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PART 43
Scope of Cost Rules and Definitions
Contents 43.1 Scope of this Part............................. para.43. 43.2 Denitions and application...................... para.43. 43.3 Meaning of summary assessment................ para.43. 43.4 Meaning of detailed assessment................. para.43.
The Costs Practice Direction (CPR Pt 43......... para.43PD.
Editorial introduction The rules relating to costs in Pts 43 to 48 deal with the main provisions as to costs and the way in which the court will award and assess costs. These parts do not however provide a complete self contained code and other provisions relating to costs may be found under other rules and particularly Pt 36 Oers of settlement
Transitional Provisions Paragraph 18 of the Practice Direction supplemental to Pt 51 (see para.51PD.1) deals with the extent to which the CPR apply to proceedings issued before April 26,
So far as costs are concerned all the provisions in the new costs rules apply from April 26, 1999, both as to the procedure to be adopted and also the way in which costs are to be assessed. It is recognised that litigation may well have been in progress for some considerable time before April 26, 1999 without the parties or their lawyers be- ing aware that the new rules might alter the way in which the steps which they were undertaking would be viewed by the court at the time of assessment of costs. When the court is assessing costs of work done prior to April 26, 1999 the new rules will ap- ply, but the judge dealing with the costs (whether by summary or detailed assessment) will not disallow anything in respect of that work which would not have been disal- lowed under the rules in force prior to April 26, 1999. The Costs Practice Direction deals with the detailed transitional provisions in respect of proceedings for taxation commenced prior to April 26, 1999 (see s.57 of the Costs Practice Direction para.48PD.8). Costs judges have all the powers of the court under the CPR and accordingly the overriding objective set out in Pt 1 and the court’s general powers of management set out in Pt 3 apply equally to all questions of costs. Authorised court ocers have all the powers of the court when making a detailed assessment except certain penal powers (see r.47.3). Under the transitional provisions the court cannot ignore that the parties have been acting under the old regime, but the court is not constrained to reach the same deci- sion as would have been made previously. The position under the CPR is fundamen- tally dierent from under the old regime. Rule 1.1 makes it clear that the CPR is a new procedural code whose overriding objective is to enable courts to deal with cases justly; Biguzzi v Rank Leisure Plc [1999]1 W.L.R. 1926, CA.
Scope of this Part 43.1 This Part contains denitions and interpretation of certain matters set out in the rules about costs contained in Parts 44 to 48. (Part 44 contains general rules about costs; Part 45 deals with xed costs; Part 46 deals with fast track trial costs; Part 47 deals with the detailed assessment of costs and related appeals and Part 48 deals with costs payable in special cases.)
Denitions and application^1 43.2—(1) In Parts 44 to 48, unless the context otherwise requires— (a) “costs” includes fees, charges, disbursements, expen- ses, remuneration, reimbursement allowed to a litigant in person under rule 48.6, any additional liability incurred under a funding arrangement and any fee or reward charged by a lay representative for acting on behalf of a party in proceedings allocated to the small claims track; (b) “costs judge” means a taxing master of the Senior Courts; (ba) “Costs Oce” means the Senior Courts Costs Oce; (c) “costs ocer” means— (i) a costs judge; (ii) a district judge; and (iii) an authorised court ocer; (d) “authorised court ocer” means any ocer of— (i) a county court; (ii) a district registry; (iii) the Principal Registry of the Family Division; or (iv) the Costs Oce, whom the Lord Chancellor has authorised to assess costs; (e) “fund” includes any estate or property held for the benet of any person or class of person and any fund to which a trustee or personal representative is entitled in that capacity; (f) “receiving party” means a party entitled to be paid costs; (g) “paying party” means a party liable to pay costs; (h) “assisted person” means an assisted person within the statutory provisions relating to legal aid; (i) “LSC funded client” means an individual who receives services funded by the Legal Services Commission as part of the Community Legal Service within the mean- ing of Part I of the Access to Justice Act 1999; (j) “xed costs” means the amounts which are to be al- lowed in respect of solicitors’ charges in the circum- stances set out in Section I of Part 45. (k) “funding arrangement” means an arrangement where a person has— (i) entered into a conditional fee agreement or a col- lective conditional fee agreement which provides for a success fee within the meaning of section 58(2) of the Courts and Legal Services Act 1990;
(^1) Amended by the Civil Procedure (Amendment No.3) Rules 2000 (SI 2000/1317), the Civil Procedure (Amendment) Rules 2001 (SI 2001/256), the Civil Procedure (Amendment No.2) Rules 2003 (SI 2003/1242), the Civil Procedure (Amendment No.3) Rules 2003 (SI 2003/1329) and the Civil Procedure (Amendment) Rules 2008 (SI 2008/2178).
Part 43 Scope of Costs Rules and Definitions
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Editorial note Assessment is the process by which the court decides the amount of any costs payable. As to summary assessment see r.43.3 and as to detailed assessment r.43.4. For the purpose of these rules a Taxing Master of the Senior Courts is referred to as a “costs judge”.
The Indemnity Principle and CFAs The indemnity principle is fully discussed in Vol.1 at para.47.14.4. Put simply the indemnity principle ensures that an unsuccessful party cannot be held liable to pay costs to a successful party who is not legally liable to pay them. Costs payable by a cli- ent to the solicitor belong to the solicitor: Costs recovered between the parties belong to the client. It follows that the latter cannot exceed the former. This principle worked satisfactorily pre-CPR and in the days of widely available legal aid. However, conditional fee agreements have become the normal way of funding much litigation, especially personal injury litigation. The indemnity principle and the CFA do not logi- cally sit together. The rule and regulation changes recognise this and take the sensible and simple approach of abrogating the indemnity principle in appropriate cases. Thus solicitors can lawfully agree with clients not to seek to recover by way of costs anything in excess of costs agreed with, or ordered to be paid by the other party. Rules 43.2 (3) and (4) as amended provide that costs whose recovery is limited in this way are recov- erable costs for the purposes of CPR Pts 44 to 48.
Costs estimates Section 6 of the Costs Practice Direction (43PD.6) deals with costs estimates and when they are to be provided. The Court of Appeal has expressed the hope that judges conducting cases will make full use of their powers under the Practice Direction both to obtain estimates of costs and to exercise their powers in respect of costs and case management to keep costs within the bounds of the proportionate in accordance with the overriding objective: Solutia (UK) Ltd v Griths [2001] EWCA Civ 736. The Court of Appeal has held that the Costs Practice Direction s.6, relating to costs estimates, is expressed in clear mandatory terms: costs estimates must be provided. The court set out a non exhaustive guide as to the circumstances in which a costs estimate might be taken into account in determining the reasonableness of costs claimed, intended to assist judges in the application of the direction. First, estimates made by solicitors of the overall likely costs of litigation should usually provide a useful yardstick by which the reasonableness of the costs nally claimed may be measured. If there is a substantial dierence between the estimated costs and the costs claimed that dierence calls for an explanation. In the absence of a satisfactory explanation the court may conclude that the dierence itself is evidence from which it can conclude that the costs claimed are unreasonable. Secondly, the court may take the estimated costs into account if the other party shows that it relied on the estimate in a certain way. Thirdly, the court may take the estimate into account in cases where it decides that it would probably have given dierent case management directions if a realistic estimate had been given. The court did not consider that it would be a correct use of the power conferred by the Costs Practice Direction to hold a party to their estimates simply in order to penalise him for providing an inadequate estimate. Thus if the estimate had not been relied on by the paying party; the court concluded that even if the estimate had been close to the gure ultimately claimed its case management directions would not have been aected; and, the costs claimed were otherwise reason- able and proportionate, then it would be wrong to reduce the costs claimed simply because they exceed the amount of the estimate. The court considered that the costs judge should determine how, if at all, to reect the costs estimates in the assessment before going on to decide whether, for reasons unrelated to the estimate, there are elements of the costs claimed which were unreasonably incurred or unreasonable in amount. This will avoid the danger of “double jeopardy” referred to by Lord Woolf C.J. in Lownds (see Lownds v Home Oce [2002] EWCA Civ 365 at para.30; [2002] 1 W.L.R. 2450, CA; Leigh v Michelin Tyre Plc [2003] EWCA Civ 1766). The Court of Appeal has subsequently considered whether a paying party may claim that their liability to the receiving party under an order for the payment of costs is discharged or that it should be reduced, if the solicitor for the receiving party has failed to give their client an estimate of costs in accordance with the Solicitors Costs In- formation and Client Care Code. The court considered the indemnity principle and
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the special status of the solicitor’s certicate of accuracy attached to a bill of costs (see Bailey v IBC Vehicles Ltd [1998] 3 All E.R. 570, CA and Hollins v Russell [2003] EWCA Civ 718; [2003] 1 W.L.R. 2487). The Law Society submitted that the eect of Practice Rule 15 properly construed was that a breach would not render the solicitor’s fees ir- recoverable, but that the failure to provide an estimate was likely to be relevant in determining what costs clients could reasonably be expected to pay. The court inferred that the Client Care Code is to protect the legitimate interests of the client and the administration of justice rather than to relieve paying parties of their obligations to pay costs which have been reasonably incurred. Arden L.J., with whom the other members of the court agreed, found that the contract of retainer is not rendered unenforceable by the failure to give an estimate. The Code, like the Solicitors Practice Rules, constitutes subordinate legislation for the purposes of the Solicitors Act 1974. That means that it is binding and has statutory eect, it does not mean however that any contract made or performed in breach of a requirement imposed by the Code is unenforceable. In those circumstances that is a question for the discretion of the judge assessing costs whether to take into account any failure by the receiving party to provide an estimate in the circumstances and of the kind required by the Code. It is open to the paying party to submit that if the receiving party’s work had been estimated in accordance with the requirements of the Code a lower amount of costs would have been incurred. In those circumstances they may ask the costs judge to require the receiving party to prove that such an estimate was given. The procedure established in Pamplin v Express Newspapers Ltd [1985] 1 W.L.R. 689, Hobhouse J. would then apply. The costs judge must however give weight to the certicate as to accuracy. The costs judge must be satised that there is some real basis for the paying party’s contention that the receiving party should be required to prove that there was an estimate or an adequate estimate that is not (to quote the words of Hobhouse J. in Pamplin ) a sham or fanciful dispute. In addition the costs judge must be satised that the absence of an estimate as to costs could have had both a calculable eect and a not immaterial eect on the costs claimed. The court gave some guidance as to how the costs judge should take the fact that there is no estimate into account. The judge should consider whether, and if so to what extent, the costs claimed would have been signicantly lower if there had been an estimate. If the situation is that an estimate was given but not updated the rst part of the guidance given by the court in Leigh v Michelin [2003] EWCA Civ 1766; [2004] 1 W.L.R. 846 may be applied. Arden L.J. stressed that the guidance given was not exhaustive since it was impossible to foresee all the diering circumstances that might arise in any individual assessment: Garbutt v Edwards [2005] EWCA Civ 1206; [2006] 1 W.L.R. 2907; [2006] 1 All E.R. 553, CA. Where a solicitor’s bill to the client far exceeded an estimate which had been given, the court held that the estimate of costs was not a xed quotation nor did it put an up- per limit on costs. The retainer was subject to the Supply of Goods and Services Act 1982 s.15 and it was therefore an implied term that the solicitors would be paid rea- sonable remuneration for their services. Although the solicitors had informed the cli- ent that they would update the cost estimate, this was not a condition precedent to the solicitors recovering any sum in addition to the sum set out in the estimate. In decid- ing what sum should be payable the court could have regard to the estimate and it was a factor in assessing reasonableness. For this purpose it was relevant, as a matter of law, to ask what, in all the circumstances, it was reasonable for the client to be expected to pay. The cases cited ( Wong v Vizards [1997] 2 Costs L.R. 46; Leigh v Michelin Tyre Plc [2003] EWCA Civ 1766; [2004] 1 W.L.R. 846 and Garbutt v Edwards [2005] EWCA Civ 1206; [2006] 1 W.L.R. 2907) were not authority for the proposition that the solicitors had any automatic entitlement to add a margin to the estimate or that the client could cap its liability at the estimate plus a margin ( MasterCigars Direct Ltd v Withers LLP [2007] EWHC 2733 (Ch); [2009] 1 W.L.R. 881, Morgan J.). Following the decision in MasterCigars Tugenhat J. dealt with another appeal ( Rey- nolds v Stone Rowe Brewer [2008] EWHC 497 (QB)) in which the costs judge at rst instance held that the solicitor should be bound by an estimate of £18,000 to which he added a 15 per cent margin in accordance with Wong v Vizards [1997] 2 Costs L.R. 46. The costs judge also limited the claimant’s liability for counsel’s and expert’s fees to the estimates which had been given. The judge held (para.63) that it could not be shown that there was any error of law on the part of the costs judge about which the solicitors could complain. The costs judge was entitled to have regard to the estimates. He did so by giving them an interpretation which, in eect, meant that he treated the
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court, when making an order about costs, orders payment of a sum of money instead of xed costs or “detailed assessment”.
Editorial note Judges are required to assess the costs of a case if practicable. In cases lasting not more than one day, the parties are under an obligation to provide the court and their opponents with details of the costs which may be sought in the event of success (see Section of the Costs Practice Direction). See Guide to Summary Assessment of Costs, para.48.16. The court has a discretion as to whether or not to carry out a summary assessment and there is no implied general rule requiring detailed assessment of costs in hearings lasting longer than one day. Paragraph 13.1 of the Costs Practice Direction requires the court to consider making a summary assessment in every case: Q v Q (Costs: Sum- mary Assessment) [2002] 2 F.L.R. 668, Wilson J. It is the duty of the parties and their legal representatives to assist the judge in making summary assessments by providing a statement of costs; see paras 3.2 and 13. of the Costs Practice Direction. The statement should follow as closely as possible Form N260 (Statement of Costs (summary assessment)); see Guide to the Summary Assess- ment of Costs, Appendix 3 (para.48.52.1 below). Two pharmaceutical companies applied for the revocation of a patent owned by a third company. The two applications were independent, but the case managing judge ordered that they should be heard simultaneously using the same evidence. The two actions then proceeded together. The rst company discontinued its application, and the second company lost its application. The judge ordered that the two applicant companies should bear equally the costs of the successful company. The company which had discontinued appealed, arguing that the order was perverse, and that it should only be liable for the extra costs incurred as a result of its own involvement. The appeal was dismissed, the court stating that as soon as the rst company had joined the action it put itself at risk of paying the successful party’s costs if the action failed: Actavis UK Ltd v Eli Lilly Co Ltd [2010] EWCA Civ 13. The court’s power to carry out a summary assessment of costs is not restricted to hearings at which it is exercising its discretion under r.44.3 to determine where costs are to fall ( ENE Kos v Petroleo Brasileiro SA (The “Kos”) [2009] EWHC 1843 (Comm); [2010] 1 Lloyd’s Rep. 87 (Andrew Smith J.) (accordingly, power could be exercised at the conclusion of the trial of a question as to whether expenses incurred were “incidental to” proceedings within SCA 1981 s.51)).
Contentious probate In contentious probate proceedings the court held that there was a public interest in wills being proved in solemn form where there were grounds for reasonable suspicions on the particular facts of the case. Reasonable suspicions had been raised which justied an investigation of the will. The public interest requirement did not however justify a potential exhaustion of the estate in legal costs, nor could it defeat the public interest in encouraging sensible settlements. The question for the court was whether the cost should be paid by the claimant, the defendant or out of the estate. On the basis that the claimant ought to have accepted the defendant’s oer to settle, which was entirely reasonable, the claimant was ordered to pay the costs: Perrins v Hol- land [2009] EWHC 2558 (Ch) Lewison J. Appeal Appeals from summary assessment are dealt with under the ordinary rules relating to appeals (see CPR Pt 52 and Practice Direction supplementing that Part).
Meaning of detailed assessment 43.4 “Detailed assessment” means the procedure by which the amount of costs is decided by a cost ocer in accordance with Part 47.
Editorial note “Detailed assessment” is the name given to the procedure formerly known as taxation. (See Section 3 of the Costs Practice Direction and Part 47.)
Section A Civil Procedure Rules 1998
THE COSTS PRACTICE DIRECTION (CPR PT 43)
This Practice Direction supplements CPR Parts 43 to 48
Section 1 Introduction 1.1 This Practice Direction supplements Parts 43 to 48 of the Civil Procedure Rules. It applies to all proceedings to which those Parts apply. 1.2 Paragraphs 57.1 to 57.9 of this Practice Direction deal with various transitional provisions aecting proceedings about costs. 1.3 Attention is drawn to the powers to make orders about costs conferred on the Senior Courts and any county court by Section 51 of the Senior Courts Act 1981. 1.4 In these Directions: “counsel” means a barrister or other person with a right of audience in relation to proceedings in the High Court or in the County Courts in which he is instructed to act. “LSC” means Legal Services Commission. “solicitor” means a solicitor of the Senior Courts or other person with a right of audience in relation to proceedings, who is conducting the claim or defence (as the case may be) on behalf of a party to the proceedings and, where the context admits, includes a patent agent. 1.5 In respect of any document which is required by these Direc- tions to be signed by a party or his legal representative Practice Direction 22 will apply as if the document in question was a state- ment of truth. (Practice Direction 22 makes provision for cases in which a party is a child, a protected party or a company or other corporation and cases in which a document is signed on behalf of a partnership.)
Section 2 Scope of Costs Rules and Denitions
Rule 43.2 Definitions and Application 2.1 Where the court makes an order for costs and the receiving party has entered into a funding arrangement as dened in rule 43.2, the costs payable by the paying party include any additional li- ability (also dened in rule 43.2) unless the court orders otherwise. 2.2 In the following paragraphs— “funding arrangement”, “percentage increase”, “insurance premium”, “membership organisation” and “additional liability” have the meanings given to them by rule 43.2.
A “conditional fee agreement” is an agreement with a person providing advocacy or litigation services which provides for his fees and expenses, or part of them, to be payable only in specied cir- cumstances, whether or not it provides for a success fee as mentioned in section 58(2)(b) of the Courts and Legal Services Act 1990. “base costs” means costs other than the amount of any additional liability. 2.3 Rule 44.3A (1) provides that the court will not assess any ad- ditional liability until the conclusion of the proceedings or the part of the proceedings to which the funding arrangement relates. (As to the
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(3) items of costs claimed under theheadings specied in paragraph 4.6; (4) summary showing the total costs claimed on each page of the bill; (5) schedules of time spent on non-routine attendances; and (6) the certicates referred to in paragraph 4.15. 4.2 Where it is necessary or convenient to do so, a bill of costs may be divided into two or more parts, each part containing sections (2), (3) and (4) above. Circumstances in which it will be necessary or con- venient to divide a bill into parts include: (1) Where the receiving party acted in person during the course of the proceedings (whether or not that party also had a legal representative at that time) the bill must be divided into dierent parts so as to distinguish between; (a) the costs claimed for work done by the legal representa- tive; and (b) the costs claimed for work done by the receiving party in person. (1A) Where the receiving party had pro bono representation for part of the proceedings and an order under section 194(3) of the Legal Services Act 2007 has been made, the bill must be divided into dierent parts so as to distinguish between: (a) the sum equivalent to the costs claimed for work done by the legal representative acting free of charge; and (b) the costs claimed for work done by the legal representa- tive not acting free of charge. (2) Where the receiving party was represented by dierent solicitors during the course of the proceedings, the bill must be divided into dierent parts so as to distinguish between the costs payable in respect of each solicitor. (3) Where the receiving party obtained legal aid or LSC fund- ing in respect of all or part of the proceedings the bill must be divided into separate parts so as to distinguish between; (a) costs claimed before legal aid or LSC funding was granted; (b) costs claimed after legal aid or LSC funding was granted; and (c) any costs claimed after legal aid or LSC funding ceased. (4) Where value added tax (VAT) is claimed and there was a change in the rate of VAT during the course of the proceed- ings, the bill must be divided into separate parts so as to distinguish between; (a) costs claimed at the old rate of VAT; and (b) costs claimed at the new rate of VAT. (5) Where the bill covers costs payable under an order or orders under which there are dierent paying parties the bill must be divided into parts so as to deal separately with the costs payable by each paying party. (6) Where the bill covers costs payable under an order or orders, in respect of which the receiving party wishes to
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claim interest from dierent dates, the bill must be divided to enable such interest to be calculated. 4.3 Where a party claims costs against another party and also claims costs against the LSC only for work done in the same period, the costs claimed against the LSC only can be claimed either in a sepa- rate part of the bill or in additional columns in the same part of the bill. Precedents C and D in the Schedule of Costs Precedents an- nexed to this Practice Direction show how bills should be drafted when costs are claimed against the LSC only. 4.4 The title page of the bill of costs must set out: (1) the full title of the proceedings; (2) the name of the party whose bill it is and a description of the document showing the right to assessment (as to which see paragraph 40.4, below); (3) if VAT is included as part of the claim for costs, the VAT number of the legal representative or other person in re- spect of whom VAT is claimed; (4) details of all legal aid certicates, LSC certicates and rele- vant amendment certicates in respect of which claims for costs are included in the bill. 4.5 The background information included in the bill of costs should set out: (1) a brief description of the proceedings up to the date of the notice of commencement; (2) a statement of the status of the solicitor or solicitor’s em- ployee in respect of whom costs are claimed and (if those costs are calculated on the basis of hourly rates) the hourly rates claimed for each such person. It should be noted that “legal executive” means a Fellow of the Institute of Legal Executives. Other clerks, who are fee earners of equivalent experience, may be entitled to similar rates. It should be borne in mind that Fellows of the Institute of Legal Executives will have spent approximately 6 years in practice, and taken both general and specialist examinations. The Fellows have therefore acquired considerable practical and academic experience. Clerks without the equivalent experience of legal executives will normally be treated as being the equiva- lent of trainee solicitors and para-legals. (3) a brief explanation of any agreement or arrangement be- tween the receiving party and his solicitors, which aects the costs claimed in the bill. 4.6 The bill of costs may consist of items under such of the follow- ing heads as may be appropriate: (1) attendances on the court and counsel up to the date of the notice of commencement; (2) attendances on and communications with the receiving party; (3) attendances on and communications with witnesses includ- ing any expert witness;
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proceedings other than costs claimed for preparing and checking the bill. 4.14 The summary must show the total prot costs and disburse- ments claimed separately from the total VAT claimed. Where the bill of costs is divided into parts the summary must also give totals for each part. If each page of the bill gives a page total the summary must also set out the page totals for each page. 4.15 The bill of costs must contain such of the certicates, the texts of which are set out in Precedent F of the Schedule of Costs Precedents annexed to this Practice Direction, as are appropriate. 4.16 The following provisions relate to work done by solicitors: (1) Routine letters out, routine e-mails out and routine telephone calls will in general be allowed on a unit basis of 6 minutes each, the charge being calculated by reference to the appropriate hourly rate. The unit charge for letters out and e-mails out will include perusing and considering the relevant letters in or e-mails in and accordingly no separate charge is to be made for in-coming letters or e-mails. (2) The court may, in its discretion, allow an actual time charge for preparation of electronic communications other than e-mails sent by solicitors, which properly amount to at- tendances provided that the time taken has been recorded. (3) Local travelling expenses incurred by solicitors will not be allowed. The denition of “local” is a matter for the discre- tion of the court. While no absolute rule can be laid down, as a matter of guidance, “local” will, in general, be taken to mean within a radius of 10 miles from the court dealing with the case at the relevant time. Where travelling and waiting time is claimed, this should be allowed at the rate agreed with the client unless this is more than the hourly rate on the assessment. (4) The cost of postage, couriers, out-going telephone calls, fax and telex messages will in general not be allowed but the court may exceptionally in its discretion allow such expenses in unusual circumstances or where the cost is unusually heavy. (5) The cost of making copies of documents will not in general be allowed but the court may exceptionally in its discretion make an allowance for copying in unusual circumstances or where the documents copied are unusually numerous in re- lation to the nature of the case. Where this discretion is invoked the number of copies made, their purpose and the costs claimed for them must be set out in the bill. (6) Agency charges as between principal solicitors and their agents will be dealt with on the principle that such charges, where appropriate, form part of the principal solicitor’s charges. Where these charges relate to head (1) in paragraph 4.6 (attendances at court and on counsel) they must be included in their chronological order in that head. In other cases they must be included in head (9) (attendances on London and other agents).
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4.17 (1) Where a claim is made for a percentage increase in addi- tion to an hourly rate or base fee, the amount of the increase must be shown separately, either in the appropri- ate arithmetic column or in the narrative column. (For an example see Precedent A or Precedent B). (2) Where a claim is made against the LSC only and includes enhancement and where a claim is made in family proceedings and includes a claim for uplift or general care and conduct, the amount of enhancement uplift and gen- eral care and conduct must be shown, in respect of each item upon which it is claimed, as a separate amount either in the appropriate arithmetic column or in the narrative column. (For an example, see Precedent C). “Enhancement” means the increase in prescribed rates which may be allowed by a costs ocer in accordance with the Legal Aid in Civil Proceedings (Remuneration) Regulations 1994 or the Legal Aid in Family Proceedings Regulations 1991.
Costs of preparing the bill 4.18 A claim may be made for the reasonable costs of preparing and checking the bill of costs.
Section 5 Special Provisions Relating to VAT 5.1 This section deals with claims for value added tax (VAT) which are made in respect of costs being dealt with by way of summary as- sessment or detailed assessment.
VAT Registration Number 5.2 The number allocated by HM Revenue and Customs to every person registered under the Value Added Tax Act 1983(except a Government Department) must appear in a prominent place at the head of every statement, bill of costs, fee sheet, account or voucher on which VAT is being included as part of a claim for costs.
Entitlement to VAT on Costs 5.3 VAT should not be included in a claim for costs if the receiving party is able to recover the VAT as input tax. Where the receiving party is able to obtain credit from HM Revenue and Customs for a proportion of the VAT as input tax, only that proportion which is not eligible for credit should be included in the claim for costs. 5.4 The receiving party has responsibility for ensuring that VAT is claimed only when the receiving party is unable to recover the VAT or a proportion thereof as input tax. 5.5 Where there is a dispute as to whether VAT is properly claimed the receiving party must provide a certicate signed by the solicitors or the auditors of the receiving party substantially in the form il- lustrated in Precedent F in the Schedule of Costs Precedents an- nexed to this Practice Direction. Where the receiving party is a liti- gant in person who is claiming VAT, reference should be made by him to HM Revenue and Customs and wherever possible a State- ment to similar eect produced at the hearing at which the costs are assessed.
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(2) Payments to third parties which are normally treated as part of the legal representative’s overheads (for example, postage costs and telephone costs) will not be treated as disbursements. The third party supply should be included as part of the costs of the legal representatives’ legal ser- vices and VAT must be added to the total bill charged to the client. (3) Disputes may arise in respect of payments made to a third party which the legal representative shows as disburse- ments in the invoice delivered to the receiving party. Some payments, although correctly described as disbursements for some purposes, are not classied as disbursements for VAT purposes. Items not classied as disbursements for VAT purposes must be shown as part of the services provided by the legal representative and, therefore, VAT must be added in respect of them whether or not VAT was chargeable on the supply by the third party. (4) Guidance as to the circumstances in which disbursements may or may not be classied as disbursements for VAT purposes is given in the VAT Guide (Notice 700, para- graph 25.1). One of the key issues is whether the third party supply (i) was made to the legal representative (and therefore subsumed in the onward supply of legal ser- vices), or (ii) was made direct to the receiving party (the third party having no right to demand payment from the legal representative, who makes the payment only as agent for the receiving party). (5) Examples of payments under (i) are: travelling expenses, such as airline ticket, and subsistence expenses, such as the cost of meals, where the person travelling and receiving the meals is the legal representative. The supplies by the airline and the restaurant are supplies to the legal repre- sentative, not to the client. (6) Payments under (ii) are classied as disbursements for VAT purposes and, therefore, the legal representative need not add VAT in respect of them. Simple examples are payments by a legal representative of court fees and payment of fees to an expert witness.
Legal Aid/LSC Funding 5.13 (1) VAT will be payable in respect of every supply made pur- suant to a legal aid/LSC certicate where— (a) the person making the supply is a taxable person; and (b) the assisted person/LSC funded client— (i) belongs in the United Kingdom or another member state of the European Union; and (ii) is a private individual or receives the supply for non-business purposes. (2) Where the assisted person/LSC funded client belongs outside the European Union, VAT is generally not pay-
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able unless the supply relates to land in the United Kingdom. (3) For the purpose of sub-paragraphs (1) and (2), the place where a person belongs is determined by section 9 of the Value Added Tax Act 1994. (4) Where the assisted person/LSC funded client is registered for VAT and the legal services paid for by the LSC are in connection with that person’s business, the VAT on those services will be payable by the LSC only. 5.14 Any summary of costs payable by the LSC must be drawn so as to show the total VAT on Counsel’s fees as a separate item from the VAT on other disbursements and the VAT on prot costs.
Tax invoice 5.15 A bill of costs led for detailed assessment is always retained by the Court. Accordingly if a solicitor waives his solicitor and client costs and accepts the costs certied by the court as payable by the unsuccessful party in settlement, it will be necessary for a short state- ment as to the amount of the certied costs and the VAT thereon to be prepared for use as the tax invoice.
Vouchers 5.16 Where receipted accounts for disbursements made by the so- licitor or his client are retained as tax invoices a photostat copy of any such receipted account may be produced and will be accepted as sucient evidence of payment when disbursements are vouched.
Certificates 5.17 In a costs certicate payable by the LSC, the VAT on solicitor’s costs, Counsel’s fees and disbursements will be shown separately.
Litigants acting in person 5.18 Where a litigant acts in litigation on his own behalf he is not treated for the purposes of VAT as having supplied services and therefore no VAT is chargeable in respect of work done by that liti- gant (even where, for example, that litigant is a solicitor or other legal representative). 5.19 Consequently in the circumstances described in the preceding paragraph, a bill of costs presented for agreement or assessment should not claim any VAT which will not be allowed on assessment.
Government Departments 5.20 On an assessment between parties, where costs are being paid to a Government Department in respect of services rendered by its legal sta, VAT should not be added.
Payment pursuant to an order under section 194(3) of the Legal Ser- vices Act 2007 5.21 Where an order is made under section 194(3) of the Legal Services Act 2007 any bill presented for agreement or assessment pursuant to that order must not include a claim for VAT.
Section A Civil Procedure Rules 1998
(2) Where a party who is required to le and serve a new estimate of costs in accordance with Rule 44.15(3) is represented, that party’s legal representative must in addi- tion serve the new estimate on that party. (3) This paragraph does not apply to litigants in person. 6.5 An estimate of costs should be substantially in the form il- lustrated in Precedent H in the Schedule of Costs Precedents an- nexed to the Practice Direction. 6.5A (1) If there is a dierence of 20% or more between the base costs claimed by a receiving party on detailed assessment and the costs shown in an estimate of costs led by that party, the receiving party must provide a statement of the reasons for the dierence with his bill of costs. (2) If a paying party— (a) claims that he reasonably relied on an estimate of costs led by a receiving party; or (b) wishes to rely upon the costs shown in the estimate in order to dispute the reasonableness or proportion- ality of the costs claimed, the paying party must serve a statement setting out his case in this regard in his points of dispute. (“Relevant person” is dened in paragraph 32.10(1) of the Costs Practice Direction.) 6.6 (1) On an assessment of the costs of a party, the court may have regard to any estimate previously led by that party, or by any other party in the same proceedings. Such an estimate may be taken into account as a factor among others, when assessing the reasonableness and proportionality of any costs claimed. (2) In particular, where— (a) there is a dierence of 20% or more between the base costs claimed by a receiving party and the costs shown in an estimate of costs led by that party; and (b) it appears to the court that— (i) the receiving party has not provided a satisfactory explanation for that dierence; or (ii) the paying party reasonably relied on the estimate of costs; the court may regard the dierence between the costs claimed and the costs shown in the estimate as evidence that the costs claimed are unreasonable or disproportionate. Costs budgets in defamation proceedings During the operation of the Defamation Proceedings Costs Management Scheme, introduced by Practice Direction 51D (Defamation Proceedings Costs Management Scheme), Section 6 of the Costs Practice Direction is modied. In particular, para.6.4(1)(a) does not apply to proceedings within the scope of that Scheme, and para.6.5 is substituted for the purposes of the Scheme; see Practice Direction 51D para 2 (para 51DPD.3 below). A related modication is made to Practice Direction 29 (The Multi-Track) (ibid.).
Editorial note See paragraph 51DPD.1 for Practice Direction 51D Defamation Proceedings Costs Management Scheme.
43PD.6.
43PD.
Section A Civil Procedure Rules 1998
