When initiating or defending legal action, legal costs are a major consideration that must be taken into account.  Many parties will focus simply on the objective of the dispute, or potential damages that can be recovered however, legal costs that follow the action can often be the same as, or even more than any initial financial amount in dispute.

Whether you are a solicitor seeking to recover your client’s costs, or an individual concerned about the risk of paying the other side’s fees, understanding how costs and disbursements are treated is crucial.

At ARC Costs, we specialise in all aspects of legal costs law, as an independent experts, we can act for either a Paying or Receiving Party. We can assist with preparing and opposing bills of costs, as well as handling detailed assessment proceedings on your behalf. We explain below what exactly legal costs are, how they are assessed, and who is usually responsible for paying them.

What are legal costs?

Legal costs are the legal fees and expenses arising from pursuing or defending legal proceedings. They include:

Solicitor and barrister fees

These are essentially the costs if time spent by a barrister or solicitor working on your case. They often include the cost of legal advice, drafting, and representation in Court Proceedings.

Disbursements

These are other outlays such as court fees, expert witness charges, and interpreter or travel expenses.

The amount of legal costs can vary significantly depending on the type and complexity of the case. At ARC Costs, we regularly advise on cost budgeting and proportionality, helping to ensure that costs remain reasonable and recoverable, and are properly forecast early on in legal proceedings.

Types of legal costs

The Courts in England and Wales recognise several categories of costs:

Standard basis

When recovering costs on the standard basis, only costs that are reasonably incurred and proportionate will be allowed. Any doubt will be resolved in favour of the paying party.

Indemnity basis

Indemnity basis costs are more generous to the receiving party, with any doubt resolved in their favour. These are often awarded where there has been misconduct or in circumstances as set out in the Civil Procedure Rules for a Claimant party beating their own Part 36 Offer at Trial.

Fixed costs

In certain cases, such as lower-value personal injury claims or civil disputes, fixed recoverable costs are set by the Civil Procedure Rules.  The scope of fixed costs was extended from 1 October 2023 to cover the majority of civil proceedings up to £100,000 in value.

Contractual costs

Parties may agree in advance how costs will be handled, and the court will usually uphold these agreements.

ARC Costs provide detailed advice on all these categories, ensuring that our clients secure the maximum costs recovery possible.

Who pays legal costs?

The starting point in civil litigation is the principle set out in Civil Procedure Rule 44.2. This states that the unsuccessful party will usually be ordered to pay the successful party’s costs. This is often referred to as the “loser pays” rule.

However, the court retains wide discretion and may consider factors such as:

• The conduct of the parties.
• Whether a party has only been partially successful.
• Whether reasonable settlement offers were made and refused.

Our team regularly assists clients in arguing for (or against) costs orders, ensuring the fairest outcome possible.

Interim costs orders

Costs do not only arise at the end of proceedings. The court can make interim costs orders at various stages. For example, a party who loses an interim application may be ordered to pay the costs of that hearing immediately.

Costs and settlement

Many disputes are resolved without a final trial, and costs are often a key issue in settlement discussions. Formal offers made under Part 36 of the Civil Procedure Rules carry particular costs consequences, and if a Claimant accepts a Part 36 Offer, it carries with it a deemed order that the Defendant will pay the Claimant’s costs of the action.

Further, if a Claimant rejects a Defendant’s Part 36 offer but later fails to achieve a better outcome at trial, the Claimant may be liable to pay the Defendant’s costs from the date of expiry of the offer.

ARC Costs frequently advise on the tactical use of Part 36 offers and the associated costs risks.

Costs in different types of cases

• Civil litigation – the general rule applies, though costs recovery is rarely 100%. Successful parties typically recover 60–80% of their actual costs after assessment.
• Family law – in family law proceedings, there is usually no order as to costs, unless one party has acted unreasonably. Parties therefore usually bear their own costs. Solicitors in family law cases funded by Legal Aid can recover their costs from the Legal Aid Agency.
• Criminal cases – acquitted defendants may recover some defence costs from central funds, although these are restricted if privately funded.
• Employment tribunals – the “loser pays” principle does not generally apply, and each party usually bears their own costs unless misconduct is involved.

Assessment of costs

Where parties cannot agree the level of costs, the court may assess them. This can take two forms:

• Summary assessment – usually carried out immediately after a short hearing.
• Detailed assessment – a more involved process before a costs judge, where a bill of costs is scrutinised item by item.

At ARC Costs, we act for both receiving and paying parties in detailed assessments. We help by preparing bills of costs, points of dispute, and replies to maximise recovery or minimise liability.

Funding legal costs

Legal costs can be funded in various ways, including:

• Private funding– solicitors may charge fixed fees or hourly rates depending on the nature and complexity of the case.
• Legal aid (available only in limited circumstances).
• Conditional Fee Agreements (no win, no fee agreements).
• Damages-Based Agreements.
• Legal expenses insurance (often part of household or motor insurance).
• Trade Unions – Legal costs may be covered by some trade unions in certain case types.

It is important to remember that even with a “no win, no fee” arrangement, a losing party may still face paying the other side’s costs unless protected by insurance.

How ARC Costs can help

Costs disputes can be complex and stressful. Whether you are a solicitor seeking to recover costs on behalf of a client, or you are facing an order to pay legal costs, ARC Costs can provide expert assistance. Our services include:

• Drafting and negotiating bills of costs.
• Preparing cost budgets and advising on costs management.
• Representing clients in detailed assessment proceedings.
• Advising on Part 36 offers and tactical settlement strategies.
• Acting for both receiving and paying parties.

Our team combines technical expertise with practical experience, ensuring clients achieve the best possible costs outcomes.

For assistance with any legal costs queries, contact one of the team today. You can email info@arccosts.co.uk, or speak to one of our experts by calling 01204 397302.