Guide to legal costs, litigation funding and security for costs

Funding your case

If you require legal representation there are a number of ways in which you may be able to obtain and pay for it. In addition to your solicitors’ charges, you may incur other costs, such as Court fees, barristers’ fees, and fees of expert witnesses (for example medical or accountancy experts). These additional costs are known as disbursements. Methods of funding your claim include:

Paying an agreed hourly rate

In many cases your solicitors’ charges will be time based. This is true of the majority of cases in which we are instructed. This means you are charged at an agreed hourly rate for work undertaken on your behalf. If your claim is successful you may be able to recover some or all of your costs from your opponent.

However, your contractual liability to pay your legal representative will not usually depend on whether or not you are able to recover your costs from your opponent. The Court now issues guideline hourly rates for solicitors’ charges. Our rates are extremely competitive and are often significantly lower than the Court’s guideline hourly rates and those of many other City-based firms.

Funding the case on a “no win no fee” basis

A “no win no fee” agreement generally means a Conditional Fee Agreement (“CFA”). These are agreements between a client and their legal representative which usually mean that the client pays nothing if they lose the case, but pays their legal representative’s fees in full if they win, as well as an additional amount referred to as an “uplift” or “success fee”, to reflect the risk that the legal representative has taken.

Previously, this success fee could be recovered from the losing side. However, since April 2013, this is no longer the case except in certain very particular circumstances. As a result, any success fee negotiated as part of a CFA will have to be paid by you.

Ordinarily, if the case is won the Court will order the loser to pay the winner’s costs (see below for further details). This means that litigants funding their case under a CFA usually take out insurance to cover their opponent’s costs in case they lose.

If they do lose the case the insurance company will pay their opponent’s costs up to the limit of the insurance policy.

Again, the insurance premium could previously be recovered from the losing side, but this is no longer the case unless in certain excepted circumstances.

Funding the case on a ‘damages-based’ agreement (“DBA”)

‘Damages’ are the compensation paid to a successful Claimant by the unsuccessful Defendant in many types of claim. Under a DBA, the Claimant can agree with its legal representatives to fund the claim by agreeing that the representatives receive a percentage of the damages awarded if the Claimant is successful, and nothing if the claim is unsuccessful.

This type of arrangement differs from ”no win, no fee” arrangements above in that the payment received by the representatives can only comprise of a percentage of the damages and any necessary expenses incurred on the Claimant’s behalf (such as court fees).

The representatives will also be unable to claim additional charges. Most DBAs restrict the percentage a representative may recover to 50%, with some claims requiring a lower percentage. It is unlikely that DBAs will be available to defendants.

For commercial reasons we are only able to take on a limited number of CFAs and DBAs at any one time but are happy to discuss funding on a case by case basis.

Legal aid

In recent years the availability of legal aid has been dramatically reduced. Only those firms with a legal aid franchise can now undertake civil litigation on a legal aid basis. We do not have a legal aid franchise and are unable to represent you on a legal aid basis. If you think you may be entitled to legal aid you should notify us at the outset. Further information about the availability of legal aid can be obtained from the Legal Service Commission (www.gov.uk/legal-aid).

Pro bono (i.e. free) representation

You may be able to obtain free representation for part or all of the proceedings. Such cases are rare and are likely to involve a claim of personal interest or involve issues of public importance. Bates Wells undertakes a substantial amount of pro bono work but we regret that only the most deserving of cases can be considered. Our pro bono policy can be found here. There are many sources from which free legal advice may be obtained on an ad hoc basis, ranging from your local Citizens Advice Bureau to pro bono groups.

Insurance policies

You may be able to obtain funding for your case under a policy of insurance. It is advisable to check whether your business, household, motor vehicle or any other policy covers your legal costs. Please discuss this with us if you are in any doubt.

How much does litigation cost?

It depends on a number of factors, and in many cases both the outcome and the costs of litigation can be unpredictable. Court fees for issuing proceedings are usually based on a sliding scale depending on the value of the claim. Further Court fees will be payable during the course of the proceedings. Some people may be exempt from paying such fees. Depending on your funding arrangements you will also have to pay your legal representatives as the case progresses.

Recovery of legal costs

Will I recover my costs from my opponent?

The normal rule is that the losing party has to pay the winner’s legal costs. In practice, and as a rule of thumb only, this usually means that a winning party can expect the Court to order the losing party to pay a large proportion of the costs the winner has paid to its legal representative. It is therefore normal that a proportion of the legal expenses you incur will not be recoverable from the losing party, even if your claim is entirely successful. There are circumstances where a greater or lesser sum will be recoverable, and in some circumstances no costs may be recoverable (for example where a claim has been allocated to the small claims ’track’). Finally, it is important to bear in mind that your opponent may not have the assets to satisfy any costs order.

Costs are ultimately at the discretion of the Court, which will in most cases actively encourage alternative dispute resolution techniques (such as mediation) and may penalise the winning party if they unreasonably refuse to participate in alternative dispute resolution procedures by refusing to order the loser to pay the winner’s costs, or even by ordering the winner to pay the loser’s costs.

How does the Court assess the costs my opponent should pay?

The two main methods of assessing the amount of costs to be paid are known as “summary assessment” and “detailed assessment”.

Summary assessment is likely to take place at the end of:

• the trial of a case which has been dealt with on the fast track (generally most claims worth between £10,000 and £25,000)
• any other hearing which has lasted not more than one day, and
• certain hearings in the Court of Appeal.

When costs are likely to be summarily assessed, the parties will provide each other and the Court with a statement of the costs they have incurred in relation to a particular hearing or the claim as a whole. The summary will not usually run to more than a few pages and lists the costs incurred under broad headings. Little information regarding times, dates, or the specific nature of the work undertaken is provided. The breakdown must however contain certain details such as the number of hours of work claimed, the hourly rates at which the work was undertaken and the seniority of the solicitors doing the work. At the end of the hearing the Court will usually decide which party, if any, should pay the other’s legal costs and decide the amount payable. The Court will assess the amount payable on either the “standard” basis or the “indemnity” basis. These terms are explained below.

Detailed assessment of costs is usually ordered in multitrack cases (generally most cases worth over £25,000). The receiving party prepares a detailed breakdown of all the costs it is seeking to recover. This breakdown is known as a Bill of Costs. A copy is then provided to the paying party. The paying party will usually prepare a response, or “Points of Dispute” in which they set out their comments on the various items being claimed in the Bill of Costs, and indicate which items they think they should not have to pay and why. If the parties cannot then agree what amount should be paid they will attend an assessment hearing when the Court will decide the amount that should be paid.

However, there is currently a move away from detailed assessment in multi-track cases. Instead, the Court is required to review the costs incurred by each party and their estimated future costs during the course of the litigation. Estimated budgets are exchanged between the parties and are filed with the Court during this period. The idea is that this will ensure that the Court (and the other side) keeps an eye on the parties’ costs prior to trial. When reviewing these budgets, the Court will use the tests of reasonableness and proportionality (see next section, “What factors does the Court take into account when deciding the amount of costs?”). If the Court judges the costs to be too high, they will revise them downwards.

What factors does the Court take into account when deciding the amount of costs?

The amount of costs the Court will award will depend on whether costs are payable on the “standard” basis or the “indemnity” basis. The Court will usually order the paying party to pay more on the indemnity basis than the standard basis.

The usual order is that costs are to be assessed on the standard basis. Assessment on an indemnity basis is generally ordered where the paying party’s conduct has been unreasonable or, for example, where the paying party has failed to “beat” an offer to settle the claim made by the receiving party. Please see our Guide to the Without Prejudice rule and Part 36 offers for further information about offers of settlement and their potential effects on the recovery of legal costs.

On the standard basis (but not on the indemnity basis) the Court will first apply a test of proportionality. This means, in short, that the totality of the costs claimed must be considered in comparison with the benefits gained by the proceedings. If the costs are found to be proportionate, the assessment then proceeds to a consideration of the reasonableness and necessity of each item. If, on the other hand, the costs appear disproportionate, the Court may not award them to the successful party. Even if the court views an action as necessary to proving a successful parties’ case, it may not award that party its costs from the other side if it is disproportionate to the overall value of the claim.

If costs are assessed on the indemnity basis, proportionality is not considered, and costs are instead assessed by reference to their necessity and reasonableness.

When assessing costs on the standard basis, any doubt as to the proportionality, reasonableness or necessity of an item being claimed is resolved in favour of the paying party, whereas on the indemnity basis, the Courts will resolve any doubt as to reasonableness or necessity in favour of the receiving party. On either basis, the Court will not order payment of costs which have been unreasonably incurred or which are unreasonable in amount.

In addition to the tests of reasonableness and proportionality, the Courts must also have regard to the circumstances of the matter more generally, including the conduct of the parties before as well as during the proceedings, the efforts made to resolve the dispute, the value of the claim, the importance of the matter to the parties, and the complexity of the matters raised.

There are many exceptions to these general rules. For example, the Court should not require costs to be paid by a litigant who is a publicly funded assisted person, LSC (Legal Services Commission) funded client, child or patient.

Security for costs

If you are the successful defendant to a claim (or counterclaim) you should be awarded the majority of your costs. In certain circumstances, however, there is clearly a risk that the losing claimant will not comply with his obligation to pay those costs, leaving you out of pocket through no fault of your own.

The rules on “security for costs” provide some protection to defendants in this position. The defendant can apply to the Court for an order that the claimant provide security, in the form of a bond, a payment into Court or a payment into a bank account in the joint names of the parties’ solicitors. Orders for security for costs are also available in the context of an appeal.

Orders for security for costs are potentially available to defendants where the claimant:
• is resident outside the EU and certain other European jurisdictions;
• is a company or other body and there is reason to believe that it would be unable to pay the defendant’s costs if ordered to do so;
• has changed its address since commencing the claim with a view to evading the consequences of the litigation;
• has failed to give his address, or has given an incorrect address, in the Claim Form;
• is acting as a nominal claimant, and there is reason to believe that it would be unable to pay the defendant’s costs if ordered to do so;
• or has taken steps in relation to its assets that would make it difficult to enforce an order for costs against it.

An application for security for costs must be supported by evidence and should be made as soon as the facts justifying an order for security are known. Where the Court makes an order for security for costs, it will determine the amount of the security and direct the manner in which, and the time within which, the security must be given.

In certain circumstances, an order for security for costs can be made against a party other than the claimant, for example where a third party is funding the claimant’s costs in return for a share of any money or property the claimant may recover.

An application for security for costs may also be made where one party has applied for summary judgment and the respondent party (whether it is the claimant or defendant) is relying on a case which the Court regards as improbable.