’s hourly rate and experience.
• The time spent completing particular tasks.
• Whether work was necessary or duplicated.
• Barristers’ fees, expert fees and other disbursements.
• Whether the costs are proportionate to the dispute, where that test applies.

Importantly, the amount charged by a solicitor is not automatically the amount recoverable from the opposing party.

Summary Assessment vs Detailed Assessment

There are two main ways courts assess legal costs.

Summary Assessment

Summary assessment usually takes place at the end of a hearing, where the judge decides the amount of costs payable without a separate assessment process. The parties generally provide statements of costs, commonly using Form N260, setting out their expenditure.

This approach is often suitable for shorter hearings and applications where the judge has enough information to assess costs immediately.

Detailed Assessment

Detailed assessment is a more extensive procedure, usually used where costs are substantial or cannot be assessed conveniently at the original hearing.

It involves preparing a Bill of Costs, allowing the paying party to raise objections and, where necessary, having disputed items determined by the court.

You can read more in our guide to the detailed assessment of costs.

How Does Detailed Assessment Work?

1. The Court Makes a Costs Order

The process usually begins with a costs order establishing one party’s liability for another party’s costs. The order may specify that costs are subject to detailed assessment if not agreed.

The party entitled to recover costs is known as the receiving party. The party responsible for paying is the paying party.

2. The Receiving Party Prepares a Bill of Costs

The receiving party prepares a Bill of Costs detailing the work undertaken and the amounts claimed. This includes solicitors’ fees, counsel’s fees and recoverable disbursements. The Bill must comply with the relevant procedural requirements. Depending on the proceedings, an electronic Bill of Costs in Precedent S format may be required.

Accurate preparation is important because errors, unsupported entries and excessive claims can lead to reductions during assessment.

Our legal costs drafting services include the preparation of Bills of Costs for detailed assessment proceedings.

3. A Notice of Commencement is Served

Under CPR 47.6, the receiving party will usually commence detailed assessment by serving a notice of commencement, using Form N252, together with the Bill of Costs and any other required documents.

The usual deadline to commence detailed assessment following a judgment or costs order is three months, although different triggering events and court directions can affect the deadline.

Failing to begin proceedings within the required period can have consequences, including potential loss of interest or other sanctions following a court application.

4. The Paying Party Has 21 Days to Respond

Once the notice of commencement has been served, the paying party normally has 21 days to serve Points of Dispute. These identify the items being challenged and explain the objections.

For example, the paying party might argue that the solicitor’s hourly rate was excessive, too much time was spent reviewing documents or certain disbursements were unnecessary.

Points of Dispute must be sufficiently specific to allow the receiving party to understand and respond to the challenges. ARC Costs assists paying parties with preparing Points of Dispute and receiving parties with Points of Reply.

5. Negotiations or an Assessment Hearing

The parties may negotiate and agree the amount payable without requiring a hearing. If agreement cannot be reached, the receiving party can request an assessment hearing, subject to the applicable procedural requirements.

At the hearing, a Costs Judge or District Judge considers the disputed items and determines the amount recoverable. The court may reduce individual charges, disallow particular items or determine that the amount claimed is reasonable.

Our Costs Lawyers can assist with specialist costs advocacy and representation at detailed assessment hearings.

What is a Default Costs Certificate?

A default costs certificate may be available where the paying party fails to serve Points of Dispute within the required period. Under CPR 47.9 and 47.11, the receiving party can request a certificate requiring payment of the costs claimed, subject to the applicable rules.

This is particularly important because missing the 21-day deadline can have serious financial consequences.

A default costs certificate can sometimes be set aside, but the paying party must establish the appropriate grounds. Where the receiving party was not entitled to the certificate, the court must set it aside. In other circumstances, the court has discretion where there is good reason for the assessment to continue.

How Does the Court Decide Which Costs Are Reasonable?

Under CPR 44.3 and 44.4, the court considers the basis of assessment and the circumstances of the case. On the standard basis, costs must be reasonable and proportionate. Any doubt about whether costs were reasonably and proportionately incurred is resolved in favour of the paying party.

On the indemnity basis, the proportionality requirement does not apply in the same way, and doubts about reasonableness are resolved in favour of the receiving party.

For example, an experienced solicitor may reasonably charge a higher hourly rate for particularly complex litigation. However, the court may question whether senior-level work was necessary for routine administrative tasks.

Where costs budgeting applies, the court must also consider the effect of any approved or agreed costs budget.

Our Precedent H costs budgeting services help solicitors prepare, negotiate and manage costs budgets throughout litigation.

What is Provisional Assessment?

Not every detailed assessment requires an oral hearing. Under CPR 47.15 and Practice Direction 47, qualifying Bills of Costs claiming no more than £75,000 are generally dealt with through provisional assessment.

The court considers the Bill, Points of Dispute and supporting documents on paper. A party dissatisfied with the provisional assessment can request an oral hearing within 21 days of receiving the court’s notice.

However, requesting a hearing carries potential costs consequences, particularly if the party fails to improve its position sufficiently.

Can You Challenge Your Own Solicitor’s Fees?

Yes, but this is different from challenging the legal costs claimed by an opposing party. Disputes between solicitors and their own clients may fall under the Solicitors Act 1974, with separate rules and time limits.

A client may question whether work was authorised, whether the fees reflect the agreed retainer or whether the charges are reasonable. Specialist advice can help establish which assessment procedure applies.

Legal Costs Assessment Services from ARC Costs

ARC Costs assists solicitors and law firms throughout England and Wales with all stages of legal costs assessment. Our legal costs specialists assist with preparing Bills of Costs, reviewing costs claims, drafting Points of Dispute and Points of Reply, negotiating settlements and providing support during detailed assessment proceedings.

We work for both receiving and paying parties, helping clients understand the strengths of their position and the potential costs of continuing a dispute.

Whether you need to recover legal costs following a successful claim or challenge an excessive Bill of Costs, our experienced Costs Lawyers and Costs Draftsmen can assist.

Contact ARC Costs to discuss your legal costs assessment requirements and obtain a quotation.

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