PRACTICE DIRECTION 44 - GENERAL RULES ABOUT COSTS

This Practice Direction supplements Part 44

Contents of this Practice Direction
Title Number
SECTION I – GENERAL  
Documents and forms  
Special provisions relating to VAT  
Scope of this subsection Para. 2.1
VAT Registration Number Para. 2.2
Entitlement to VAT on Costs Para. 2.3
Form of bill of costs where VAT rate changes Para. 2.7
Apportionment Para. 2.9
Change in VAT rate between the conclusion of a detailed settlement and the issue of a final certificate Para. 2.10
Disbursements not classified as such for VAT purposes Para. 2.11
Litigants in person Para. 2.12
Government Departments Para. 2.13
Payment pursuant to an order under section 194(3) of the 2007 Act Para. 2.14
Costs budgets  
Court's discretion as to costs: rule 44.2  
Fees of Counsel  
Basis of assessment: rule 44.3  
Costs on the indemnity basis Para. 6.1
Costs on the standard basis Para. 6.2
Amount of costs where costs are payable pursuant to a contract: rule 44.5  
Application of rule 44.5 Para. 7.1
Costs relating to a mortgage Para. 7.2
Procedure for assessing costs: rule 44.6  
Summary assessment: general provisions  
When the court should consider whether to make a summary assessment Para. 9.1
Timing of summary assessment Para. 9.2
Summary assessment of mortgagee's costs Para. 9.3
Consent orders Para. 9.4
Duty of parties and legal representatives Para. 9.5
No summary assessment by a costs officer Para. 9.7
Assisted persons etc Para. 9.8
Children or protected parties Para. 9.9
Disproportionate or unreasonable costs Para. 9.10
Legal representative's duty to notify party: rule 44.8  
Court's powers in relation to misconduct: rule 44.11  
SECTION II – QUALIFIED ONE-WAY COSTS SHIFTING  
Qualified one-way costs shifting  

SECTION I – GENERAL

Documents and forms

1.1

In respect of any document which is required by Practice Directions 44 to 47 to be signed by a party or that party's legal representative, the provisions of Practice Direction 22 relating to who may sign apply as if the document in question was a statement of truth. Statements of truth are not required in assessment proceedings unless a rule or Practice Direction so requires or the court so orders.

(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.)

1.2

Form N260 is a model form of Statement of Costs to be used for summary assessments.

(Further details about Statements of Costs are given in paragraph 9.5 below.)

Precedents A, B and C in the Schedule of Costs Precedents annexed to this Practice Direction are model forms of bills of costs to be used for detailed assessments. A party wishing to rely upon a bill which departs from the model forms should include in the background information of the bill an explanation for that departure.

(Further details about bills of costs are given in Practice Direction 47.)

Special provisions relating to VAT

Scope of this subsection

2.1

This subsection deals with claims for VAT) which are made in respect of costs being dealt with by way of summary assessment or detailed assessment.

VAT Registration Number

2.2

The number allocated by HMRC to every person registered under the Value Added Tax Act 1994 (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

2.3

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 HMRC 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.

2.4

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.

2.5

Where there is a dispute as to whether VAT is properly claimed the receiving party must provide a certificate signed by the legal representatives or the auditors of the receiving party substantially in the form illustrated in Precedent F in the Schedule of Costs Precedents annexed to Practice Direction 47. Where the receiving party is a litigant in person who is claiming VAT, evidence to support the claim (such as a letter from HMRC) must be produced at the hearing at which the costs are assessed.

2.6

Where there is a dispute as to whether any service in respect of which a charge is proposed to be made in the bill is zero rated or exempt from VAT, reference should be made to HMRC and its view obtained and made known at the hearing at which the costs are assessed. Such enquiry should be made by the receiving party. In the case of a bill from a solicitor to the solicitor's legal representative's own client, such enquiry should be made by the client.

Form of bill of costs where VAT rate changes

2.7

Where there is a change in the rate of VAT, suppliers of goods and services are entitled by sections 88 (1) and 88(2) of the Value Added Tax Act 1994 in most circumstances to elect whether the new or the old rate of VAT should apply to a supply where the basic and actual tax points span a period during which the rate changed.

2.8

It will be assumed, unless a contrary indication is given in writing, that an election to take advantage of the provisions mentioned in paragraph 2.7 and to charge VAT at the lower rate has been made. In any case in which an election to charge at the lower rate is not made, such a decision must be justified to the court assessing the costs.

Apportionment

2.9

Subject to 2.7 and 2.8, all bills of costs, fees and disbursements on which VAT is included must be divided into separate parts so as to show work done before, on and after the date or dates from which any change in the rate of VAT takes effect. Where, however, a lump sum charge is made for work which spans a period during which there has been a change in VAT rates, and paragraphs 2.7 and 2.8 above do not apply, reference should be made to paragraphs 30.7 or 30.8 of the VAT Guide (Notice 700) (or any revised edition of that notice) published by HMRC. If necessary, the lump sum should be apportioned. The totals of profit costs and disbursements in each part must be carried separately to the summary.

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Change in VAT rate between the conclusion of a detailed settlement and the issue of a final certificate

2.10

Should there be a change in the rate between the conclusion of a detailed assessment and the issue of the final costs certificate, any interested party may apply for the detailed assessment to be varied so as to take account of any increase or reduction in the amount of tax payable. Once the final costs certificate has been issued, no variation under this paragraph will be permitted.

Disbursements not classified as such for VAT purposes

2.11

(1) Legal representatives often make payments to third parties for the supply of goods or services where no VAT was chargeable on the supply by the third party: for example, the cost of meals taken and travel costs. The question whether legal representatives should include VAT in respect of these payments when invoicing their clients or in claims for costs between litigants should be decided in accordance with this Practice Direction and with the criteria set out in the VAT Guide (Notice 700).

(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 services 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 disbursements in the invoice delivered to the receiving party. Some payments, although correctly described as disbursements for some purposes, are not classified as disbursements for VAT purposes. Items not classified 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 classified as disbursements for VAT purposes is given in the VAT Guide (Notice 700, paragraph 25.1). One of the key issues is whether the third party supply –

(a) was made to the legal representative (and therefore subsumed in the onward supply of legal services); or

(b) 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 subparagraph (4)(a) are: travelling expenses, such as an 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 representative, not to the client

(6) Payments under subparagraph (4)(b) are classified 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.

Litigants in person

2.12

Where a litigant acts in person, that litigant 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 litigant (even where, for example, that litigant is a solicitor or other legal representative). Consequently in such circumstances a bill of costs should not claim any VAT.

Government Departments

2.13

On an assessment between parties, where costs are being paid to a Government Department in respect of services rendered by its legal staff, VAT should not be added.

Payment pursuant to an order under section 194(3) of the 2007 Act

2.14

Where an order is made under section 194(3) of the 2007 Act, any bill presented for agreement or assessment pursuant to that order must not include a claim for VAT.

Costs budgets

3.1

In any case where the parties have filed budgets in accordance with Practice Direction 3E but the court has not made a costs management order under rule 3.15, the provisions of this subsection shall apply.

3.2

If there is a difference of 20% or more between the costs claimed by a receiving party on detailed assessment and the costs shown in a budget filed by that party, the receiving party must provide a statement of the reasons for the difference with the bill of costs.

3.3

If a paying party –

(a) claims to have reasonably relied on a budget filed by a receiving party; or

(b) wishes to rely upon the costs shown in the budget in order to dispute the reasonableness or proportionality of the costs claimed,

the paying party must serve a statement setting out the case in this regard in that party's points of dispute.

3.4

On an assessment of the costs of a party, the court will have regard to the last approved or agreed budget, and may have regard to any other budget previously filed by that party, or by any other party in the same proceedings. Such other budgets may be taken into account when assessing the reasonableness and proportionality of any costs claimed.

3.5

Subject to paragraph 3.4, paragraphs 3.6 and 3.7 apply where there is a difference of 20% or more between the costs claimed by a receiving party and the costs shown in a budget filed by that party.

3.6

Where it appears to the court that the paying party reasonably relied on the budget, the court may restrict the recoverable costs to such sum as is reasonable for the paying party to pay in the light of that reliance, notwithstanding that such sum is less than the amount of costs reasonably and proportionately incurred by the receiving party.

3.7

Where it appears to the court that the receiving party has not provided a satisfactory explanation for that difference, the court may regard the difference between the costs claimed and the costs shown in the budget as evidence that the costs claimed are unreasonable or disproportionate.

Court's discretion as to costs: rule 44.2

4.1

The court may make an order about costs at any stage in a case.

4.2

There are certain costs orders which the court will commonly make in proceedings before trial. The following table sets out the general effect of these orders. The table is not an exhaustive list of the orders which the court may make.

Term Effect

   Costs

   Costs in any event

The party in whose favour the order is made is entitled to that party's costs in respect of the part of the proceedings to which the order relates, whatever other costs orders are made in the proceedings.

   Costs in the case

   Costs in the application

The party in whose favour the court makes an order for costs at the end of the proceedings is entitled to that party's costs of the part of the proceedings to which the order relates.

   Costs reserved

The decision about costs is deferred to a later occasion, but if no later order is made the costs will be costs in the case.

   Claimant's/Defendant's       costs in case/application

If the party in whose favour the costs order is made is awarded costs at the end the proceedings, that party is entitled to that party's costs of the part of the proceedings to which the order relates. If any other party is awarded costs at the end of the proceedings, the party in whose favour the final costs order is made is not liable to pay the costs of any other party in respect of the part of the proceedings to which the order relates.

   Costs thrown away

Where, for example, a judgment or order is set aside, the party in whose favour the costs order is made is entitled to the costs which have been incurred as a consequence. This includes the costs of –
  • preparing for and attending any hearing at which the judgment or order which has been set aside was made;
  • preparing for and attending any hearing to set aside the judgment or order in question;
  • preparing for and attending any hearing at which the court orders the proceedings or the part in question to be adjourned;
  • any steps taken to enforce a judgment or order which has subsequently been set aside.

   Costs of and caused by

Where, for example, the court makes this order on an application to amend a statement of case, the party in whose favour the costs order is made is entitled to the costs of preparing for and attending the application and the costs of any consequential amendment to his own statement of case.

   Costs here and below

The party in whose favour the costs order is made is entitled not only to that party's costs in respect of the proceedings in which the court makes the order but also to that party's costs of the proceedings in any lower court. In the case of an appeal from a Divisional Court the party is not entitled to any costs incurred in any court below the Divisional Court.

   No order as to costs

   Each party to pay own    costs

Each party is to bear that party's own costs of the part of the proceedings to which the order relates whatever costs order the court makes at the end of the proceedings.

Fees of Counsel

5.1

(1) When making an order for costs the court may state an opinion as to whether or not the hearing was fit for the attendance of one or more counsel, and, if it does so, the court conducting a detailed assessment of those costs will have regard to the opinion stated.

(2) The court will generally express an opinion only where –

(a) the paying party asks it to do so;

(b) more than one counsel appeared for a party; or

(c) the court wishes to record its opinion that the case was not fit for the attendance of counsel.

5.2

(1) Where the court refers any matter to the conveyancing counsel of the court the fees payable to counsel in respect of the work done or to be done will be assessed by the court in accordance with rule 44.2.

(2) An appeal from a decision of the court in respect of the fees of such counsel will be dealt with under the general rules as to appeals set out in Part 52. If the appeal is against the decision of an authorised court officer, it will be dealt with in accordance with rules 47.22 to 47.24.

Basis of assessment: rule 44.3

Costs on the indemnity basis

6.1

If costs are awarded on the indemnity basis, the court assessing costs will disallow any costs –

(a) which it finds to have been unreasonably incurred; or

(b) which it considers to be unreasonable in amount.

Costs on the standard basis

6.2

If costs are awarded on the standard basis, the court assessing costs will disallow any costs –

(a) which it finds to have been unreasonably incurred;

(b) which it considers to be unreasonable in amount;

(c) which it considers to have been disproportionately incurred or to be disproportionate in amount; or

(d) about which it has doubts as to whether they were reasonably or proportionately incurred, or whether they are reasonable and proportionate in amount.

Amount of costs where costs are payable pursuant to a contract: rule 44.5

Application of rule 44.5

7.1

Rule 44.5 only applies if the court is assessing costs payable under a contract. It does not –

(a) require the court to make an assessment of such costs; or

(b) require a mortgagee to apply for an order for those costs where there is a contractual right to recover out of the mortgage funds.

Costs relating to a mortgage

7.2

(1) The following principles apply to costs relating to a mortgage.

(2) An order for the payment of costs of proceedings by one party to another is always a discretionary order: section 51 of the Senior Courts Act 1981 (‘the section 51 discretion’).

(3) Where there is a contractual right to the costs, the discretion should ordinarily be exercised so as to reflect that contractual right.

(4) The power of the court to disallow a mortgagee's costs sought to be added to the mortgage security is a power that does not derive from section 51, but from the power of the courts of equity to fix the terms on which redemption will be allowed.

(5) A decision by a court to refuse costs in whole or in part to a mortgagee may be –

(a) a decision in the exercise of the section 51 discretion;

(b) a decision in the exercise of the power to fix the terms on which redemption will be allowed;

(c) a decision as to the extent of a mortgagee's contractual right to add the mortgagee's costs to the security; or

(d) a combination of two or more of these things.

(6) A mortgagee is not to be deprived of a contractual or equitable right to add costs to the security merely by reason of an order for payment of costs made without reference to the mortgagee's contractual or equitable rights, and without any adjudication as to whether or not the mortgagee should be deprived of those costs.

7.3

(1) Where the contract entitles a mortgagee to –

(a) add the costs of litigation relating to the mortgage to the sum secured by it; or

(b) require a mortgagor to pay those costs,

the mortgagor may make an application for the court to direct that an account of the mortgagee's costs be taken.

(Rule 25.1(1)(n) provides that the court may direct that a party file an account.)

(2) The mortgagor may then dispute an amount in the mortgagee's account on the basis that it has been unreasonably incurred or is unreasonable in amount.

(3) Where a mortgagor disputes an amount, the court may make an order that the disputed costs are assessed under rule 44.5.

Procedure for assessing costs: rule 44.6

8.1

Subject to paragraph 8.3, where the court does not order fixed costs (or no fixed costs are provided for) the amount of costs payable will be assessed by the court. Rule 44.6 allows the court making an order about costs either –

(a) to make a summary assessment of the amount of the costs; or

(b) to order the amount to be decided in accordance with Part 47 (a detailed assessment).

8.2

An order for costs will be treated as an order for the amount of costs to be decided by a detailed assessment unless the order otherwise provides.

8.3

Where a party is entitled to costs some of which are fixed costs and some of which are not, the court will assess those costs which are not fixed. For example, the court will assess the disbursements payable in accordance with rules 45.12 or 45.19. The decision whether such assessment should be summary or detailed will be made in accordance with paragraphs 9.1 to 9.10 of this Practice Direction.

Summary assessment: general provisions

When the court should consider whether to make a summary assessment

9.1

Whenever a court makes an order about costs which does not provide only for fixed costs to be paid the court should consider whether to make a summary assessment of costs.

Timing of summary assessment

9.2

The general rule is that the court should make a summary assessment of the costs –

(a) at the conclusion of the trial of a case which has been dealt with on the fast track, in which case the order will deal with the costs of the whole claim; and

(b) at the conclusion of any other hearing, which has lasted not more than one day, in which case the order will deal with the costs of the application or matter to which the hearing related. If this hearing disposes of the claim, the order may deal with the costs of the whole claim,

unless there is good reason not to do so, for example where the paying party shows substantial grounds for disputing the sum claimed for costs that cannot be dealt with summarily.

Summary assessment of mortgagee's costs

9.3

The general rule in paragraph 9.2 does not apply to a mortgagee's costs incurred in mortgage possession proceedings or other proceedings relating to a mortgage unless the mortgagee asks the court to make an order for the mortgagee's costs to be paid by another party.

(Paragraphs 7.2 and 7.3 deal in more detail with costs relating to mortgages.)

Consent orders

9.4

Where an application has been made and the parties to the application agree an order by consent without any party attending, the parties should seek to agree a figure for costs to be inserted in the consent order or agree that there should be no order for costs.

Duty of parties and legal representatives

9.5

(1) It is the duty of the parties and their legal representatives to assist the judge in making a summary assessment of costs in any case to which paragraph 9.2 above applies, in accordance with the following subparagraphs.

(2) Each party who intends to claim costs must prepare a written statement of those costs showing separately in the form of a schedule –

(a) the number of hours to be claimed;

(b) the hourly rate to be claimed;

(c) the grade of fee earner;

(d) the amount and nature of any disbursement to be claimed, other than counsel's fee for appearing at the hearing;

(e) the amount of legal representative's costs to be claimed for attending or appearing at the hearing;

(f) counsel's fees; and

(g) any VAT to be claimed on these amounts.

(3) The statement of costs should follow as closely as possible Form N260 and must be signed by the party or the party's legal representative. Where a party is –

(a) an assisted person;

(b) a LSC funded client;

(c) a person for whom civil legal services (within the meaning of Part 1 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012) are provided under arrangements made for the purposes of that Part of that Act; or

(d) represented by a person in the party's employment,

the statement of costs need not include the certificate appended at the end of Form N260.

(4) The statement of costs must be filed at court and copies of it must be served on any party against whom an order for payment of those costs is intended to be sought as soon as possible and in any event –

(a) for a fast track trial, not less than 2 days before the trial; and

(b) for all other hearings, not less than 24 hours before the time fixed for the hearing.

9.6

The failure by a party, without reasonable excuse, to comply with paragraph 9.5 will be taken into account by the court in deciding what order to make about the costs of the claim, hearing or application, and about the costs of any further hearing or detailed assessment hearing that may be necessary as a result of that failure.

No summary assessment by a costs officer

9.7

The court awarding costs cannot make an order for a summary assessment of costs by a costs officer. If a summary assessment of costs is appropriate but the court awarding costs is unable to do so on the day, the court may give directions as to a further hearing before the same judge.

Assisted persons etc

9.8

The court will not make a summary assessment of the costs of a receiving party who is an assisted person or LSC funded client or who is a person for whom civil legal services (within the meaning of Part 1 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012) are provided under arrangements made for the purposes of that Part of that Act.

Children or protected parties

9.9

(1) The court will not make a summary assessment of the costs of a receiving party who is a child or protected party within the meaning of Part 21 unless the legal representative acting for the child or protected party has waived the right to further costs (see Practice Direction 46 paragraph 2.1).

(2) The court may make a summary assessment of costs payable by a child or protected party.

Disproportionate or unreasonable costs

9.10

The court will not give its approval to disproportionate or unreasonable costs. When the amount of the costs to be paid has been agreed between the parties the order for costs must state that the order is by consent.

Legal representative's duty to notify party: rule 44.8

10.1

For the purposes of rule 44.8 and paragraph 10.2, ‘party’ includes any person (for example, an insurer, a trade union or the LSC or Lord Chancellor) who has instructed the legal representative to act for the party or who is liable to pay the legal representative's fees.

10.2

A legal representative who notifies a party of an order under rule 44.8 must also explain why the order came to be made.

10.3

Although rule 44.8 does not specify any sanction for breach of the rule the court may, either in the order for costs itself or in a subsequent order, require the legal representative to produce to the court evidence showing that the legal representative took reasonable steps to comply with the rule.

Court's powers in relation to misconduct: rule 44.11

11.1

Before making an order under rule 44.11, the court must give the party or legal representative in question a reasonable opportunity to make written submissions or, if the legal representative so desires, to attend a hearing.

11.2

Conduct which is unreasonable or improper includes steps which are calculated to prevent or inhibit the court from furthering the overriding objective.

11.3

Although rule 44.11(3) does not specify any sanction for breach of the obligation imposed by the rule the court may, either in the order under rule 44.11(2) or in a subsequent order, require the legal representative to produce to the court evidence that the legal representative took reasonable steps to comply with the obligation.

SECTION II – QUALIFIED ONE-WAY COSTS SHIFTING

Qualified one-way costs shifting

12.1

This subsection applies to proceedings to which Section II of Part 44 applies.

12.2

Examples of claims made for the financial benefit of a person other than the claimant or a dependant within the meaning of section 1(3) of the Fatal Accidents Act 1976 within the meaning of rule 44.16(2) are subrogated claims and claims for credit hire.

12.3

‘Gratuitous provision of care’ within the meaning of rule 44.16(2)(a) includes the provision of personal services rendered gratuitously by persons such as relatives and friends for things such as personal care, domestic assistance, childminding, home maintenance and decorating, gardening and chauffeuring.

12.4

In a case to which rule 44.16(1) applies (fundamentally dishonest claims) –

(a) the court will normally direct that issues arising out of an allegation that the claim is fundamentally dishonest be determined at the trial;

(b) where the proceedings have been settled, the court will not, save in exceptional circumstances, order that issues arising out of an allegation that the claim was fundamentally dishonest be determined in those proceedings;

(c) where the claimant has served a notice of discontinuance, the court may direct that issues arising out of an allegation that the claim was fundamentally dishonest be determined notwithstanding that the notice has not been set aside pursuant to rule 38.4;

(d) the court may, as it thinks fair and just, determine the costs attributable to the claim having been found to be fundamentally dishonest.

12.5

The court has power to make an order for costs against a person other than the claimant under section 51(3) of the Senior Courts Act 1981 and rule 46.2. In a case to which rule 44.16(2)(a) applies (claims for the benefit of others) –

(a) the court will usually order any person other than the claimant for whose financial benefit such a claim was made to pay all the costs of the proceedings or the costs attributable to the issues to which rule 44.16(2)(a) applies, or may exceptionally make such an order permitting the enforcement of such an order for costs against the claimant.

(b) the court may, as it thinks fair and just, determine the costs attributable to claims for the financial benefit of persons other than the claimant.

12.6

In proceedings to which rule 44.16 applies, the court will normally order the claimant or, as the case may be, the person for whose benefit a claim was made to pay costs notwithstanding that the aggregate amount in money terms of such orders exceeds the aggregate amount in money terms of any orders for damages, interest and costs made in favour of the claimant.

12.7

Assessments of costs may be on a standard or indemnity basis and may be subject to a summary or detailed assessment.

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