The assessment of costs is well established as a highly contentious issue in civil disputes, not least because of the wide discretion that courts are given to make different orders. A recurring hot topic in litigation, which has recently re-emerged to become the subject of much debate, is how the courts use percentage-based costs orders to simplify disputes.
The question at the heart of that debate relates to how such orders are applied in practice: whether a percentage cap should apply only to the costs of the substantive proceedings, or to the costs of detailed assessment and bill preparation as well.
Invariably, the answer to this question turns almost exclusively on the precise wording of the costs order itself – as drafted and ordered by the court. Although such orders are primarily intended to clarify the position for everyone concerned, they can become distinctly ambiguous if not carefully drafted with absolute precision. Regrettably, the net result of sloppy drafting is unnecessary delay, a more protracted final outcome and, potentially, more costs being added.
In essence, percentage-based orders are used by judges to award a portion of legal costs to the successful party, rather than 100% of the amount of costs incurred. In doing so, they apply an overarching principle that a party can recover costs that are considered both reasonable and proportional to the value and complexity of the case.
Unlike issue-based orders, which endeavour to pinpoint the precise cost of each failed point, percentage-based orders typically apply a flat percentage reduction to the total bill. Courts tend to prefer them because identifying the precise cost of every separate issue can be considerably more onerous and therefore time-consuming.
By way of background, such orders became embedded in civil procedure with the introduction of the Civil Procedure Rules (CPR) in 1999, which followed the Woolf reforms introduced a generation ago. Under CPR 44, the court gained far broader discretion regarding costs.
More recently, the Jackson (pictured) reforms went further still, with the aim of amplifying Woolf’s original intention. Central to those reforms, the Civil Procedure (Amendment) Rules 2013 introduced an even more rigorous approach to costs and proportionality – CPR 44.2. This replaced the previous rule on the court’s discretion regarding costs, coming into effect in April 2013.
The use of percentage-based orders has therefore become routine over more than two decades: either when a party wins their case overall but loses on certain points, or as a broad-brush approach in order to reflect proportionality in costs. Typically, courts will award anywhere between 60% and 80% of the total legal costs when applying percentage-based costs orders.
But ambiguity in drafting them is fuelling avoidable disputes at the detailed assessment stage. The traditional orthodox position is that a percentage-based costs award applies to the costs of the proceedings, while the costs of detailed assessment are dealt with separately under CPR 47.20. Bill preparation is one of the limited assessment costs claimable in the bill (Practice Direction 47.5.19 – Procedure for detailed assessment of costs and default provisions).
However, where an order is expressed in either global or genuinely ambiguous terms, a valid argument can be put forward concerning the judge’s intention: namely, that the percentage was intended to apply to all recoverable costs flowing from the proceedings, including detailed assessment and bill preparation costs.
In practice, this can result in the detailed assessment element being treated in step with the main costs, depending on the regime and the exact wording of the order. The difference between the two interpretations can, of course, result in vastly different cost sums being awarded.
Detailed assessment of costs enables a re-evaluation of the precise wording in the original order and the intention behind it. If this is found to be ambiguous, the court can look beyond the specific text to identify the reasonable meaning: careful examination of the language in order to determine what natural and ordinary meaning was intended. The court will also consider context and purpose: what was the ultimate objective of the order in the context of the case? Finally, the court can reject an interpretation that defies commercial common sense.
To avoid the issues highlighted above and the necessity for a full reappraisal of the intended meaning at the detailed assessment stage, it is also imperative that each order explicitly defines the base figure to which the percentage is applied, and clarifies precisely what is included in that total.
Moving forward, parties and courts therefore need to be mindful at the point at which an order is made of how a percentage award will operate when CPR 47 is later engaged.
Matthew Kain is CEO of costs lawyers Kain Knight
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