Recoverability of Costs in Commercial Litigation

What is Payable, What is Not, and Why

The recoverability of costs in commercial litigation is one of the most significant factors influencing strategy, settlement, and risk assessment in any commercial dispute. While many parties assume that the successful party will automatically recover all of its legal costs, the reality is far more nuanced.

ARC Costs explains how litigation costs are treated in commercial cases in England and Wales, what costs are generally recoverable, what costs are not, and how and why costs are ultimately assessed by the court.

The General Rule on Costs in Commercial Litigation

The starting point for recoverability is the general rule set out in the Civil Procedure Rules:

the losing party should pay the winning party’s costs.

This principle reflects the idea that a party who has been successful in a commercial dispute should not be left out of pocket for having to pursue or defend proceedings. However, the rule is subject to wide judicial discretion and does not mean that every pound spent will be recoverable.

The court will always consider whether the amount of costs claimed is reasonable, proportionate, and justified in the context of the dispute.

What Does “Recoverable Costs” Mean?

Recoverable costs are those costs incurred by the successful party that the court considers reasonable and proportionate for the conduct of the litigation.

In commercial litigation, recoverable costs typically fall into three broad categories:

• Legal costs (solicitors’ and counsel’s fees)
• Court fees
• Reasonable disbursements (such as expert fees)

Even where a party succeeds outright, recovery is rarely 100%. Costs are usually reduced following negotiation or formal assessment.

Legal Costs: What Is Usually Payable?

Solicitors’ Fees

Solicitors’ fees make up the largest part of most commercial litigation costs. These fees are typically calculated by reference to:

• Time spent
• The complexity of the work
• The hourly rate charged

The court does not assess whether the work was actually carried out, but whether it was reasonably undertaken and reasonably priced.

Excessive time recording, duplication of work, or the use of overly senior fee earners may all result in reductions.

Counsel’s Fees

In commercial disputes, it is often reasonable to instruct counsel, particularly where:

• The issues are legally complex
• Significant sums are at stake
• There are contested hearings or trials

Counsel’s fees are recoverable where the instruction was reasonable and proportionate. However, instructing senior counsel in a straightforward dispute may result in partial disallowance.

Court Fees and Disbursements

Court Fees

Court fees are generally recoverable in full, provided they were properly incurred. This includes:

• Issue fees
• Application fees
• Trial fees

Because these fees are fixed and unavoidable, they are rarely challenged.

Disbursements

Disbursements include third-party costs such as:

• Expert reports
• Mediator’s fees
• Travel and accommodation

In commercial litigation, expert evidence is often a key cost driver. The court will assess whether the expert evidence was necessary and whether the costs claimed are reasonable.

Fixed Recoverable Costs in Commercial Litigation

Unlike some other areas of litigation, fixed recoverable costs do not usually apply to most commercial disputes. Commercial claims are typically allocated to the multi-track, where costs are assessed rather than fixed.

However, fixed recoverable costs may apply in limited circumstances, such as:

• Certain low-value claims
• Specific procedural applications

Where fixed recoverable costs apply, recovery is limited to the prescribed sums, regardless of the actual litigation costs incurred.

How Costs Are Assessed by the Court

If the parties cannot agree costs, they will be assessed by the court through a process known as detailed assessment.

This involves a line-by-line review of the bill of costs to determine:

• Whether the work was reasonably undertaken
• Whether the time spent was reasonable
• Whether the amount of costs claimed is proportionate

Detailed assessment proceedings are common in high-value commercial litigation and can significantly reduce the recoverable sum.

Standard Basis vs Indemnity Basis

Standard Basis

The standard basis is the default position in commercial litigation. On this basis:

• Any doubt is resolved in favour of the paying party
• Costs must be reasonable and proportionate

This often results in reductions, particularly where costs are high relative to the value or complexity of the dispute.

Indemnity Basis

Costs may be awarded on the indemnity basis where the conduct of the losing party is unreasonable, abusive, or otherwise outside the norm.

On the indemnity basis:

• Proportionality does not apply
• Any doubt is resolved in favour of the receiving party

While indemnity costs increase recoverability, they are not routinely awarded and require clear justification.

What Costs Are Commonly Not Recoverable?

Even in successful commercial litigation, certain costs are frequently disallowed or reduced, including:

• Excessive or duplicated time
• Work undertaken unnecessarily
• Internal administration costs
• Over-inflated hourly rates
• Costs arising from unsuccessful applications

The court will not allow costs that costs arise from inefficiency or over-lawyering.

The Role of Costs Orders

At the conclusion of a commercial dispute, the court will usually make a costs order setting out:

• Who must pay the costs
• On what basis (standard or indemnity)
• Whether there are any limitations

A costs order may require one party to pay the winning party’s costs, but the wording of the order is critical and can significantly affect recoverability.

Partial Success and Issue-Based Costs

Commercial disputes often involve multiple issues. Where a party succeeds on some issues but fails on others, the court may make an issue-based costs order.

This can result in:

• Reduced overall recovery
• Each party bearing its own costs for specific issues
• One party paying only a percentage of the other’s costs

Issue-based orders are common where neither party has achieved outright success.

The Paying Party’s Perspective

For the paying party, the focus is on challenging:

• Excessive hourly rates
• Unnecessary work
• Proportionality

Effective opposition during detailed assessment can significantly reduce the sum payable. Early advice from a specialist costs lawyer can help identify strong points of challenge and manage exposure.

Costs Incurred During Settlement Negotiations

Many commercial disputes settle before trial. Costs incurred up to the point of settlement are usually recoverable, but settlement timing is crucial.

Offers made under Part 36 or on a Calderbank basis can dramatically affect who pays costs and from what date. A poorly timed offer can leave a party exposed to paying costs even if it ultimately succeeds.

Why Costs Recovery Matters in Commercial Disputes

In commercial litigation, costs can equal or exceed the value of the claim itself. A failure to properly manage commercial litigation costs can undermine an otherwise successful outcome.

Understanding recoverability allows parties to:

• Assess real financial risk
• Make informed settlement decisions
• Control litigation spend

Costs should be treated as a strategic issue, not an afterthought.

How Specialist Costs Advice Adds Value

Costs recovery is highly technical and fact-specific. Engaging a specialist costs lawyer ensures that:

• Costs are properly structured and justified
• Risks are identified early
• Recovery is maximised and exposure minimised

This is particularly important in complex commercial disputes, where the sums involved are substantial and judicial scrutiny is rigorous.

When Should a Legal Costs Specialist Be Instructed?

In a commercial litigation case, instructing a legal costs specialist early can significantly influence both strategy and recoverability. Waiting until the end of proceedings often limits the ability to correct budgeting issues or manage proportionality risk.

A costs draftsman or costs lawyer can add value at multiple stages of a commercial dispute, including:

• At the outset, to advise on likely costs exposure and recoverability
• When preparing or revising costs budgets in complex or high-value cases
• Before making or responding to settlement offers with costs consequences
• Where costs are likely to be contested or subject to detailed assessment

Early instruction allows potential issues, such as excessive hourly rates, duplication of work, or budget overspend to be identified and addressed before they become irrecoverable. In complex commercial cases, proactive costs input is often the difference between strong recovery and substantial reduction.

Frequently Asked Questions

Who pays the costs in commercial litigation?

The general rule is that the losing party is ordered to pay the winning party’s costs. However, the court has discretion and may make a different costs order depending on conduct, proportionality, or partial success.

Are all legal costs recoverable in a commercial dispute?

No. Only costs incurred that are reasonable and proportionate are recoverable. Even where a party is successful, the amount of costs recovered is often reduced following negotiation or detailed assessment.

What is the difference between standard basis and indemnity basis costs?

On the standard basis, any doubt is resolved in favour of the paying party, and proportionality applies. On the indemnity basis, doubts are resolved in favour of the receiving party, and proportionality does not apply. Indemnity costs are awarded only in exceptional circumstances.

Do fixed recoverable costs apply in commercial litigation?

In most commercial litigation cases, fixed recoverable costs do not apply. Commercial disputes are usually allocated to the multi-track, where costs are assessed rather than fixed, although there are limited exceptions.

How are commercial litigation costs assessed by the court?

If costs cannot be agreed, they are assessed by the court through detailed assessment. This involves a line-by-line review of the bill of costs to determine whether the litigation costs claimed were reasonably and proportionately incurred.

Can court fees always be recovered?

Court fees are usually recoverable in full, provided they were properly incurred. Because they are fixed and unavoidable, they are rarely challenged during assessment.

Why is costs strategy important in commercial disputes?

In many commercial disputes, legal costs can equal or exceed the value of the claim. A clear costs strategy helps parties assess risk, make informed settlement decisions, and avoid unexpected exposure at the end of the case.

How ARC Costs Can Assist

ARC Costs provides specialist support to solicitors and law firms involved in commercial litigation, helping to manage risk and maximise the recoverability of legal costs.

Our qualified costs lawyers can assist with:

• Strategic advice on recoverability and costs risk in commercial disputes
• Preparation, negotiation, and challenge of costs budgets
• Drafting and settling bills of costs
• Advising on proportionality, hourly rates, and basis of assessment
• Representation in detailed assessment proceedings

By involving ARC Costs at an early stage, clients benefit from clearer costs strategy, reduced exposure for the paying party, and stronger recovery for the successful party.