Recovering Legal Costs
Recovering legal costs is an important consideration for anyone involved in litigation. Solicitors’ fees, court fees, expert reports and other expenses can accumulate throughout a case, and even a successful party may be left with significant expenditure if those costs are not properly recovered.
In civil litigation in England and Wales, the general principle is that the unsuccessful party pays the successful party’s costs. However, this is not an automatic entitlement to recover everything spent on the case.
The amount recoverable depends on the court’s order, the applicable costs rules and whether the expenditure was reasonable and proportionate.
This guide explains how recovering legal costs works, what can be claimed and the steps involved in securing payment following court proceedings.
Who is entitled to recover legal costs?
Under CPR 44.2, the general rule is that the unsuccessful party will be ordered to pay the successful party’s costs. However, the court has discretion to make a different order.
For example, the court may consider the parties’ conduct, whether a party succeeded on only part of its case and any admissible settlement offers.
A successful claimant might recover most of their legal costs, while another party may receive only a proportion of their costs because they were unsuccessful on several significant issues.
The starting point for recovery is therefore the costs order itself.
The order establishes which party is responsible for payment and may specify the basis on which the costs are to be assessed.
It is also important to establish whether the claim falls within a fixed recoverable costs regime or another category where recovery is restricted.
What legal costs can be recovered?
Recoverable legal costs may include solicitors’ fees, barristers’ fees, court fees, expert witness fees and other expenses reasonably incurred in progressing the litigation.
However, not every expense will necessarily be recoverable from the opposing party.
For example, the receiving party may have incurred substantial solicitor time preparing documents or corresponding with the opponent. The paying party may challenge whether the time was reasonable or whether some of the work was duplicated.
The court may also examine the hourly rates charged by the solicitors, the seniority of the fee earners undertaking particular tasks and the necessity of any disbursements.
There is an important distinction between costs incurred by a client and costs recoverable from the opposing party.
A solicitor’s invoice reflects the contractual relationship with their client. The amount recoverable under a costs order is determined separately, applying the relevant rules.
How does the court decide how much can be recovered?
The basis of assessment can make a significant difference to the amount recovered.
Standard basis costs
Most costs orders provide for assessment on the standard basis.
Under CPR 44.3, the court considers whether costs were reasonably incurred, reasonable in amount and proportionate to the matters in issue.
Any doubt about whether costs were reasonably or proportionately incurred, or reasonable and proportionate in amount, is resolved in favour of the paying party.
Consequently, a successful party may recover less than the total amount spent on litigation.
Indemnity basis costs
The court may instead award costs on the indemnity basis, often where the circumstances justify departing from the usual approach.
On this basis, proportionality does not operate as a separate restriction, and doubts about reasonableness are resolved in favour of the receiving party.
However, indemnity costs do not mean that every expense is automatically recoverable. Costs must still be reasonably incurred and reasonable in amount.
What is the process for recovering legal costs?
The procedure depends on the nature of the claim, the costs order and whether the amount payable has already been determined.
1. Check the costs order
The first step is to establish what the court has ordered.
For example, the order might state that one party must pay the other’s costs, subject to detailed assessment if not agreed.
Alternatively, the court may summarily assess the costs at a hearing and specify the amount payable.
Where the amount has already been assessed, a separate detailed assessment will generally not be required.
2. Prepare a Bill of Costs
Where detailed assessment is necessary, the receiving party will ordinarily prepare a Bill of Costs. This document sets out the legal work undertaken, the relevant fees and the disbursements claimed.
A properly prepared Bill of Costs should accurately reflect the work completed and provide sufficient information for the paying party to understand the claim. For proceedings subject to the electronic bill requirements, the appropriate electronic format must be used.
3. Serve the Bill and commence assessment
The receiving party usually begins detailed assessment by serving a Notice of Commencement, the Bill of Costs and the required supporting documents. The paying party then has an opportunity to examine the claim.
Ordinarily, the paying party has 21 days after service of the Notice of Commencement to serve Points of Dispute, although different directions may apply.
4. Negotiate the costs
Many costs disputes are resolved through negotiation without requiring a contested assessment hearing. The parties may agree reductions to the Bill of Costs, settle particular disputed items or reach an overall agreement. Negotiation can reduce the additional time and expenditure associated with formal costs proceedings.
5. Detailed assessment
Where agreement cannot be reached, the dispute may proceed to detailed assessment. The court examines the costs claimed and determines the amount recoverable. Depending on the value and circumstances of the Bill, the matter may be dealt with by provisional assessment or an attended hearing.
The assessment process can result in reductions to the original claim, particularly where the court considers the work excessive, unnecessary or disproportionate.
How do costs budgets affect recovery?
In cases subject to costs management, the approved or agreed costs budget can influence the amount recovered. Under CPR 3.18, the court must have regard to the receiving party’s last approved or agreed budgeted costs and must not depart from them without good reason when assessing costs on the standard basis.
However, the court’s approval of a budget does not automatically establish the recoverability of costs incurred before the budgeting process.
Accurate Precedent H costs budgeting and ongoing monitoring are therefore important throughout litigation.
Can you recover all your legal costs if you win?
Not necessarily. Even where a party is entirely successful, the amount recovered may be reduced because of unreasonable expenditure, proportionality, the terms of the costs order or applicable fixed costs provisions.
The small claims track also operates under a more restrictive costs regime, meaning successful parties generally cannot recover their full solicitor’s fees.
Parties should therefore consider the likely recovery of legal costs throughout proceedings rather than waiting until the case concludes.
How ARC Costs can help recover legal costs
ARC Costs assists solicitors and law firms with recovering legal costs following civil litigation.
Our services include preparing Bills of Costs, reviewing costs budgets, negotiating settlements, drafting Points of Reply and conducting detailed assessment proceedings.
We also advise paying parties on challenging excessive costs claims through Points of Dispute.
By involving specialist costs professionals, law firms can ensure their claims are accurately prepared, supported by the necessary evidence and pursued in accordance with the Civil Procedure Rules.
If you require assistance recovering legal costs following court proceedings, contact ARC Costs to discuss your matter.