Civil claim procedures - Costs

Learning Outcomes

After reading this article, you will be able to identify types of costs orders made in civil proceedings, explain the difference between fixed, assessed, and summary costs, apply the rules governing recoverability and calculation of costs, and anticipate how Part 36 offers and general conduct impact adverse costs consequences. You will understand the practical implications of costs management, budgeting, and the approaches to funding litigation, as assessed in the SQE2 exam.

SQE2 Syllabus

For SQE2, you are required to understand the rules and practical considerations relating to costs in civil litigation. Focus your revision on:

• what types of costs orders can be made (including summary and detailed assessment)
• the calculation of fixed and assessed costs
• principles relating to the recoverability of costs between parties
• the role and process of costs budgeting
• the impact of Part 36 offers and conduct on adverse costs orders
• funding options available to parties in civil proceedings, including indemnity insurance and third party funding

Ensure you can apply these rules and advise clients about their practical implications in common scenarios.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which of the following costs orders will typically be made immediately at the end of a fast-track trial?
   1. interim inter-partes costs order
   2. summary assessment
   3. fixed costs order
   4. detailed assessment
2. Which costs cannot be recovered by a successful party in litigation?
   1. fees of solicitors acting under a CFA
   2. irrecoverable VAT
   3. costs not reasonably or proportionately incurred
   4. success fee under a CFA

3. In what circumstances may a successful party be ordered to pay some or all of the other party's costs?

4. True or false? Acceptance of a defendant’s Part 36 offer within the relevant period always means the claimant recovers all their costs.

Introduction

Costs are central to civil litigation, affecting both parties’ risk and outcome. The court's exercise of its discretion over costs can determine whether a claimant’s claim is commercially worthwhile or leaves the winner out of pocket. This article explains the main cost principles, types of costs orders, how costs are assessed, and the importance of costs management, budgeting and offers to settle, as tested in SQE2.

Types of Costs Orders

Standard and Indemnity Basis

The Civil Procedure Rules give the court wide discretion in costs.

Key Term: standard basis
On the standard basis, the court only allows costs which are reasonably and proportionately incurred; any doubt is resolved in favour of the paying party.

Key Term: indemnity basis
On the indemnity basis, the court only allows costs which are reasonably incurred; any doubt is resolved in favour of the receiving party.

Most costs are ordered on the standard basis unless the court wishes to indicate disapproval of a party's conduct.

Inter-partes and Own-Client Costs

Key Term: inter-partes costs
"Inter-partes" costs are those recoverable by one litigant from their opponent, usually the loser pays the winner’s costs.

Key Term: own-client costs
These are legal costs a client must pay their own solicitor, regardless of what can be recovered from the opposing party.

The recoverable inter-partes costs are often less than a party’s full own-client bill.

Types of Assessment

Fixed Costs

Certain proceedings—such as low-value claims and many fast-track personal injury claims—carry fixed costs for particular steps.

Summary Assessment

At the conclusion of most fast track trials or interim applications, the judge makes a single, immediate assessment of costs to be paid, based on the summary assessment of statements of costs filed before the hearing.

Detailed Assessment

For more complex or high-value matters (especially multi-track), the judge may order that costs be assessed at a later date (detailed assessment). This process is more involved and takes place after final judgment, often before a specialist costs judge.

Key Term: detailed assessment
The itemised determination of costs by the court, usually in multi-track cases or where summary assessment is impractical.

Worked Example 1.1

A personal injury claim on the fast track concludes with a one-day trial. The judge gives judgment for the claimant in the sum of £12,000 and says "costs to be summarily assessed." What does this mean?

Answer:
The judge will assess on the spot, based on the statements of costs filed before trial, what sum the defendant must pay to the claimant for their legal costs, rather than referring detailed itemised bills for later assessment.

Recoverability and Basis of Assessment

Reasonableness and Proportionality

The successful party only recovers costs that have been reasonably and proportionately incurred. The court may disallow or reduce excessive, frivolous, or wasted costs, even if incurred with the client’s instructions.

Key Term: proportionality
Costs must bear a reasonable relationship to the value, complexity and importance of the case, or they may be reduced on assessment.

Fixed, Assessed, and Budgeted Costs

Fixed Costs (Further Detail)

Many small claims, personal injury road traffic/EL/PL claims and pre-action protocols have fixed recoverable fees, regardless of actual expenditure.

Assessed Costs

Assessed costs include summary and detailed assessment, and are discretionary: only what is considered reasonable and proportionate is allowed.

Budgeted Costs

Costs management applies to most multi-track cases. Parties must submit costs budgets (Precedent H), and the court controls ongoing costs through costs management orders.

Key Term: costs management order
An order that controls future expenditure in a case by setting approved costs phases and limiting recoverability.

Costs exceeding a party's last approved budget phase will often be disallowed unless there is good reason.

Exam Warning

Parties failing to submit budgets when required (multi-track claims) will often be treated as having filed a budget limited to only court fees, severely restricting recovery—even if they win. Check whether costs budgeting requirements apply before preparing for trial.

Funding of Litigation

Basic Charging and Own-Client Costs

Clients are liable to pay their own solicitors whatever is agreed under their retainer, unless they have entered into a conditional fee or damages-based agreement.

Success Fees and Insurance

Key Term: success fee
The percentage uplift recoverable by a solicitor (from their own client only, not the opponent) for work done under a conditional fee agreement where successful.

Key Term: after the event (ATE) insurance
An insurance policy taken out after a dispute arises to cover liability for the opponent’s costs (and possibly some disbursements) if the claim fails.

Success fees and ATE premiums are not recoverable from the losing party except in limited circumstances.

Part 36 and Offers to Settle

Part 36 Offers

Offers to settle made under CPR Part 36 have significant costs consequences.

Key Term: Part 36 offer
A formal, written offer to settle made in accordance with CPR Part 36, which carries penalties for refusal if a party fails to better the offer at trial.

Refusal of a genuine Part 36 offer that is not then beaten at trial may result in adverse costs consequences for the failing party.

Costs Sanctions for Refusal of Settlement

The court takes into account conduct, including the refusal of settlement and ADR, when exercising its discretion as to costs.

Key Term: costs sanction
An order imposing a costs penalty on a party due to failure to comply with procedural rules, protocols, or settlement conduct.

Worked Example 1.2

A defendant in a multi-track claim makes a Part 36 offer to settle for £20,000. The claimant refuses and is awarded £19,500 at trial. Who pays the costs, and for what period?

Answer:
The claimant failed to beat the defendant’s Part 36 offer. The defendant pays the claimant’s costs up to the expiry of the Part 36 offer’s relevant period (21 days after the offer); after that, the claimant will be ordered to pay the defendant’s costs from expiry of the relevant period to judgment.

Conduct and Costs

The court considers the conduct of the parties during pre-action and litigation. Unreasonable behaviour—such as non-compliance with protocols, refusal to engage in ADR, or improper offers—can result in a costs order against the party in breach, even if that party is otherwise successful.

Worked Example 1.3

A claimant turns down repeated invitations by the defendant to attend mediation, then is awarded less than the defendant’s settlement offer at trial. What is the likely costs result?

Answer:
The court may penalise the claimant in costs, ordering them to pay the defendant’s costs from the last (reasonable) settlement offer onward—even if the defendant is technically liable. Refusal to use ADR without good reason is likely to lead to adverse costs consequences.

Funding and Costs Protection

Basic Funding Options

Clients may use private funding, insurers, conditional fee arrangements (CFAs), damages-based agreements (DBAs), legal aid (in limited cases), or union funding. Possession of before-the-event (BTE) or after-the-event (ATE) insurance should be checked at the outset.

Key Term: before the event (BTE) insurance
Insurance purchased before a dispute arises that covers legal costs for future disputes.

Quick Reference: Fixed, Summary, and Detailed Assessment

Key Point Checklist

This article has covered the following key knowledge points:

• The court’s discretion over costs is broad and can be affected by conduct and offers.
• Costs are generally assessed on the standard basis, but indemnity basis may be ordered for misconduct.
• Summary assessment and detailed assessment are the main ways costs are evaluated; fixed costs apply where set by rules.
• The successful party may not recover all (or indeed any) of their own costs expenditure; only those that are reasonable and proportionate.
• Costs management and budgeting set limits on recoverable costs in many multi-track cases; failure to file a budget may bar recovery.
• Part 36 and settlement conduct are highly significant for costs consequences; refusal of ADR or reasonable offers may lead to costs sanctions.
• Funding arrangements, success fees, and ATE/BTE insurance all affect both liability and who pays what costs.

Key Terms and Concepts

• standard basis
• indemnity basis
• inter-partes costs
• own-client costs
• proportionality
• costs management order
• detailed assessment
• success fee
• after the event (ATE) insurance
• Part 36 offer
• costs sanction
• before the event (BTE) insurance