Around this time, civil pupils in their first six months will start visiting various courts with their pupil supervisors and other barristers. They’ll hear cost terminology and may wonder what it means. This can be quite overwhelming, especially when you see the size of the ‘Friston on Costs’ and ‘Cook on Costs’ textbooks.
This article addresses a few of the various costs terms and phrases you may hear during your first six, some more common than others.
Standard costs and fixed recoverable costs
When you hear about costs being recovered from another party, it will either be on a ‘standard costs’ basis or ‘fixed recoverable costs basis’.
Standard costs is better described as assessed costs. They arise where the court orders one party to pay another party’s costs and the amount recoverable is determined by reference to the costs actually incurred by the receiving party. The receiving party must therefore establish the costs it has incurred through a bill of costs, schedule or summary assessment, and the court then determines what amount is recoverable from the paying party.
Those costs may be assessed on either the standard basis or the indemnity basis. The standard basis is the default position under CPR 44.3. On a standard basis assessment, the court will only allow costs which are both reasonably incurred and proportionate, and any doubt is resolved in favour of the paying party. By contrast, an indemnity basis assessment is more generous to the receiving party. The requirement of proportionality does not apply in the same way and any doubt is resolved in favour of the receiving party. As a result, indemnity assessments typically produce a higher recovery than standard basis assessments.
Accordingly, when practitioners refer to “standard costs” or “conventional inter partes costs”, they are generally referring to costs that are assessed by reference to the work actually undertaken, as opposed to fixed recoverable costs. Those assessed costs can then be subject to either a standard basis assessment or, in exceptional circumstances where the court considers it appropriate, an indemnity basis assessment.
By contrast, fixed recoverable costs (FRC) are not assessed by reference to the costs actually incurred by the receiving party. Instead, the Civil Procedure Rules (CPR) prescribe in advance the amount that may be recovered for particular stages of litigation and particular categories of case. The court is therefore not ordinarily concerned with how much time was spent on the case, what hourly rates were charged, or whether the receiving party’s actual costs were higher or lower than the amount recovered. This represents a fundamental departure from conventional inter partes costs. Under a standard or indemnity basis assessment, the court examines the costs actually incurred and determines what amount should be recovered. Under the FRC regime, there is generally no such assessment because recoverability is determined by the relevant CPR tables. The successful party recovers the prescribed figure regardless of whether the actual costs incurred exceed or fall below that amount.
Indemnity principle
The indemnity principle is a fundamental rule of costs law which provides that a receiving party cannot recover from its opponent more by way of costs than it is liable to pay its own legal representatives. In simple terms, a costs order is intended to indemnify a litigant against a liability it has incurred, not to allow it to make a profit. The court is therefore concerned not merely with what costs are reasonable and proportionate, but also with whether the client is actually liable to pay those costs under the terms of the retainer.
The practical importance of the principle is that recoverability depends upon the solicitor-client relationship as much as upon the litigation itself. If a solicitor agrees to act entirely free of charge, the client has no liability and there is ordinarily nothing to indemnify. Equally, where a retainer limits the client’s liability to a fixed fee, the indemnity principle may prevent recovery from the paying party beyond that amount, even if the work undertaken would justify a higher assessment. The principle therefore frequently arises in disputes concerning retainers, conditional fee agreements, pro bono work and fixed fee arrangements.
The key question in most indemnity principle cases is deceptively simple: what was the client contractually liable to pay? If there is a genuine liability, even where the client is impecunious and unlikely ever to satisfy it, costs will usually remain recoverable. If there is no liability, or the liability is capped by the retainer, recovery may be restricted accordingly. As a result, costs lawyers often say that one of the most important documents in any costs dispute is not the bill, the budget or the costs order, but the retainer itself.
The exception to the indemnity principle
An important exception to the indemnity principle arises in cases that fall within a FRC. Ordinarily, a successful party cannot recover more from its opponent than it is liable to pay its own lawyers. However, in Butt v Nizami [2006] EWHC 159 (QB), the High Court held that the indemnity principle does not apply to the fixed costs prescribed by CPR Part 45. The Court concluded that entitlement to those costs derives from the rules themselves, rather than from the existence or extent of the client’s liability to its solicitors.
The practical consequence is that, unlike a conventional costs assessment, recovery is not dependent upon demonstrating an equivalent solicitor-client liability. A receiving party may recover the fixed sums allowed by the rules even if the amount recoverable exceeds the costs actually incurred or payable under the retainer. As the court recognised in Butt v Nizami, the purpose of the fixed costs regime is to provide certainty and avoid the technical disputes that would arise if parties were required to investigate retainers and solicitor-client liabilities in every case.
For practitioners, the distinction is critical. A fixed fee retainer may engage the indemnity principle and potentially cap recovery. Fixed recoverable costs, by contrast, are generally recoverable because the CPR says they are recoverable, not because they precisely reflect the client’s contractual liability to their solicitor. Therefore, it does not matter how little work has been done, the party would be able to recover the fixed recoverable costs amount and would not be in breach of the indemnity principle.
Wasted costs orders
A real irritation is the interchanging of ‘wasted costs’ and ‘costs occasioned and/or thrown away’. One party claiming the costs have been incurred as a result fo the other party’s conduct. That is the costs occasioned and/or thrown away as a result of that conduct. A wasted costs order is an inherently different order.
Wasted costs orders are an exceptional jurisdiction under s.51 of the Senior Courts Act 1981, enabling the court to order a legal representative personally to pay costs incurred as a result of their improper, unreasonable or negligent conduct. The leading authority is Ridehalgh v Horsefield [1994] Ch 205, where the Court of Appeal emphasised that the jurisdiction is compensatory rather than punitive. Its purpose is to protect litigants from unnecessary expense caused by lawyers, whilst ensuring that advocates and solicitors are not deterred from advancing their clients’ cases robustly through fear of personal liability. A wasted costs order is therefore not justified simply because a lawyer was unsuccessful, made an error of judgment, or pursued a difficult argument. The court applies a three-stage test. First, it considers whether the representative acted improperly, unreasonably or negligently. Secondly, it asks whether that conduct caused identifiable costs to be wasted; there must be a direct causal connection between the conduct complained of and the costs sought. Thirdly, even where misconduct and causation are established, the court must decide whether it is just in all the circumstances to make a personal costs order.
The jurisdiction is discretionary, and the applicant bears the burden of proving each stage. Applications frequently fail because causation cannot be established or because the court concludes that a wasted costs order would be disproportionate. The courts repeatedly stress that wasted costs orders should remain a remedy of last resort and should not generate extensive satellite litigation. Particular caution is exercised where issues of legal professional privilege arise, since a lawyer may be unable fully to explain their conduct without revealing privileged instructions. The overarching question is whether the representative’s conduct was sufficiently serious, caused identifiable loss, and makes it fair for the lawyer, rather than the client, to bear the resulting costs.
What is the difference between an assessment of costs on a standard and indemntiy basis?
The difference between a standard basis assessment and an indemnity basis assessment lies in the approach the court takes to scrutinising the receiving party’s costs.
On a standard basis assessment, which is the default position under CPR 44.3, the court will only allow costs that are both reasonably incurred and proportionate to the matters in issue. Any doubt as to whether a particular item of cost was reasonably incurred or reasonable in amount is resolved in favour of the paying party. The receiving party therefore faces two hurdles: reasonableness and proportionality.
By contrast, on an indemnity basis assessment, the proportionality test does not apply in the same way and the court adopts a more generous approach to recovery. Costs need only be reasonably incurred and reasonable in amount, and any doubt is resolved in favour of the receiving party. As a result, indemnity assessments typically produce a significantly higher level of recovery than standard basis assessments.
In practical terms, a standard basis assessment starts from a position of caution and restraint, reflecting the fact that one party is being ordered to pay another’s legal costs. An indemnity basis assessment is intended to provide a more complete recovery where the paying party’s conduct justifies a departure from the norm. The key distinction is often summarised as follows: on the standard basis, doubts favour the paying party and proportionality applies; on the indemnity basis, doubts favour the receiving party and proportionality is largely removed.
When will the court assess on an indemnity basis?
Indemnity costs are the exception, not the rule. The starting point is that costs are awarded on the standard basis. A party seeking indemnity costs must therefore usually show conduct or circumstances that take the case “out of the norm”. The Courts have repeatedly stressed that there is no exhaustive checklist and that the jurisdiction is highly fact-sensitive. The question is whether the conduct of the litigation or the surrounding circumstances was sufficiently unreasonable to justify departing from the usual standard-basis assessment.
Examples where indemnity costs may be awarded include cases involving dishonesty, deceit, abuse of process, failure to make full and frank disclosure, pursuit of speculative or hopeless claims, advancing unjustified allegations of fraud, maintaining untenable defences, pursuing litigation for ulterior motives, or conducting proceedings in an unreasonable and disproportionate manner. The courts have also awarded indemnity costs where a party has pursued claims known to be false, discontinued serious allegations without explanation, or taken opportunistic procedural points contrary to the overriding objective. A contractual entitlement to legal costs may also justify an indemnity basis assessment, and CPR Part 36 expressly provides for indemnity costs in certain circumstances where a claimant beats its own Part 36 offer.
However, there is no presumption that indemnity costs follow merely because a party loses, advances an unsuccessful argument, fails to beat an offer, or even loses allegations of fraud. Something more is generally required. The courts consistently stress that the key question is whether the conduct falls outside the ordinary and reasonable conduct of litigation. Where indemnity costs are awarded, the practical benefit is significant: proportionality does not apply, any doubt as to reasonableness is resolved in favour of the receiving party, and approved costs budgets do not constrain the assessment.
Bullock and Sanderson Orders
Bullock and Sanderson orders are special costs orders available in multi-defendant litigation where a claimant has reasonably sued more than one defendant but succeeds against only one of them. Their purpose is to protect a claimant who, through no fault of their own, could not identify before trial which defendant was legally responsible.
A Bullock order permits the successful defendant to recover its costs from the claimant, but also allows the claimant to recover those costs from the unsuccessful defendant as part of the claimant’s own costs. The claimant therefore remains primarily liable to the successful defendant but is indemnified by the losing defendant.
By contrast, a Sanderson order goes further and requires the unsuccessful defendant to pay the successful defendant’s costs directly, thereby avoiding the need for the costs to pass through the claimant. A Sanderson order is often regarded as the more convenient and efficient remedy where the circumstances justify it. Both orders are exceptional departures from the ordinary rule that costs follow the event and are generally made only where it was reasonable for the claimant to sue both defendants and the uncertainty as to liability was not of the claimant’s making.
Qualified One-Way Cost Shifting (QOCS)
Qualified One-Way Costs Shifting (QOCS) is a costs protection regime that applies primarily to personal injury claims, fatal accident claims and certain claims arising from death or personal injury. Introduced following the Jackson reforms, its purpose is to protect claimants from the risk of adverse costs orders if their claim fails. In broad terms, a defendant may still obtain a costs order against an unsuccessful claimant, but the ability to enforce that order is significantly restricted. The regime reflects a policy decision that claimants should be able to pursue genuine personal injury litigation without the fear of facing a substantial costs liability if they lose.
QOCS does not prevent the court from making costs orders. Rather, it limits their enforcement. Under CPR 44.14, a defendant can generally enforce an adverse costs order only up to the value of damages, interest and costs recovered by the claimant in the claim. Consequently, a claimant who recovers nothing will often face no practical liability for the defendant’s costs. However, the protection is not absolute. The regime can be displaced where a claim is struck out on specified grounds, where the claim is found to be fundamentally dishonest, or in certain situations where the claim is brought for the benefit of someone else or includes claims falling outside the scope of QOCS.
Importantly, QOCS is a protection against enforcement, not against the making of costs orders. Courts should still determine liability for costs in the usual way and, where appropriate, assess those costs. The practical effect is that whilst an unsuccessful claimant may technically owe costs to the defendant, the defendant’s ability to recover those costs is restricted unless one of the exceptions to the QOCS regime applies.
Information
Alec Hancock is a practising Barrister at Magdalen Chambers in Exeter. For instructions on matters, please contact Magdalen Chambers via clerks@magdalenchambers.co.uk or by telephone on 01392 285 200.
