In English civil litigation, costs are the lawyers' fees and disbursements of the parties.
In the absence of any order or directive regarding costs, each party is liable to pay their own solicitors' costs and disbursements such as a barrister's fees; in case of dispute, the court has jurisdiction to assess and determine the proper amount. In legal aid cases, a similar assessment will determine the costs which the solicitors will be paid from the Legal Aid Fund.
In most courts and tribunals, generally after a final judgment has been given, and possibly after any interim application, the judge has the power to order any party (and in exceptional cases even a third party, or any of the lawyers personally) to pay some or all of other parties' costs. The law of costs defines how such allocation is to take place. Even when a successful party obtains an order for costs against an opponent, it is usual that he may nevertheless still have to pay his solicitors a balance between the costs recoverable from the opponent and the total chargeable by his solicitor; and if the loser is unable to pay, then the order for costs may be worthless, and the successful party will remain fully liable to their own solicitors.
General principle The general principle of costs in England and Wales is that the successful party has the costs they have incurred in litigation paid by the unsuccessful party. The Civil Procedure Rules describe this as costs following the event. This is typical across most common law jurisdictions, with the notable exception of the United States where each side pays their own costs. There are a number of exceptions to the general principle of costs following the event, and procedural rules which shift the incentives of parties in litigation towards settling cases.
Comparison with other countries The law of costs is often known as the English rule and is contrasted with the American rule—the general rule in the United States that legal fees may be sought only if the parties agree by contract before the litigation, or if some special act or statute allows the successful party to seek such fees. Federal district court and Court of Appeals judges award costs to the prevailing party under Federal Rules of Civil Procedure.FRCP 54(d)
The English rule has been criticised; critics point out that it 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 increasing resources into their cases to win the action and avoid paying fees, thereby increasing the overall cost-risk of litigation.
A Canadian example is Sonnenberg Inc. v Stewart, Smith (1986), an Alberta decision clarifying the distinction between ordinary cost awards and indemnity (“solicitor-client”) costs, and setting out when enhanced costs orders are appropriate.
The German costs rule, which allows for fixed recoverable costs, avoids this unfortunate consequence of full-fees recovery.
Hong Kong generally follows the English Rule.
Application of the rule In the small fraction of cases that do not settle and instead proceed to a judgment, generally costs "follow the event" so that the successful party is entitled to seek an order that the unsuccessful party pay his or her costs. Should a case settle, then the parties can seek to agree costs, with the general rule that the losing party pays costs.CPR 36.10 This is the general rule as set out in CPR Part 44 – General Rules About Costs
Costs orders The order that a judge gives as to costs determines who will be the paying and who the receiving party. The amount of costs remains to be determined by assessment if not agreed. Common costs orders, other than on the Small Claims Track, include the following:CPR 44 PD 4.2
OrderEffectCosts (in any event)Costs to receiving party no matter what happens subsequentlyCosts in the case/applicationCosts of interim proceedings are to be awarded according to the outcome of the caseCosts reservedCosts of the specific issue in question to be decided at the end of trial (costs in the case if no other order made then)Costs thrown-awayCosts of the applicant in, for example, a successful application to set aside an order improperly obtainedCosts of and caused byCosts of other parties when a party, for example, amends a case – costs of attending the application hearing and own consequential amendmentsCosts here and belowIncludes costs in inferior courts (but appeal from Divisional Court cannot award costs below Divisional Court)No order as to costs / Each party to pay his own costsParties bear their own costs relating to that issue
Interim costs As a general rule, after judgment has been handed down, the court "will" order one party to make an advance payment towards the other side's costs.CPR 44.2(8) This will be done even before the costs claim has been finalised.
The amount that will be ordered is based upon the parties' disclosed costs estimates, and will take into account the percentage of costs that have been ordered to be paid; any order for Indemnity Basis costs, if relevant, and any costs that are due to the paying party.
Wasted costs These are defined ass. 51(7) Senior Courts Act 1981 "costs incurred by a party—
(a) as a result of any improper, unreasonable or negligent act or omission on the part of any legal or other representative or any employee of such a representative; or
(b) which, in the light of any such act or omission occurring after they were incurred, the court considers it is unreasonable to expect that party to pay"
These costs will include the situation in which a party has incurred unnecessarily due to the other side's conduct. For example, if a court hearing is postponed due to one party not turning up at court. As a result, the other party had to pay a brief fee for a barrister, for a hearing that ultimately did not take place. Other instances includes failure to follow practice directions, and in some cases, acting in an unnecessarily belligerent manner.
In Hong Kong (and many other common law jurisdictions), during the pre-Civil Justice Reforms era, 'macho', 'tough' and 'aggressive' litigators may be prized by lay-clients. However, with the implementation of the Civil Justice Reforms (CJR), 'macho', 'tough' and 'aggressive' litigators may end up causing more harm to their clients. Willingness to reconcile and compromise is, therefore, the new king in Hong Kong's new litigation landscape where the laws requires legal practitioners to advice their clients the importance of settlement negotiations. This was illustrated by the Patrick Wang Ho Yin cost order.
Security for costs
Security for costs is a common law legal concept of application only in costs jurisdictions, and is an order sought from a court in litigation. These are now governed by Part 25 of the Civil Procedure Rules.
The general rule in costs jurisdiction is that "costs follow the event". In other words, the loser in legal proceedings must pay the legal costs of the successful party. Where a defendant has a reasonable apprehension that its legal costs will not be paid for by the claimant if the defendant is successful, the defendant can apply to the court for an order that the claimant provide security for costs. Furthermore, the amount that is ordered by the judge is in direct correlation to the strength or weakness of the claimant's case brought herewith. The weaker the probability of the claimant prevailing, the higher the security order.
Typically a claimant will be outside the jurisdiction of the court: the law of security for costs recognises that orders of the court relating to payment of a party's legal costs can be very difficult to enforce in non-common law jurisdictions, and so will order security to be provided. Security can also be ordered where a claimant is insolvent, or prone to vexatious litigation.
Security is usually provided in the form of a bank cheque paid into the court, or held in a trust account operated jointly by both the claimant's and defendant's lawyers. If the defendant is successful, the money can be applied against the costs order. If the claimant is successful, the security is returned to the claimant.
What can be claimed? Recoverable costs are limited to: Fees and charges of the solicitor (attorney), which may be hourly, daily or an agreed sum; Disbursements, including barristers'/counsels' fees; Witness allowances (conduct money), including fees paid to expert witnesses; Some professional fees for non-witnesses; VAT (where chargeable); Lawyers' "success fees" allowable by the court under a valid conditional fee agreement (CFA); and After-the-event insurance premium.
The indemnity principle In English costs law the indemnity principle is the concept that a receiving party is unable to recover more than the costs for which they are liable to pay themselves, in costs of the litigation. It is unrelated the indemnity basis, being one of the bases on which the court may award costs (below).
The principle was originally explained in Harold v Smith (1860) 5 Hurlestone & Norman 381:“Costs as between party and party are given by the law as an indemnity to the person entitled to: they are not imposed as a punishment on the party who pays them, nor given as a bonus to the party who receives them.”In other words, a recovery of costs is viewed not as a reward or bonus, but as an award of indemnity to the party that has incurred the costs.
The 'limit' as to what a receiving party may recover is determined by what they are liable to pay, as opposed to what they may have actually paid in legal fees. As long as there is liability for the receiving party to pay some amount (for example, pursuant to a retainer with their solicitor), a receiving party can seek to recover costs up to such amount—it is irrelevant whether the liability is enforced.
Exceptions The principle causes anomalies for pro bono representation where, because the lawyers have agreed to represent the party for no cost, they cannot subsequently ask the court for a costs award when they win. However, since 2008 s. 194 Legal Services Act 2007 allows the court to order a party who loses against pro bono representation to make an appropriate charitable donation in lieu of costs.art. 2 & 3 Legal Services Act 2007 (Commencement No. 2 and Transitory Provisions) Order 2008
There are also specific exceptions to the principle for: In-house lawyers;Re Eastwood 3 All ER 603 Conditional fee agreements; Legal aid; and Litigants in person. Exceptions The rule that "costs follow the event" is observed on the Multi- and Fast Tracks.
However, the judge has considerable discretion to apply or disapply these rules if the result would otherwise be unjust. The paying party can appeal against the costs order by the usual routes of appeal.
Small claims track If a case is allocated to the Small Claims Track,Generally, personal injury or housing disrepair cases for under £1,000, and other cases worth under £10,000 (CPR 26.6) only specific limited costs such as fixed court fees are usually awarded.
Fast-track trials On the Fast Track, the actual costs of the trial, as opposed to preparatory work, are fixed.CPR 45, Section VI
Fixed costs and fees There are also fixed costs for road traffic accident (RTA) claims that settle before they are issued;CPR 45, Section II-III and in certain cases brought by HM Revenue & Customs.CPR 45, Section V
In addition, where both the current CPR 48 and old CPR 45 apply, there are fixed success fees in personal injury claims arising from RTAs; injuries at work; and industrial disease claims. These range from 12.5% in RTAs to 100%, in each type of case, if a trial occurs.
Costs limits In certain Fast-Track or Multi-Track cases, a successful party's costs claim will be limited.