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Costs Explained

Clients are often unsure as to what a legal practitioner means when talking about the recovery of costs, and what the client might expect by way of costs being awarded at the successful conclusion of a fully contested hearing, or even any costs awarded at any point in a matter, where the amount is not set by the Court.

In general, a successful party will be awarded costs on what is called a party and party basis, usually simply referred to as party/party costs. The reason for this stems from the statute of Gloucester in 1678, where Lord Gloucester, having been successful in his matter, sought his legal costs be awarded. The court allowed them, but not the full costs, “only the party and party costs”, and only because he was successful.

There are in fact three levels of costs that may be recovered:

Party/party costs

These costs are the most common order for costs, and the actual amount that will be recovered from the unsuccessful party will be determined by a costs assessor. The term party/party itself refers to the communication and documents etc that pass between the parties to the proceedings. The parties to the proceedings will be the plaintiff and defendant (or however the opposing parties are referred to – for instance they may be applicant and respondent), the Court, and witnesses or third parties assisting the proceedings like process servers. So party/party refers to the communication etc between all the parties. What it does not include are the communications between the legal practitioner and their client.

A costs assessor is a court appointed solicitor who is given fairly wide powers to review the conduct of the matter and make determinations. The costs assessor will look at all the bills issued by the successful litigant, and review each and every specific entry that has been charged by the legal practitioner to determine whether it is allowable. Not only does the costs assessor consider whether any particular item appearing is valid on a party/party basis, he must also consider whether the action was fair and reasonable in the circumstances. For instance if a legal practitioner attends a call over, and has counsel also appear at the call over, a costs assessor may determine that counsels appearance was not reasonable in the circumstances, and disallow the fee from the unsuccessful party having to pay it.

In fact, as the unsuccessful party will be much more familiar with the carriage of the matter, they are given opportunity to object to parts of the bill, for which they must provide reasons that the assessor will consider in his determination.

What does all this mean? In most cases it means that the successful litigant will be awarded about 60% to 70% of the professional costs they have been billed in a matter. In some cases this may be higher, depending on a number of factors.

Indemnity Costs

These costs are generally awarded where there has been a genuine, documented offer of compromise or settlement that has been rejected by the unsuccessful litigant, and the successful litigant has won more than the amount offered for settlement at the final hearing. Alternatively, indemnity costs may be awarded where the defendant’s defence has been without merit, or the defendant’s carriage of the matter has been so lacking that the court is satisfied that there has been a complete waste of all parties time and resources in carrying the matter to hearing.

Indemnity costs is a higher level of costs, that will include some aspects of the solicitor client communication, but in general more latitude is given to the successful party by the costs assessor for material that has been invoiced by the successful parties legal practitioner.

This means that the successful litigant may be awarded up to 80% or more of the professional costs they have been invoiced in a matter.

Solicitor/Client costs

These costs and indemnity costs are often interchanged and awards for solicitor/client costs would appear to be the same as indemnity costs. Solicitor/client costs are generally believed to be higher than indemnity costs however the distinction is difficult determine as no two amounts for costs could ever be the same.

The court has indicated that where there is a contract between the parties that stipulates solicitor/client or indemnity costs, the contract must stipulate this in unequivocal terms. There is also case law to suggest that when asking for costs in any originating process, if it is the intention to seek indemnity or solicitor/client costs then this must also be stipulated in the pleadings. A request for costs only suggests that only the basic party/party costs are sought and hence will be the only type of costs awarded (save for the rules on offers and pointless or ill conceived defences).

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