The importance of understanding basic costs principles

It is bewildering when it appears that what should be a fundamental and straightforward understanding of law and practice nevertheless generates arguments before the court, with a consequent expenditure of substantial time and resources.

One of these fundamental elements is for a lawyer to know not only what they can charge but also what to advise clients about the extent of their entitlement to charge and, where costs are recoverable from another party, the extent to which this could happen.

The issue of recovery will, of course, have a major impact on the client and may also affect what the lawyer can charge them. So you need to understand costs law. This goes for those handling non-contentious work, given how often they can turn litigious.

A recent case that has highlighted the issue of understanding basic costs principles is Monex Europe Ltd v Charles Pothecary and Guy Kaufman. This judgment relates to the summary assessment by Clive Sheldon QC, sitting as a deputy High Court judge, of the successful defendant’s costs of a failed application by the claimants for an injunction. The costs were claimed at £85,446, a schedule of costs was produced and the judge directed that each party should file submissions in respect of the summary assessment.

The headline from the decision has been the finding that a simple comparison between the costs of one party and the other is not enough to find that the bill is unreasonable. There was more to it, however.


We know that where costs are being assessed, whether by summary or detailed assessment on the standard basis, the court will allow a sum that is reasonable and proportionate. The Court of Appeal, in West v Stockport NHS Foundation Trust, recently reiterated its comment from Rogers v Merthyr Tydfil County Borough Council that:

“Reasonableness and proportionality are conceptually distinct, there can be an overlap between them, not least because reasonableness may be a necessary condition of proportionality.”

In determining what is reasonable and proportionate, look to CPR 44, and in particular CPR 44.3 and CPR 44.4. These provide that, whilst the issue of conduct of the opposite party may be a factor to take into account, there is no reference to the amount of the opponent’s bill of costs. In any event it is the receiving party’s schedule in this case that is being assessed.

In cases where costs are to be subject to budgeting, CPR 3.17 provides:

“(1) When making any case management decision, the court will have regard to any available budgets of the parties and will take into account the costs involved in each procedural step.

(2) Paragraph (1) applies whether or not the court has made a costs management order.”

We can see here that the courts will have regard to the opponents’ “budget”, but this is for the purpose of deciding upon the steps to be taken in the case going forward; and if any issues arise, that may result in the court making a comment about the reasonableness of any budgeted costs, which can be taken into account at assessment (CPR 3.15(4)).


The transcript in Monex is less than two pages and does not in itself reflect the extent of the work undertaken not only by the party’s representatives but also the judge in reaching his decision.

It is apparent that the judge did direct his mind to the provisions of CPR 44, and as a consequence needed to look at the specific items for which costs were claimed and apply the test of reasonableness and proportionality.

What transpired is very common in assessments, in that the judge looked at the grade of fee-earners working on the case, the charge-out rates for the costs lawyer, the time spent on document consideration and preparation, and the extent of witness evidence.

He held that there were disproportionate costs incurred in attending witnesses owing to duplication between fee-earners and that there was excessive time spent in attendances and on documents. He did not, however, agree that it was not appropriate to engage an experienced costs lawyer in this case. The costs claimed were reduced from £85,446 to £74,041; a figure that was still much higher that the claimant’s costs of £44,669.

Implications for practitioners

When preparing the case plan and during the monitoring process throughout the case, it is necessary to ensure that the work that is or has been undertaken and the costs incurred will meet the test of reasonableness and proportionality. Whilst one of the factors may not be the size of the opponent’s budgeted costs, if they are lower it is still worth keeping this in mind.

The judge will also be entitled to draw upon his or her own experience of what is claimed and allowed in other cases and this may be a factor that should influence your case planning decisions; you need to factor this in when advising your own client on costs.

Comparing each side’s costs remains relevant for the purpose of advising your own client and as something to take into account at case planning and budgeting stage. Though an unfavourable comparison itself is not sufficient to find a bill unreasonable, the judge may take any disparity into account when assessing the individual elements. An overview is therefore essential, so do not wholly disregard the comparison.

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