What Are Legal Costs, and Who Pays Them?

Legal costs are the fees and expenses involved in getting legal advice, instructing a solicitor or taking a case to court. They can include solicitors’ fees, barristers’ fees, court fees and expert reports.

One of the biggest concerns for anyone involved in a legal dispute is who pays the legal costs? In many civil cases, the losing party is ordered to pay the winning party’s costs. However, this does not mean the successful party will recover everything they have spent. Who pays, and how much they pay, depends on the type of case, the outcome and the rules that apply.

This guide explains what legal costs are, how they are calculated, who pays them and what happens when the amount claimed is disputed.

What do legal costs include?

Legal costs generally fall into two categories: professional fees and disbursements.

Professional fees are the charges made by solicitors, barristers and other legal professionals for their work. This might include giving legal advice, reviewing documents, preparing evidence, negotiating settlements and attending court.

Disbursements are expenses paid to other organisations or professionals during a case. These can include court fees, medical reports, expert witness fees and certain travel expenses.

The total cost depends on how much work is needed. For example, a straightforward dispute that settles after a few letters will usually cost less than a complicated claim involving several witnesses, expert reports and a trial.

How are legal costs calculated?

Many law firms charge for their work using an hourly rate. The amount charged depends on the time spent working on the case and the hourly rate of the person doing the work.

For example, if a solicitor charges £250 per hour and spends 10 hours preparing documents, their fees would be £2,500, excluding any applicable VAT and other expenses.

More experienced solicitors generally charge higher hourly rates. However, the rate charged to a client is not always the amount that can be recovered from the other party.

Some solicitors offer fixed fees for particular services, meaning the client agrees to pay a set amount for the work.

Before instructing a solicitor, you should be given information about the likely costs so you can make an informed decision about proceeding.

Who pays legal costs in court proceedings?

In civil cases, the general rule is that the losing party pays the winning party’s legal costs. This is set out in CPR 44.2.

For example, if a business successfully brings a breach of contract claim, the defendant may be ordered to pay the business’s legal costs. However, the court can make a different decision.

It may consider how the parties behaved during the case, whether they tried to settle and whether the successful party won on every issue.

The court might decide that only part of the costs should be paid.

The decision is recorded in a costs order, which explains who must pay and, sometimes, how much. For more information, read our guide to recovering legal costs.

Do you have to pay legal costs if you lose?

In many civil cases, yes. If you lose, you may have to pay your opponent’s legal costs as well as your own. However, different rules apply to different types of cases.

For example, the small claims track generally limits the legal fees that can be recovered from the losing party.

In personal injury claims, Qualified One-Way Costs Shifting (QOCS) can provide some protection against having to pay the defendant’s costs, although exceptions apply. Employment tribunals also have different rules, and losing a case does not automatically mean you will have to pay the other party’s legal fees.

Understanding the potential costs before starting court proceedings is important.

What happens with no win, no fee agreements?

A no win, no fee agreement is commonly used in personal injury claims. It usually means the solicitor’s payment depends on whether the case succeeds.

If you win, your solicitor may recover some legal costs from the defendant. You may also have to pay a success fee from your compensation, depending on the agreement.

If you lose, you may not have to pay your solicitor’s basic fees. However, you could still be responsible for certain expenses or other costs.

The exact position depends on the agreement and whether you have insurance covering potential costs. It is important to understand these terms before agreeing to proceed.

Can you recover all your legal costs if you win?

Not always. There is a difference between the amount your solicitor charges and the amount the other party must pay. For example, you might spend £50,000 on legal fees but only recover £35,000 from your opponent.

This can happen because the court considers some of the work unnecessary, the time spent excessive or the hourly rates too high. Under the Civil Procedure Rules, costs assessed on the standard basis must be reasonable and proportionate.

Where a case is subject to costs budgeting, the court will also consider the approved or agreed budget when deciding how much can be recovered. This is why it is important for solicitors to keep accurate records of their work and manage costs throughout a case.

What is a costs order?

A costs order is a decision made by the court about who must pay the legal costs of a case or particular hearing. For example, the court might order the defendant to pay the claimant’s costs, or it might order each party to pay their own costs.

Sometimes the court decides the amount payable immediately. In other cases, the order states that costs are to be assessed if the parties cannot agree. There are also different types of costs orders, including costs on the standard basis and indemnity costs. The wording matters because it affects what can be recovered.

What happens if the parties cannot agree legal costs?

If the court orders one party to pay another’s costs, the parties will usually try to agree how much should be paid. If they cannot agree, the receiving party may begin detailed assessment proceedings.

This usually involves preparing a Bill of Costs, which lists the work carried out, the time spent and the expenses claimed. The paying party can then challenge the Bill by preparing Points of Dispute.

For example, they might argue that the solicitor spent too long preparing documents or charged an unreasonable hourly rate.

The parties may negotiate a settlement. If they still cannot agree, the court can decide the amount payable through detailed assessment.

This process can result in the amount originally claimed being reduced.

Can you challenge your own solicitor’s legal fees?

Yes. You may be able to challenge your solicitor’s bill if you believe the fees are too high or do not reflect the work agreed. For example, you might dispute the number of hours charged or question whether certain work was necessary.

Depending on the circumstances, you may be able to ask the court to assess the bill under the Solicitors Act 1974. Strict time limits can apply, so it is important to seek advice promptly.

How ARC Costs can help with legal costs

ARC Costs provides specialist legal costs services to solicitors, law firms and parties involved in civil litigation throughout England and Wales.

Our team helps with preparing Bills of Costs, costs budgets, Points of Dispute, costs negotiations and detailed assessment proceedings.

We work for both parties seeking to recover legal costs and those who have been ordered to pay them. Whether you need help preparing a Bill of Costs, recovering legal fees or challenging an excessive claim, our experienced team can assist.

Contact ARC Costs to discuss your requirements.

Follow Us