In all types of litigation and dispute resolution, legal costs and expenses will be incurred. These costs are likely to include solicitors’ fees (which can be on an hourly rate basis, or fixed fees), barristers’ fees, Counsel fees, and Court fees, as well as a number of disbursements for expert witnesses.

The issue of costs are usually dealt with on conclusion of a case, often following a damages settlement offer. In most civil litigation, the loser pays the winner’s costs of the case (CPR 44.2(2(a)). The level of costs owed by the losing party (Paying Party) to the winning party (Receiving Party) can be decided by the Court, in which case, the Receiving Party will receive a Costs Order in their favour.  Such costs may be summarily assessed i.e. determined on the day, and this is common in respect of application hearings and Fast Track disputes.  However, it is more common in long-running or complex cases, particularly in Multi Track matters, that an order for detailed assessment of costs will be made.  Detailed assessment is itself, a complex Court process.

Such a Court Order on conclusion of a case will usually have wording to the effect of “costs to be assessed if not agreed.” In these circumstances, the process of Detailed Assessment should be followed.

Standard Basis and Indemnity Basis Costs

The Court decides whether costs are awarded on the standard or indemnity basis under Part 44.3 of the Civil Procedure Rules. In most circumstances, costs are awarded on the standard basis.

Costs on a Standard Basis:

When costs are awarded on a standard basis, the court will assess the amount of costs that the winning party is entitled to recover from the losing party. The assessment considers whether the costs claimed are both reasonable and proportionate. This means that the costs must be justifiable in terms of the work done, and they must be in proportion to the issues and value of the case.

The standard basis assessment involves the court reviewing the costs claimed, taking into account factors such as the complexity of the case, the conduct of the parties, and the reasonableness of the costs incurred. If the court finds that certain costs are excessive or unnecessary, it may reduce the amount that can be recovered.

The proportionality test set out by the Court of Appeal in West v Stockport NHS Foundation Trust & Demouilpied v Stockport NHS Foundation Trust [2019] EWCA Civ 1220 sets out that further reductions can apply post-assessment, to phases or certain aspects of costs, if they remain disproportionate following a line by line assessment.  This can inevitably result in costs being significantly reduced on a standard basis assessment.

Costs on an Indemnity Basis:

When costs are awarded on an indemnity basis, the winning party is entitled to recover a larger portion of their legal costs from the losing party. Unlike the standard basis, costs on an indemnity basis are not subject to the same strict test of proportionality, and whilst reasonableness still applies, any element of doubt will be made in favour of the Receiving Party.

The indemnity basis allows the winning party to recover costs that were reasonably incurred and are directly related to the issues of the case. It also permits recovery of costs that might not be recoverable under the standard basis, such as costs that were necessarily incurred due to the other party’s unreasonable conduct.

Courts generally only award costs on an indemnity basis in situations where one party’s behaviour during the litigation has been particularly unreasonable, such as refusing reasonable Part 36 offers or engaging in tactics that unnecessarily prolong the proceedings or amount to misconduct.

What are “Reasonable Legal Costs”?

This is a subjective question, and turns upon the facts of any specific case and what basis of assessment is to apply. 

When assessing legal costs on the standard basis, the term “reasonable legal costs” refers to the costs incurred by the winning party that are both justified and proportionate in relation to the work done and the complexity of the case.

These costs are subject to scrutiny by the Court to ensure that they are fair and reasonable given the circumstances of the litigation. The assessment of reasonable costs on the standard basis involves evaluating various factors to determine whether the costs claimed are appropriate and justifiable.

A good starting point is to consider the factors set out in CPR 44.4(3), often referred to as the “pillars of wisdom” however, common factors to take into account include:

• Justification: Reasonable legal costs should be directly related to the work performed in the case. This includes tasks such as legal research, document drafting, court appearances, and communication with clients and opposing parties. Costs that are not directly connected to advancing the case may not be considered reasonable.
• Proportionality: The costs claimed must be proportionate to the value and complexity of the case. This means that the costs should not be excessively high in relation to what is at stake or the complexity of the legal issues involved.
• Necessity: The costs must be necessary for the proper conduct of the case. This involves considering whether the work performed was reasonable and required to achieve the desired outcome.
• Conduct of the parties: The behaviour and conduct of both parties during the litigation can impact the assessment of costs. If a party’s behavior has caused unnecessary delays or complications, it might affect the reasonableness of the costs they can recover.
• Guideline hourly rates: The court will consider the Guideline Hourly Rates when determining the reasonableness of rates charged for items such as providing legal advice and time spent working on the case.  Uplift on these rates is possible, but only in circumstances where it is justified.  The Court will also take into account the appropriate Grade of file handler that should have handled the proceedings.
• Type of work: The nature of the legal work performed can influence the reasonableness of the costs.
• Level of expertise: The experience and expertise of the legal professionals involved can impact the assessment.  If there is heavy reliance upon Counsel, then this is likely to impact on how much costs can be claimed by the Solicitor.
• Transparency and evidential documentation: The winning party should provide clear and transparent documentation of the work performed and the corresponding costs. Detailed records help demonstrate the reasonableness of the costs claimed and on any detailed assessment, a Judge may require inspection of any such documents to justify the work/time claimed. 

How can ARC Costs Assist?

Our team of Costs Draftsman and Costs Lawyers can be relied upon to provide a multitude of expert costs services. Whether you need assistance with a standard basis costs, indemnity basis costs, or fixed costs dispute, we can help. We offer our services to both law firms and litigants in persons, and as independent experts we can be instructed by either of the Paying or Receiving Parties in any costs dispute.

Depending on what is necessary for your case, we can prepare comprehensive Bills of Costs, Costs Budgets and Points of Dispute, alongside other costing instruments, ensuring reasonable legal costs are recovered. 

If you would like to find out more about how we can help you, please telephone us at 01204 397302 or email an expert directly at info@arccosts.co.uk.

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