Civil claim procedures - Costs

Learning Outcomes

This article explains civil litigation costs in England and Wales as assessed in SQE2, including:

• identifying the main types of costs orders the court can make at interim and final stages
• distinguishing fixed, summary, and detailed assessment and recognising when each is appropriate
• applying the principles governing recoverability, reasonableness, and proportionality of inter-partes costs
• analysing how Part 36 offers, ADR and general conduct influence adverse and indemnity costs consequences
• understanding costs management and budgeting, and their impact on case strategy and settlement decisions
• evaluating funding options (such as CFAs, DBAs, BTE and ATE insurance) and their effect on clients’ net recovery and risk
• advising on QOCS protection in personal injury claims and the limited circumstances in which it may be lost or constrained
• explaining when the court may order security for costs or make non-party costs orders, and the key procedural steps in detailed and provisional assessment, including payment on account

SQE2 Syllabus

For SQE2, you are required to understand the rules and practical considerations relating to costs in civil litigation, with a focus on the following syllabus points:

• 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
• qualified one-way costs shifting (QOCS) and how it interacts with Part 36
• non-party costs orders and security for costs
• interest on costs and enforcement of costs orders

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.

Part 44 of the Civil Procedure Rules (CPR) sets out the general framework. The usual starting point is that the unsuccessful party pays the successful party’s costs, but costs are always at the court’s discretion, and conduct before and during proceedings, compliance with pre-action protocols, and settlement efforts (including ADR and Part 36) can displace the default position.

Key Term: indemnity principle
A party cannot recover more from its opponent than it is liable to pay its own legal representative under the retainer. Inter-partes recovery is capped by the client’s own liability.

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 because only costs reasonably (and, on the standard basis, proportionately) incurred will be allowed.

Types of Costs Orders

Civil courts have a wide range of options when deciding costs. In addition to ordering one party to pay another’s costs of the whole claim, the court can award:

• a proportion of the other party’s costs
• a stated amount
• costs from or until a certain date
• costs relating to particular steps or issues
• interest on costs (sometimes from a date before judgment)

Common interim costs orders include “costs in any event”, “costs in the case”, “costs reserved”, “costs thrown away”, “costs of and caused by”, and “no order as to costs”. Wasted costs orders can be made against a legal representative whose improper, unreasonable or negligent conduct causes unnecessary 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.

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 (for example, serious non-compliance, dishonesty, or unreasonable refusal of ADR). The proportionality test (CPR 44.3(5)) asks whether total costs bear a reasonable relationship to sums in issue, non-monetary relief, complexity, conduct-generated work, wider factors (such as reputation or public importance), and any additional work due to vulnerability of a party or witness.

Inter-partes and Own-Client Costs

A key distinction is between inter-partes costs and the client’s own bill.

The court will not award costs that are unreasonable in amount, or unreasonably (or, on the standard basis, disproportionately) incurred, even if those sums were spent under instructions. Disbursements such as court fees and expert fees are usually recoverable; VAT is only recoverable to the extent the receiving party cannot reclaim it. CFA success fees and most ATE insurance premiums are not recoverable between the parties (subject to limited exceptions, such as certain clinical negligence ATE premiums for liability expert reports).

Additional Orders: Non-Party and Security for Costs

Costs can be ordered against non-parties in exceptional cases where they funded and controlled litigation or stood to benefit from it. The non-party must be added for costs purposes and given a reasonable opportunity to be heard.

Defendants can seek security for costs where statutory grounds are met (e.g., claimant outside the jurisdiction, impecunious company, asset dissipation), and the court considers it just to order security. Security is usually a payment into court or a bank guarantee, set at a level that protects the defendant without stifling a genuine claim.

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. Fixed trial advocacy fees apply in fast-track trials; the rules set levels rather than assessing actual spend.

Key Term: fixed costs
Amounts prescribed by the CPR or protocols for specified steps or stages (e.g., trial advocacy fees, default judgment in money claims), payable regardless of actual expenditure.

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.

Key Term: summary assessment
Immediate, on-the-day determination of costs by the judge, usually at the end of fast-track trials and one-day hearings, using the parties’ statements of costs (N260).

Summary assessment requires a statement of costs to be filed and served (typically at least 24 hours before the hearing). The court normally orders payment within 14 days, and interest accrues if unpaid.

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.

Typical steps include the receiving party serving a Notice of Commencement and a detailed bill within three months; the paying party serving points of dispute within 21 days; optional reply within 21 days; and a request for an assessment hearing. Where the total claimed costs are under £75,000, the court usually undertakes a provisional assessment on the papers; if either side seeks an oral hearing, they risk adverse costs if their adjustment is less than 20%. Courts often order a reasonable payment on account of costs after judgment where there will be detailed assessment, unless there is good reason not to.

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.

When assessing amount, the court considers all the circumstances (including conduct before and during proceedings, efforts to resolve the dispute, and whether issues were exaggerated). The receiving party’s last approved or agreed budget is also material to reasonableness.

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. Fixed trial advocacy fees apply in fast-track; other fixed amounts include default judgment in specified money claims and certain enforcement steps.

Assessed Costs

Assessed costs include summary and detailed assessment, and are discretionary: only what is considered reasonable and proportionate is allowed. On the indemnity basis, proportionality is not a constraint, but costs must still be reasonable in amount and reasonably incurred.

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.

Key Term: costs budget
A Precedent H schedule of incurred and estimated costs by phase, verified by statement of truth, used to manage and later assess recoverable costs.

Parties must also exchange a budget discussion report (Precedent R) seven days before the first case management conference (CMC) identifying figures agreed and disputed by phase, with brief grounds of dispute. If significant developments occur, budgets should be varied promptly using Precedent T and, if not agreed, put before the court.

Costs exceeding a party's last approved budget phase will often be disallowed unless there is good reason. Conversely, incurring materially less than budget is not by itself a reason to depart from the budget; the court focuses on the reasonableness of costs actually claimed.

Key Term: summary assessment
Immediate determination of costs at a hearing; failure to file a statement of costs in time can lead to adjournment or reduced recovery.

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.

Worked Example 1.2

A claimant in a multi-track case fails to file a costs budget by the deadline. They win at trial. What is the likely effect on their recoverable costs?

Answer:
Unless the court grants relief from the sanction, the claimant will usually be treated as having filed a budget consisting of court fees only, so future costs beyond court fees will not be recoverable. This can be devastating even for a successful party.

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. Solicitors must provide clear information on pricing and likely overall costs at the outset and as the matter progresses; they should also advise on the risk of adverse costs.

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 most ATE premiums are not recoverable from the losing party. Limited exceptions exist (e.g., certain ATE premiums for clinical negligence liability expert reports). Clients should be advised that success fees and ATE premiums come out of their damages or pocket if successful.

Damages-based agreements (DBAs) entitle the solicitor to an agreed percentage of damages on success; percentage caps apply (e.g., 25% of PSLA and past losses in personal injury; maximum 50% in non-PI civil claims). Third-party litigation funding is increasingly common; funders expect a return from damages or costs.

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

Key Term: indemnity principle
Inter-partes recovery cannot exceed what the client is contractually liable to pay their own solicitor.

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.

Key Term: relevant period
The minimum 21-day period following service of a Part 36 offer during which the offeree can accept without costs penalties (unless the offer states a longer period).

Refusal of a genuine Part 36 offer that is not then beaten at trial may result in adverse costs consequences for the failing party. For monetary claims, a claimant who equals or beats their own offer at trial is entitled (from expiry of the relevant period) to indemnity costs, interest on those costs (up to 10% above base rate), enhanced interest on damages (up to 10% above base rate), and an additional amount calculated as 10% of damages up to £500,000, plus 5% of any excess up to a cap of £75,000. The court must consider whether imposing such penalties would be unjust, taking into account all circumstances including timing, information available, conduct around information sharing, and whether the offer was a genuine attempt to settle.

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.

Refusal of ADR without good reason can lead to adverse costs orders, even against an otherwise successful party. Guidance in Halsey factors includes the nature and merits of the dispute, other settlement attempts, ADR costs, potential prejudice from delay, and prospects of ADR success.

Worked Example 1.3

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. The court may increase or reduce interest on damages and order indemnity costs as sanctions for serious pre-action non-compliance.

Worked Example 1.4

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.

Acceptance and Late Acceptance

Acceptance of a defendant’s Part 36 offer within the relevant period usually entitles the claimant to their costs up to acceptance on the standard basis. Late acceptance (after the relevant period) generally leads to a split order: the claimant recovers their costs up to expiry of the relevant period; the claimant pays the defendant’s costs from expiry to acceptance, usually on the standard basis. Acceptance of a claimant’s offer within the relevant period entitles the claimant to costs up to acceptance. The court retains discretion to vary these consequences if unjust.

Worked Example 1.5

A claimant accepts a defendant’s Part 36 offer 40 days after service (late). The parties cannot agree costs. What is the usual order?

Answer:
The court will normally order that the defendant pays the claimant’s costs up to expiry of the relevant period (21 days after service), and the claimant pays the defendant’s costs from the expiry of the relevant period to the date of acceptance, both on the standard basis, unless unjust to do so.

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: qualified one-way costs shifting (QOCS)
In most personal injury claims, a claimant who loses is protected from paying the defendant’s costs save for limited exceptions (e.g., fundamental dishonesty, strike-out, or where the claim is brought for another’s financial benefit).

Under QOCS, defendants cannot enforce costs orders against claimants beyond the aggregate amount of damages and interest awarded to the claimant. If the defendant makes a valid Part 36 offer which the claimant fails to beat, the defendant may recover their post-offer costs, but enforcement is limited up to the damages and interest the claimant recovers.

Worked Example 1.6

In a personal injury claim, the claimant is awarded £10,000 damages after failing to beat a defendant’s Part 36 offer. The defendant’s post-offer costs are £15,000. How much can the defendant enforce under QOCS?

Answer:
Enforcement against the claimant is limited to the level of damages and interest awarded. The defendant may enforce up to £10,000 (plus any interest on damages), not the full £15,000.

Non-Party Costs and Security for Costs in Practice

Key Term: non-party costs order
An order against someone who is not a party to the proceedings, typically where they funded and controlled the litigation or stood to benefit, made in exceptional circumstances.

Key Term: security for costs
An order requiring a claimant to provide security (usually by payment into court) to protect a defendant’s potential costs if the claim fails, available on specified grounds and subject to the court’s discretion.

Worked Example 1.7

A sole director funds and directs an insolvent company’s defence. The company loses and cannot pay the claimant’s costs. What might the claimant do?

Answer:
Apply for a non-party costs order against the director. If evidence shows the director substantially controlled and funded the defence for personal benefit, the court may order the director to pay some or all of the claimant’s costs.

Worked Example 1.8

A defendant faces a claim from a foreign company with minimal UK assets. There is reason to believe the company cannot pay costs if ordered to do so. What order might the defendant seek?

Answer:
Security for costs. If grounds are met (e.g., claimant resident outside the jurisdiction or an impecunious company) and it is just, the court can order security, usually by payment into court, set at a level that balances protection and access to justice.

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.
• QOCS applies in most personal injury claims, limiting enforcement of costs orders against claimants; it interacts with Part 36.
• Non-party costs orders and security for costs are available in defined circumstances and can be important in practice.
• Detailed assessment has a set procedure, including provisional assessment below £75,000, and courts often order payment on account.

Key Terms and Concepts

• standard basis
• indemnity basis
• inter-partes costs
• own-client costs
• proportionality
• costs management order
• costs budget
• summary assessment
• detailed assessment
• fixed costs
• success fee
• after the event (ATE) insurance
• Part 36 offer
• relevant period
• costs sanction
• before the event (BTE) insurance
• qualified one-way costs shifting (QOCS)
• non-party costs order
• security for costs
• indemnity principle