Recovering costs – helpful hints (private law)

James E. Petts sets out some key considerations for local authorities looking to recover their costs.

I have been asked to distil some of the salient points in a seminar that I gave to members of the London Borough Legal Alliance recently, entitled, “Recovering costs – all you need to know” into an article of no more than 1,500 words (which limit I have somewhat exceeded). The handout for that seminar was 5,480 words long, so it is advisedly that this brief article’s title does not include the phrase, “all you need to know”; but nonetheless, it ought to be a useful summary of the more important topics for those who were unable to attend or who wanted more information on certain aspects of what was discussed, although, of necessity, some topics and sub-topics have been omitted.

Part I – getting the order

Costs budgeting

Getting the right costs order at the end of the case now requires getting the costs budget right at the beginning of the case in those cases where it applies (i.e. most multi-track Part 7 claims).

It goes without saying that the costs budget should be filed on time to avoid the possibility of the CPR R. 3.14 sanction of a costs budget consisting only of court fees being deemed to have been approved. If the worst happens, the court can grant relief against sanction, but usually only where the consequences of the lateness are not serious or significant for either the other party or the court or where there is a good reason for the lateness, although the court has a residual discretion to grant relief even when this is not the case [1]. However, do not rely on relief being granted as it is not always easy to predict what effect a delay might have on an opposing party or the court. Getting this wrong can ultimately cost more than the case is worth.

The court can only budget costs that have yet to be incurred [2]. The court may comment on costs that have been incurred by the time of the approval of the budget, but in practice courts have been reluctant to do so. It is controversial whether a court can approve by amendment budgeted costs that have been incurred since the original budget was set but before the amendment [3]. On one view, supported by the authors of the White Book, once the costs budget is set, the court can freely amend those figures as budgeted figures even if they have been incurred since the budget was approved. On another view, however, the court is not permitted to budget for any costs that have been incurred by the date of its costs management decision [4].

The practical lesson from all of that is to make sure that the costs budget is as accurate and comprehensive as possible, although this is not helped by the current view that courts tend to take to contingents in the budget, being to approve them only in so far as they are likely, rather than merely reasonably possible, to arise.

Because the limitations of costs budgets can be escaped when costs are awarded on the indemnity basis, there is a great incentive to seek indemnity costs. To maximise the chance of obtaining indemnity costs against an unreasonable opponent, it is imperative to make sure that one’s own conduct of litigation is impeccable in every respect: not just by meticulously obeying all court orders, rules and practice directions (although this is important), but by being unfailingly reasonable (which is not the same as pliant) in dealings with one’s opponents and having a very clearly pleaded case.

Part 36 offers are a good way of getting indemnity costs, as courts are reluctant to award them otherwise except for egregious conduct.

Part 36

Part 36 offers have technical requirements that are all too easy to get wrong. There is a very simple way of preventing most technical defects: use the pre-printed offer form [5]. There is almost never a reason not to do this (if necessary with a continuation sheet).

Where there is a claim and counter-claim, it is important to make clear on the face of the offer (and consider in advance tactically) whether it is a claimant’s or defendant’s Part 36 offer, as either party may make either type in such a case [6], and each type has radically different costs consequences. In such a case, always check carefully on receipt of a Part 36 offer whether it is a claimant’s or defendant’s offer before making a decision.

There is now a specific tick box on the form as to whether a Part 36 offer is intended to be a claimant’s or defendant’s offer. Make sure always to tick one of these two boxes and always to choose the appropriate one.

Whoever is on the right side of a Part 36 offer can now expect what may amount to a substantial windfall (claimants especially, with an additional 10% added to any money claim, not just damages: this might be useful, e.g. in adult social care cases). Courts are reluctant to disapply the Part 36 automatic costs consequences even though they have the discretion to do so, so making the right Part 36 offer at the right time (and giving careful consideration to an opponent’s offer) is imperative. This requires having a sound appreciation of the merits of the case both as to liability and, where applicable, to quantum at an early stage.

The small claims track

This was not covered at the seminar, but requested on some of the feedback forms afterwards. Generally, costs other than court fees, (fixed, limited) witness expenses and (fixed, limited) expert’s fees are irrecoverable on cases in the small claims track, now up to £10,000 in non-personal injury cases [7].

However, the normal rule can be disapplied either where a party has behaved unreasonably [8] or where costs are payable pursuant to a term of a contract (e.g. a lease) between the parties [9].

The approach of courts to unreasonable behaviour costs is similar to its approach to indemnity costs, awarding them only in rare cases of seriously egregious conduct. Courts are often unwilling to award unreasonable behaviour costs even when it has found a party to have been untruthful in giving evidence, although there is authority [10] to the effect that the fabrication of an untruthful defence might be ground for awarding unreasonable behaviour costs.

The court cannot award unreasonable behaviour costs merely because a party has failed to beat a Calderbank offer [11], but this may be taken into account as one factor among many when deciding to make an award of unreasonable behaviour costs [12].

In respect of costs due under a contract, this should be considered when entering into commercial leases and contracts with service providers where claims against the relevant parties might be brought on the small claims track.

Wasted costs

Not to be confused with costs thrown away, which are payable by a party to litigation, wasted costs are costs awardable against a legal representative for misconduct in proceedings. It is necessary to show a negligent (or worse) breach of duty to the court [13] and that that breach caused costs to be wasted [14]; however, the amount of costs are then in the discretion of the court.

Where it is proposed to make an order for wasted costs against a legal representative, it is necessary for the court first to give the person against whom it is proposed to be made an opportunity to show cause why it should not be made. This necessitates a fresh hearing. Applications for wasted costs should thus only be made when there is a good case for doing so.

A non-exhaustive list of conduct that might justify an award of wasted costs where causation can be shown follows:

• professional misconduct (e.g. dishonesty);
• filing large quantities of plainly irrelevant evidence for a trial or application;
• filing evidence consisting of or containing of irrelevant scandalous accusations against another person (especially where this lengthens a hearing);
• pursuing a misconceived claim or application where there is no possibility of this being as a result of the client instructing the legal representative to press ahead in spite of advice to the contrary (this is hard to establish); or
• persistent disregard for rules or court orders where it is clear that this cannot be attributed to the client.

This can be useful in the case of an impecunious or legally aided opposing party, but care should be taken not to make this sort of application except where there is merit in it.

Part II – enforcement

Generally

All the usual means of enforcement are available for costs orders; a review of these is omitted for brevity. Instead, I touch on some specific issues that are of particular interest in costs.

Unless orders

Interim costs orders where there is an order for immediate payment (i.e. when there has been a summary assessment or a payment on account) can very effectively be enforced with an unless order (i.e., unless the costs ordered be paid by a certain date, the claim be struck out or the defendant be debarred from defending, as the case may be).

An application for such an order can be defeated on the basis that the respondent would be genuinely able to meet an order, thus stifling a genuine claim or defence [15], but courts in practice require detailed proof of means before allowing such a defence.

Although it has not been tested in detail, and there are surprisingly few reported cases on the topic, it is likely that a respondent to such an application who cannot show an impecuniosity/stifling defence will have difficulties in dissuading a court from making an unless order [16].

Insolvency proceedings

A winding-up or a bankruptcy petition can in principle be used to enforce a costs order as with any other type of order (with the usual advantages and disadvantages of such proceedings).

However, beware of using insolvency proceedings to try to enforce an interim order: this is vulnerable to a response that the respondent has an arguable cross-claim, being that, if he/she/it wins the case ultimately, he/she/it will be entitled to set off what it owes against costs awarded in her/his/its favour, as I successfully argued before the High Court recently.

Estates of deceased persons

The claims of creditors (including those entitled under an order for costs) take priority over the interests of beneficiaries in the estate of a deceased person.

If no person takes a grant of representation, a creditor is entitled to take a grant, either of letters of administration with the will attached [17] or in the case of a total intestacy [18], but those entitled in a higher degree must be cleared off first (by means of citation to accept or refuse a grant).

Taking a grant involves onerous responsibilities, especially if the estate is insolvent, and can therefore be costly.

Normally, it is not possible to compel a person to take a grant of representation. However, where a person entitled to a grant of representation has inter-meddled with the estate, he or she may lose the right to refuse to accept a grant in response to a citation.

There may be cases where an executor or administrator is improperly failing to satisfy creditors’ debts (either in solvent or insolvent estates). The general principle is that the personal representative is personally liable for any defaults in the administration of the estate, and that liability is strict and does not depend upon proof of fault of the personal representative [19]. Any recipient of monies paid out of an estate improperly is also strictly liable to repay them [20].

So, if a personal representative of an estate against which a costs order has been made fails to apply the assets of that estate in discharging that costs order, that person can be made liable to reimburse the estate (and, in turn, the beneficiary of the costs order) for the assets so misapplied; and a person (e.g. a beneficiary) to whom the money has been paid instead can also be made liable to repay the amount received in so far as it was improperly paid.

James E. Petts is a barrister in 36 Civil, part of The 36 Group. He can be contacted on 020 7421 8030 or This email address is being protected from spambots. You need JavaScript enabled to view it..