Law of costs
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- This article is about costs in law. For a meaning related to economics and accounting, see cost.
The law of costs in England and Wales is typical of common law jurisdictions. While generally the successful party to litigation is entitled to seek an order that the unsuccessful party pay his or her costs it is by no means certain that this will be granted and the Judge hearing the case has a wide discretion as to which party (if any) costs will be awarded. There a number of orders a Court is empowered to make and often the final decision as to costs will be based on other factors such as the amount in dispute and the conduct of the parties. In particular if the amount of the claim is below a certain value (currently £5,000 in most purely financial claims and £1,000 for personal injury and housing disrepair claims) the successful party will only be awarded a small percentage of the costs incurred.
Full details of the Law of Costs can be obtained in Sections 43 to 48 of the Civil Procedure Rules This is a complex area of law and specialist advice should be sought.
If one party is awarded costs against another this is known as inter partes costs or between party costs. The successful party however is unlikely to be awarded the entirety of their legal costs, as the costs incurred will be assessed by an Officer of the Court. This can be done in one of two ways. The simplified procedure is known as summary assessment under which the Court will consider a schedule of the costs incurred which will usually be no more than two pages long and is often only a single page. For more complex cases however a process which used to be called a taxation of costs, and is now known as detailed assessment is used. The successful party must file with the court a detailed breakdown of the costs and disbursements incurred, known as a bill of costs which sets out the successful party's claim. The bill is usually prepared by a Law Costs Draftsman, and it is as equally important to choose a good Law Costs Draftsman as it is to choose a good Solicitor and Barrister. An officer of the court will then assess the reasonableness of the costs with reference to a statutory schedule of limits of entitlements of costs, together with legal precedents, if the costs cannot be agreed between the parties. The level of reduction can mean that the bill is reduced in some instances substantially, but in most cases around 80% of the costs originally sought will be allowed. This however is highly dependent upon the reasonableness of the bill of costs in the first place.
A court order for costs is enforceable as a debt against the unsuccessful party.
The other type of costs, aside from inter partes costs, is called solicitor-client costs. A client who is unhappy with a lawyer's invoice for services can in certain jurisdictions apply to the court for an order or invoke a statutory procedure whereby the costs are assessed for their reasonableness by an officer of the court (eg. a judge), also called detailed assessment. There are usually statutory time limits on applying for such a procedure, which differ from jurisdiction to jurisdiction. The inevitable result is that the lawyer's invoice is decreased: the level of the reduction can determine who pays for the process of assessment; in England and Wales the rule is that if the bill is reduced by one fifth or more the Solicitor should pay for the process of assessment, but otherwise the client will pay this. In some jurisdictions if the client does not pay the lawyer the lawyer has a cause of action for his own lawsuit if the client does not elect to arbitrate the attorney's bill.
It is important to note that not all jurisdictions have the same rules regarding what expenses are recoverable as party-party costs, or regarding the extent of this recovery.
In many commonwealth jurisdictions, costs may include the payment of legal fees up to a preset limit by the losing party to the winning party's attorney. This is generally not true in the United States where legal fees may be sought only if the parties agree before the litigation by contract, or if some special act or statute allows the prevailing party to seek such fees. Generally judges have no common law right in the United States to tax the losing party for such fees. Some have suggested that this rule is what makes the United States a litigious society: individuals have little to lose more than filing fees and a retainer to start a lawsuit, and they are not thinking that they will also have to pay their opponent's fees if they lose later. On the other hand, the English rule, whereby the winning party's full fees and expenses are payable by the losing party, is coming under increasing criticism. It is sometimes pointed out that the English approach potentially hinders access to justice by increasing the risks of litigation; both by setting up the risk of having to pay both parties full costs in the event of losing, and by creating incentives for parties to sink ever increasing resources into their respective cases in order to win the action and avoid paying any fees (a strategy that cannot succeed under the US costs rule) and thereby increasing the overall cost-risk of litigation. The German costs rule, which allows for fixed recoverable costs, avoids this unfortunate consequence of full-fees recovery.
There are several orders for costs which can be sought from a judge upon the conclusion of a trial or an interlocutory (pre-trial) application:
- no order as to costs
- indemnity costs. This is an order intended to put a party in as near a position as it was prior to the commencement of proceedings, usually as a result of the commencement of vexatious or unmeritorious proceedings.
- costs in the case. This means that the costs of the interlocutory application will be met by the party who ultimately loses the trial.
(Note: a "taxation of costs" is unrelated to the ability of a government to impose taxes.)
