Legal costs in civil cases: who pays?

Where a dispute cannot be resolved outside of court, the case will probably be decided by a judge. However, court action can be very costly for both sides, and a common question for the parties is: who pays for the costs of the case?

What’s the general rule?

The general rule is that the loser pays the winner’s costs. In practice, the court has flexibility as to when one party may be responsible in whole or in part for the other party’s costs.

There are also exceptions to the general rule. These include cases where a successful claimant recovers no more than nominal damages; or where the winner acted improperly or unreasonably during proceedings. In exercising its discretion on costs, the court is required to have regard to all the circumstances and particularly to the following matters:

  • The extent to which the parties followed the applicable pre-action protocol;
  • The extent to which it was reasonable for the parties to raise, pursue or contest each of the allegations or issues;
  • The manner in which the parties pursued or defended the action or particular allegations or issues;
  • Whether the successful party exaggerated the value of the claim;
  • Whether a party was only partly successful;
  • Any admissible offer to settle.

Interim costs orders

An interim application for an order or court directions can be made between the commencement of the proceedings and the final hearing. If there is no order as to costs, none are payable in respect of the proceedings to which the order relates. Usually, however, the court will make some form of order saying who will pay the costs of any interim applications. The choice of order depends on who won the interim application.

Case management hearings usually result in costs orders, as there is no ‘winner’. An adversarial application won by the claimant will usually result in an order for the claimant’s costs to be paid by the other party. Applications made without notice, and interim injunctions granted on the basis of the balance of convenience, usually result in ‘costs reserved’ and a decision as to costs will be made at a later date.

Final costs orders

Final costs orders can take a variety of forms, much depending on the conduct of proceedings by the parties. Different costs orders include:

  1. A party must pay a proportion of another party’s costs.
  2. A party must pay a specified amount in respect of the other side’s costs.
  3. A party must pay costs from or until a certain day.
  4. A party must pay costs incurred before proceedings have begun.
  5. A party must pay costs relating only to certain steps taken in the proceedings.
  6. A party must pay costs relating only to a distinct part of the proceedings.
  7. That a party must pay interest on costs from or until a certain date, including a date before judgment.

Order for costs in cases involving multiple parties

Sometimes, a claimant may take action against two defendants but is successful against just one defendant. If the normal rules apply, the unsuccessful defendant would have to pay the claimant’s costs in respect of the claim against the unsuccessful defendant, and the claimant would be responsible for the costs incurred in respect of the claim against the successful defendant.

However, if it was reasonable to join both defendants to the action, the court has discretion to make a special order enabling the claimant to recover the costs paid to the successful defendant; or for them to be paid by the unsuccessful defendant direct to the successful defendant.

Bullock order

If a Bullock order is made, the claimant is ordered to pay the costs of the successful defendant then, once paid, the claimant can recover these costs from the unsuccessful defendant, in addition to the claimant’s costs incurred in respect of the claim against the unsuccessful defendant.

Sanderson order

If a Sanderson order is made, the unsuccessful defendant is ordered to pay the successful defendant’s costs direct to the successful defendant. Also, the unsuccessful defendant will have to pay the claimant’s costs incurred in respect of the claim against the unsuccessful defendant. This order is appropriate where the claimant is publicly funded or insolvent, as the order will ensure the successful defendant is able to recover their costs.

Quantification of costs

Quantifying the costs in a case can be done in the following ways:

  • By agreement between the parties: agreement between the parties, as to the costs payable by one party to another, avoids the time and expense involved in the assessment of costs (see below). Note that it is not possible to agree costs in proceedings brought on behalf of a person under disability without the direction of the court.
  • Fixed costs: Some items of expenditure, particularly solicitor’s charges in certain proceedings and on entering default judgments, are recoverable only as fixed costs.

Summary assessment

This involves the court determining the amount payable by way of costs immediately at the end of a hearing, usually on a relatively rough and ready basis.

Detailed assessment

A detailed assessment of costs involves leaving the quantification of costs to a costs officer. The costs officer will consider the amount to be allowed at an assessment hearing at a future stage after the parties have been given the opportunity of setting out the amount claimed and points of dispute in writing.