The case of ISG Retail Ltd v FK Construction Ltd [2024] Costs LR 489 involves a dispute over the costs and procedural aspects of a construction contract.

What is a Legal Costs Assessment?

A legal costs assessment is a judicial process to determine the amount of legal costs a party must pay to another party, typically following litigation. This process ensures that the costs awarded are fair and reasonable based on the work performed and the outcomes of the case. 

The main goal of a legal costs assessment is to ensure that the winning party recovers the costs incurred during the litigation, but only to the extent that they are reasonable and proportionate to the matters in dispute​.

Types of Costs:

• Solicitor’s Fees: These include fees charged by solicitors for legal representation and advice.
• Disbursements: Out-of-pocket expenses incurred during litigation, such as court fees, expert witness fees, and travel expenses.
• Counsel’s Fees: Fees for barristers or advocates who provide specialized legal arguments in court.

Assessment Processes:

• Detailed Assessment: A Detailed Assessment Hearing involves a comprehensive review of the amount of costs claimed. It is often used in more significant or complex cases. This involves a detailed scrutiny of the Bill of Costs by a Costs Judge. The receiving party is expected to commence Detailed Assessment proceedings by serving a Bill with a Notice of Commencement. Before proceeding to a hearing, parties should attempt to negotiate costs using points of dispute and replies. If the paying party does not dispute costs within 21 days, the receiving party may apply for a Default Costs Certificate.  It should be noted that detailed assessment can take the form of either a provisional assessment hearing (on the papers and for Bills of £75,000 or less), and attended detailed assessment hearings.
• Summary Assessment: A quicker, less detailed review of costs, usually conducted immediately following a hearing or trial. It is often used in shorter, less complex cases​.

Reasonableness and Proportionality:

Costs must be both reasonable in amount and proportionate to the matters in dispute. This means the costs should be in line with what a reasonable client would expect to pay for the work done and the importance of the case​.

Courts consider factors such as the complexity of the case, the amount of work required, the hourly rates of the legal professionals involved, and the outcome of the case​.

Challenges and Reductions:

The paying party can challenge the costs claimed, arguing that they are excessive or unreasonable.

The court can reduce the claimed costs if it finds them disproportionate or unnecessary for the case. For example, in the ISG Retail Ltd v FK Construction Ltd case, the court reduced FK’s costs significantly after finding them disproportionate​.

Assessment Hearing:

During an assessment hearing, both parties present their arguments regarding the costs claimed. The judge then makes a decision on the appropriate amount to be awarded​ and a costs order will be provided.

If the matter is a Provisional Assessment on the papers, then the Court will make written decisions based on the Points of Dispute and Replies provided, without hearing further from the parties at an oral hearing.

ISG Retail Ltd v FK Construction Ltd

In the case of ISG Retail Ltd v FK Construction Ltd [2024] Costs LR 489, the Court assessed FK Construction’s costs and found them to be disproportionate. FK’s initial costs claim of £212,142.65 was reduced to £133,000, reflecting approximately 63% of the total costs claimed.

This reduction was due to the Court’s determination that the costs were excessive and not entirely justified by the work performed and the nature of the dispute

Background of the Case

ISG Retail Limited engaged FK Construction Limited for roofing and cladding works on a project in Avonmouth, Bristol, known as “Project Barberry.”​

FK issued an Application for Payment (AFP 16) for £1,691,679.94, which ISG did not pay. Instead, ISG issued a Pay Less Notice, leading to an adjudication​.

The adjudicator decided in favour of FK, ordering ISG to pay the full amount plus interest. FK sought enforcement of this decision through a summary judgment​.

Legal Proceedings and Judgment

ISG attempted to argue for set-off based on another adjudication decision (the “Molloy Decision”), which suggested a lower amount was due. However, the Court found no separate proceedings to support this set-off and ruled in favor of FK.

The Court rejected ISG’s arguments about set-off and upheld the adjudicator’s decision, awarding FK the full amount claimed​.

Legal Costs Assessment

On initial assessment of costs, FK’s costs were deemed excessive at £212,142.65, despite the substantive dispute being in respect of a £1 million+ claim. The Court found these costs disproportionate and reduced the costs payable to £133,000, reflecting approximately 63% of the total costs.

As such, it should not be considered a given that simply because a matter involves a high-value dispute, that any level of costs will be permitted, and this follows the precedent set previously in Kazakhstan Kagazy PLC v Zhunus [2015] EWHC 404 (Comm).

Part 8 Proceedings

ISG sought declarations that FK had not complied with a condition precedent in the contract, which was crucial for claiming additional costs due to delays. The Court found these issues unsuitable for Part 8 proceedings, noting substantial disputes of fact that required a full trial under Part 7.

This case highlights the importance of following procedural rules in construction disputes and the court’s approach to legal cost assessments and procedural continuances.

How can ARC Costs Assist?

ARC Costs are a team of highly experienced legal costs assessors and cost draftsmen providing a range of legal services. Our many years of experience in the industry means we have worked on a variety of cases and know how best to secure maximum cost recovery/reductions for our clients, dependant upon the party we represent.

As a team of qualified Costs Lawyers/Law Costs Draftsmen, ARC Costs can assist in all matters relating to legal costs, whether you are a receiving or paying party. As well as assisting solicitors and law firms with their legal costing matters, we also help litigants in person.

If you are looking for more information surrounding our legal costs assessors and legal costs services, please get in touch with us at 01204 397302 or via email at info@arccosts.co.uk. Alternatively, you can contact us via our live chat facility below to speak with a costs expert directly.