Costs in Civil Litigation: The General Rule, Fixed Recoverable Costs, and Costs Management

Costs in Civil Litigation: The General Rule, Fixed Recoverable Costs, and Costs Management

Introduction

The costs of civil litigation are among the most important practical considerations in the legal system of England and Wales. Bringing or defending a civil claim involves more than establishing legal rights and presenting evidence. Parties must also consider the financial consequences of the proceedings, including legal representation, court fees, expert evidence, disclosure, witness preparation and other expenses incurred during litigation.

The law of costs determines, among other things, who should bear the financial burden of litigation, which expenses may be recovered from another party, how recoverable costs are assessed and how the courts control expenditure throughout proceedings.

The general principle is that the unsuccessful party will ordinarily be ordered to pay the successful party’s costs. However, this principle is not absolute. The court has broad discretion to make different costs orders depending on the circumstances, the conduct of the parties, the issues decided and the extent to which each party has succeeded.

Modern civil procedure also includes mechanisms designed to make litigation costs more predictable. Fixed recoverable costs establish prescribed amounts or limits for certain categories of proceedings and procedural stages. Costs management enables the court to supervise and control litigation expenditure, particularly in multi-track proceedings where costs may otherwise become disproportionate.

These mechanisms form part of a wider effort to ensure that civil justice remains accessible and that the financial burden of litigation does not become excessive in relation to the importance and complexity of the dispute.

Three principal areas are therefore central to understanding costs in civil litigation:

• The general rules governing the allocation and recovery of litigation costs.
• Fixed recoverable costs and their application to different categories of proceedings.
• Costs budgeting and costs management, through which the court supervises the financial conduct of litigation.

The principal framework is contained in CPR Parts 44, 45 and 46, together with the costs management provisions in CPR Part 3 and Practice Direction 3D. Additional provisions concerning detailed assessment, summary assessment and costs-only proceedings appear elsewhere in the Civil Procedure Rules.

Understanding these rules is essential for litigants, solicitors, barristers and other participants in civil proceedings because the costs consequences of litigation can be as significant as the substantive outcome of the claim itself.

2. The General Rule: The Unsuccessful Party Pays the Successful Party’s Costs

The starting point for determining liability for litigation costs is CPR 44.2.

The rule provides that the court has discretion to decide:

• Whether one party should pay another party’s costs.
• The amount of costs payable.
• When those costs must be paid.

Where the court decides to make a costs order, the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party.

This principle is commonly described as costs follow the event.

It reflects the idea that a party who has been required to bring or defend proceedings successfully should not ordinarily bear the financial burden of litigation caused by the unsuccessful opponent.

However, the general rule is not automatic. CPR 44.2 expressly preserves the court’s discretion to make a different order.

2.1 What determines who is the successful party?

Identifying the successful party is not always straightforward.

In a simple contractual debt claim, the claimant may recover the entire amount claimed. The claimant is clearly successful, and the defendant will ordinarily be ordered to pay the claimant’s costs.

However, civil litigation frequently involves multiple causes of action, counterclaims, different remedies and disputes concerning only part of the amount claimed.

For example, a claimant may seek £150,000 in damages but obtain an award of only £60,000. The claimant has succeeded in establishing liability and recovering compensation, but has failed to obtain most of the amount originally sought.

The court must consider the extent of the claimant’s success and the circumstances in which the litigation was conducted.

It may order the defendant to pay all the claimant’s costs, only a proportion of them, or the costs attributable to particular issues.

It may also order each party to bear its own costs or make a costs order in favour of the defendant for particular parts of the proceedings.

The objective is to produce a fair result rather than mechanically apply the outcome of the final judgment.

2.2 Relevant factors when deciding costs

CPR 44.2(4) requires the court to consider all the circumstances, including:

The conduct of the parties. This includes conduct before proceedings began and during litigation. A party that unreasonably refuses to engage in settlement discussions, fails to comply with procedural obligations or behaves obstructively may face adverse costs consequences.

Partial success. The court considers whether a party has succeeded in only part of its case, even where it has not been wholly successful.

Settlement offers. The court considers whether a party made an offer to settle and whether that offer was unreasonably rejected.

The court may also consider whether the parties complied with relevant pre-action protocols, whether they acted proportionately and whether they unnecessarily increased the costs of litigation.

The rules therefore recognise that costs should reflect not only the final outcome but also the manner in which the proceedings were conducted.

2.3 Different types of costs orders

The court may make several different types of costs orders depending on the circumstances.

Costs order	Meaning
Costs in favour of the successful party	One party pays the other’s recoverable costs
No order as to costs	Each party ordinarily bears its own costs
Costs reserved	The question of costs is determined at a later stage
Costs in the case	Costs of the particular application or hearing follow the final outcome of the proceedings
Costs thrown away	One party pays costs unnecessarily incurred because of a particular event or procedural step
Issue-based costs order	Costs are allocated according to the outcome of particular issues
Percentage costs order	A party recovers an identified proportion of its costs

For example, where a claimant succeeds on a contractual claim but fails on a separate negligence allegation, the court may make an order reflecting the relative success of each party.

An issue-based costs order can be particularly useful in complex proceedings where neither party has been entirely successful.

3. The Assessment of Recoverable Costs

Winning a civil claim does not necessarily mean that the successful party can recover every pound spent on litigation.

The court distinguishes between the amount actually paid or incurred by a party and the amount legally recoverable from the opposing party.

This distinction is fundamental.

A claimant may spend £80,000 on solicitors, barristers, experts and other litigation expenses. Even if the claimant succeeds entirely, the court may determine that only £55,000 is recoverable from the defendant.

The difference may remain the claimant’s responsibility, depending on the terms of the funding arrangement and any other applicable legal provisions.

CPR 44.3 establishes the principal bases of costs assessment.

The two principal bases are:

• Standard basis.
• Indemnity basis.

3.1 Assessment on the standard basis

The standard basis is the ordinary basis of assessment where the court orders one party to pay another party’s costs, unless a different basis is specified.

Under CPR 44.3, costs assessed on the standard basis must be reasonable and proportionate.

Where there is doubt about whether costs were reasonably or proportionately incurred, or whether they are reasonable and proportionate in amount, the doubt is resolved in favour of the paying party.

This means that the court does not simply reimburse everything the successful party’s lawyers charged.

It examines whether the work was necessary, whether the amount charged was justified and whether the overall expenditure was proportionate to the proceedings.

For example, a relatively straightforward contractual claim involving £20,000 may not justify extensive expert evidence, repeated applications and hundreds of hours of legal work.

Even where the claimant succeeds, the court may reduce the recoverable costs if the expenditure was disproportionate.

3.2 The proportionality test

Proportionality is one of the central principles governing recoverable litigation costs.

CPR 44.3(5) provides that costs are proportionate if they bear a reasonable relationship to:

• The sums in issue in the proceedings.
• The value of any non-monetary relief.
• The complexity of the litigation.
• Any additional work generated by the conduct of the paying party.
• Wider factors such as reputational or public importance, where relevant.

The relationship between costs and the financial value of a claim is important, but it is not the only consideration.

A relatively low-value claim may involve complex legal questions or require specialist evidence. Conversely, a high-value dispute may be relatively straightforward.

The court therefore considers the nature of the litigation rather than relying exclusively on the amount of damages claimed.

3.3 Assessment on the indemnity basis

The indemnity basis is a more favourable basis of assessment for the receiving party.

Under CPR 44.3, costs assessed on the indemnity basis do not have to satisfy the same proportionality test as standard-basis costs.

However, they must still be reasonably incurred and reasonable in amount.

Where there is doubt, it is resolved in favour of the receiving party.

Indemnity costs are not automatically awarded simply because a party has won the proceedings.

They are generally associated with circumstances in which the paying party’s conduct or the particular nature of the litigation justifies a more generous costs assessment.

Examples may include:

• Serious misconduct during litigation.
• Unreasonable or oppressive behaviour.
• Improper conduct that substantially increases litigation expenditure.
• Certain forms of abusive litigation conduct.
• Circumstances in which a party has acted in a manner deserving of particular judicial criticism.

The court retains discretion and must examine the specific circumstances.

An indemnity costs order is therefore a significant departure from the ordinary approach, rather than a routine reward for success.

3.4 The relationship between the two bases

Feature	Standard basis	Indemnity basis
Reasonableness	Required	Required
Proportionality	Required	Not a separate requirement
Doubts	Resolved in favour of paying party	Resolved in favour of receiving party
General application	Ordinary basis	Exceptional or justified circumstances
Assessment	More restrictive	More favourable to receiving party

The distinction is important because the basis of assessment can substantially affect the amount recoverable.

4. Fixed Recoverable Costs: The Modern Framework

One of the most significant developments in civil litigation costs has been the expansion of fixed recoverable costs.

Traditionally, the amount recoverable by a successful party was determined through the court’s costs assessment process.

This could produce uncertainty because the parties might spend considerable time and money arguing about the reasonableness of individual legal expenses.

Fixed recoverable costs address this problem by establishing prescribed amounts for particular categories of proceedings and stages of litigation.

The amount recoverable is determined by the applicable rules and tables rather than a conventional assessment of every item of legal work.

The modern framework was substantially expanded on 1 October 2023 through the Civil Procedure (Amendment No. 2) Rules 2023.

The reforms extended fixed recoverable costs across the fast track and introduced a new intermediate track for qualifying claims valued above £25,000 and up to £100,000.

The Ministry of Justice explained the reforms in its official announcement: Civil Procedure Rules – Extension of Fixed Recoverable Costs, October 2023.

4.1 The purpose of fixed recoverable costs

The system is intended to provide greater certainty about the financial consequences of litigation.

Under a conventional costs assessment, the successful party may incur substantial legal expenses and then have to justify those expenses to the court.

Fixed recoverable costs reduce this uncertainty by establishing amounts or formulas applicable to defined stages.

The benefits include:

• Greater predictability of litigation expenditure.
• Reduced disputes over the assessment of legal costs.
• Greater transparency when evaluating settlement offers.
• Better control over the financial risks of proceedings.
• Reduced incentives to undertake unnecessary procedural work.

However, fixed recoverable costs also impose limitations.

The amount recoverable may be lower than the actual legal fees incurred. A party may therefore remain responsible for a substantial difference between its contractual legal fees and the costs recoverable from its opponent.

This is particularly important where a party chooses a more expensive legal representative or undertakes work beyond what the fixed-cost regime allows.

4.2 Which proceedings are covered?

The principal fixed-cost framework covers qualifying claims allocated to:

• The fast track.
• The intermediate track.

There are also separate fixed-cost provisions for certain low-value personal injury claims and other categories of proceedings.

The regime does not mean that every civil claim is subject to fixed recoverable costs.

The small claims track has its own restricted costs regime. Multi-track proceedings generally remain subject to the ordinary costs rules, unless another specific fixed-cost provision applies.

The court must therefore identify the correct procedural track and any applicable exceptions before determining recoverable costs.

5. The Fast Track and Fixed Recoverable Costs

The fast track is generally intended for civil claims that are suitable for relatively straightforward and proportionate case management.

The usual financial limit is £25,000, subject to the allocation criteria and exceptions contained in CPR Part 26.

The extension of fixed recoverable costs means that qualifying fast-track claims are generally subject to the fixed-cost framework in CPR Part 45.

Under CPR 45.43–45.48, the applicable provisions determine the costs recoverable at different stages.

The fixed amounts are set out in Table 12 of Practice Direction 45.

5.1 The four complexity bands

Fast-track claims are assigned to one of four complexity bands.

The applicable band influences the amount of recoverable costs.

The bands reflect the relative complexity of the proceedings, including matters such as the nature of the issues, the evidence required and the work reasonably necessary to prepare the case.

A claim involving relatively straightforward factual and legal issues may fall within a lower band.

A claim involving multiple parties, more complicated factual questions or substantial expert evidence may justify a higher band.

The parties may agree on the appropriate band, but the court retains the power to determine a different classification.

The relevant framework is contained in CPR Part 26 – Allocation and Complexity Bands.

5.2 How fixed costs are calculated

The amount recoverable depends on the applicable table, complexity band, stage of proceedings and, where relevant, the value of damages.

Some fixed costs are calculated using a combination of a basic amount and a percentage of the damages.

Additional amounts may be recoverable in specified circumstances, including certain work involving specialist legal advice and trial advocacy.

For example, a claim may settle before trial. The recoverable amount will generally be determined by reference to the stage at which settlement occurs rather than the total amount of legal work actually undertaken.

This encourages early resolution and provides a clearer financial framework for settlement negotiations.

5.3 Additional disbursements

Fixed recoverable costs do not necessarily mean that every litigation expense is included in one prescribed figure.

Part 45 contains separate provisions concerning allowable disbursements.

Depending on the relevant section, these may include specified expenses such as expert fees, court fees and certain other necessary payments.

The availability and recoverability of disbursements depend on the applicable rules.

The distinction between fixed legal costs and recoverable disbursements is important when calculating the overall financial consequences of litigation.

6. The Intermediate Track: Claims Between £25,000 and £100,000

The intermediate track was introduced as part of the October 2023 reforms.

It is designed for claims that are more substantial or procedurally complex than ordinary fast-track proceedings but do not generally require the full case management approach associated with the multi-track.

The track is generally intended for claims valued above £25,000 and not exceeding £100,000, subject to the applicable allocation criteria and exceptions.

The intermediate track is governed by the allocation provisions in CPR Part 26 and the fixed-cost provisions in CPR 45.49–45.51.

The recoverable amounts are set out in Table 14 of Practice Direction 45.

6.1 Eligibility for the intermediate track

Financial value is important, but it is not the only consideration.

The court must examine whether the proceedings are suitable for the intermediate track.

Relevant considerations include:

• The value and nature of the claim.
• The complexity of the factual issues.
• The legal questions involved.
• The likely number of witnesses.
• The expert evidence required.
• The anticipated length of the trial.
• The number of parties and causes of action.

The track is intended to accommodate cases that can be managed through proportionate procedural directions and a controlled trial timetable.

A claim exceeding £100,000 will not ordinarily qualify simply because the parties would prefer fixed costs. Equally, a claim within the financial range may be unsuitable if its complexity requires multi-track treatment.

6.2 The four intermediate-track complexity bands

As with the fast track, intermediate-track claims are assigned to one of four complexity bands.

The bands determine the applicable fixed-cost amounts.

The classification reflects the complexity and procedural demands of the case.

The four bands provide a graduated system rather than imposing one fixed amount on every claim within the track.

This is particularly important because two claims worth £70,000 may differ considerably in the amount of work required.

One may involve a straightforward contractual dispute supported by a small number of documents. Another may involve several defendants, disputed expert evidence and complicated factual allegations.

The complexity bands seek to recognise these differences while maintaining the predictability of fixed costs.

6.3 Fixed costs at different stages

Table 14 divides intermediate-track litigation into procedural stages.

These include the period before and up to service of the defence, case management, disclosure, witness evidence, trial preparation, trial and settlement-related work.

The amount recoverable depends on the stage reached and the applicable complexity band.

This means that a case settling shortly after the defence may attract substantially lower recoverable costs than a case proceeding through disclosure and trial.

The system is intended to reflect the procedural progress of the litigation rather than simply reimburse every expense incurred.

6.4 When the court may allocate a claim differently

The intermediate track is not an automatic destination for every claim valued between £25,000 and £100,000.

The court may consider that the proceedings require a different track because of their complexity, importance or procedural demands.

Where a claim is allocated to the multi-track, the ordinary costs framework will generally apply unless another rule provides otherwise.

Conversely, claims that satisfy the relevant requirements may be allocated to the intermediate track even though they involve more substantial issues than those ordinarily encountered in the fast track.

The allocation decision therefore has important financial consequences for both parties.

7. The Small Claims Track and the Recovery of Costs

Although the small claims track is not generally part of the fixed recoverable costs regime in the same way as the fast and intermediate tracks, its costs rules are essential to understanding the wider system.

The small claims track is designed to provide a relatively accessible and proportionate procedure for resolving lower-value civil disputes.

The ordinary rule is that parties cannot recover their full legal representation costs from the unsuccessful opponent.

CPR 27.14 establishes the costs that may be awarded in small claims proceedings.

These include specified expenses such as:

• Court fees.
• Certain witness expenses.
• Reasonable travel and accommodation expenses.
• Certain expert fees, where permitted.
• Limited legal representative costs where the claim falls within specified circumstances.
• Costs resulting from unreasonable behaviour.

The court may also make an order for costs where a party has behaved unreasonably in bringing or defending the proceedings.

This exception is particularly important. A party cannot assume that unreasonable litigation conduct will be financially harmless simply because the proceedings are allocated to the small claims track.

For example, a defendant who repeatedly ignores reasonable procedural directions, causes unnecessary hearings or engages in deliberately obstructive conduct may face a costs order.

The small claims regime therefore seeks to balance accessibility with procedural discipline.

It is not intended to make litigation entirely cost-free, but it limits the financial risks associated with legal representation.

8. Exceptions and Special Circumstances Under Fixed Recoverable Costs

The fixed-cost regime is intended to provide predictability, but the Civil Procedure Rules recognise that not every case can be dealt with fairly through standard amounts.

Certain circumstances may justify additional costs or a departure from the ordinary fixed-cost framework.

8.1 Exceptional circumstances

Part 45 contains provisions allowing the court to consider whether the fixed costs should be increased in exceptional circumstances.

The relevant provisions differ according to the applicable section of Part 45.

The court does not simply increase costs because the successful party has spent more than the prescribed amount.

The party seeking additional costs must establish that the circumstances satisfy the relevant legal requirements.

For example, a case may involve unusually difficult issues or circumstances that generate work significantly beyond what would ordinarily be expected for proceedings of that type.

The court must consider whether the applicable exception is genuinely justified.

8.2 Vulnerable parties and witnesses

The extended fixed-cost regime also recognises the need to accommodate vulnerable parties and witnesses.

Additional work may sometimes be necessary to ensure that vulnerable individuals can participate effectively in the proceedings.

The rules provide mechanisms for addressing certain additional costs associated with such circumstances.

The underlying principle is that procedural efficiency must not prevent a party from receiving a fair opportunity to present its case.

8.3 Additional legal work and disbursements

The fixed-cost framework also recognises that some expenses cannot appropriately be absorbed into a general fixed amount.

Depending on the applicable provisions, additional costs may be recoverable for specialist legal advice, certain expert evidence and specified disbursements.

However, the party seeking recovery must satisfy the relevant procedural requirements.

The fact that an expense was actually incurred does not automatically make it recoverable from the opposing party.

9. Qualified One-Way Costs Shifting (QOCS)

An important exception to the ordinary principle that the unsuccessful party pays the successful party’s costs is Qualified One-Way Costs Shifting, commonly known as QOCS.

QOCS was introduced to provide costs protection for claimants bringing certain personal injury proceedings.

Its principal purpose is to reduce the financial risk faced by individuals seeking compensation for personal injury.

Under the ordinary costs rule, a claimant who loses a civil claim may be ordered to pay the defendant’s legal costs.

In personal injury litigation, this could create a significant obstacle to access to justice, particularly where the claimant is an individual with limited financial resources.

QOCS modifies the ordinary costs consequences.

9.1 The general operation of QOCS

CPR 44.13–44.17 govern QOCS.

The regime generally applies to proceedings that include a claim for damages for personal injury, subject to the specific rules and exceptions.

Under CPR 44.14, orders for costs made against a claimant are generally enforceable only to the extent that the aggregate amount of damages and interest awarded to the claimant is not exceeded.

In practical terms, this means that a claimant who loses a personal injury claim will ordinarily have protection against enforcement of an adverse costs order beyond the relevant amount available under the rule.

The protection is qualified rather than absolute.

9.2 Exceptions to QOCS protection

There are circumstances in which the protection may not apply or may be limited.

These include certain cases involving:

• Fundamental dishonesty.
• Abuse of process.
• Certain claims brought for the benefit of another person.
• Certain proceedings involving mixed claims or other circumstances covered by the rules.

CPR 44.15 and 44.16 identify the relevant exceptions and the circumstances in which permission may be required.

Fundamental dishonesty is particularly significant.

Where a claimant has been fundamentally dishonest in relation to the claim or a related claim, the court may permit enforcement of adverse costs orders beyond the ordinary QOCS protection, subject to the applicable requirements.

The dishonest conduct must be sufficiently serious to affect the integrity of the claim rather than merely involve an ordinary inconsistency or inaccurate statement.

9.3 The significance of QOCS

QOCS demonstrates that the costs system does not operate identically across all categories of civil litigation.

The general principle of costs following the event remains important, but public policy considerations may justify special protection for particular classes of claimant.

The regime attempts to balance two competing objectives: protecting access to justice for personal injury claimants and preventing the costs system from being abused.

10. Costs Management: Controlling Litigation Expenditure

Costs management is the process through which the court supervises and controls the costs that parties expect to incur during civil proceedings.

It is particularly important in multi-track litigation, where cases may involve substantial disclosure exercises, multiple witnesses, expert evidence and lengthy trials.

Without appropriate financial supervision, legal costs may increase substantially as proceedings progress.

The costs management provisions are contained in CPR 3.12–3.18 and Practice Direction 3D.

The purpose of costs management is stated in CPR 3.12(2): the court should manage both the procedural steps to be taken and the costs to be incurred so as to further the overriding objective.

The court is therefore concerned not only with the legal issues but also with the financial consequences of the way in which proceedings are conducted.

10.1 Which proceedings are subject to costs management?

Costs management generally applies to Part 7 multi-track proceedings.

However, CPR 3.12 contains important exceptions.

These include certain high-value claims commenced on or after 22 April 2014 where the claim is valued at £10 million or more, claims brought by or on behalf of children, proceedings subject to fixed or scale costs, and cases in which the court otherwise orders.

The court may also direct that costs management applies to other proceedings where appropriate.

The fact that a claim is allocated to the multi-track does not therefore automatically mean that costs budgeting will apply.

The relevant exclusions and any court directions must be considered.

The official provisions are available in CPR Part 3 – Costs Management.

11. Costs Budgets: Planning the Financial Course of Litigation

A costs budget is a document setting out the costs a party has already incurred and the costs it expects to incur during the remaining stages of litigation.

It allows the court and the opposing party to examine the financial implications of the proposed litigation strategy.

The principal document used for this purpose is Precedent H, prescribed by Practice Direction 3D.

A costs budget generally identifies expenditure across the principal phases of litigation.

These include:

1. Pre-action work.
2. Issue and statements of case.
3. Case management conference.
4. Disclosure.
5. Witness statements.
6. Expert reports.
7. Alternative dispute resolution and settlement.
8. Trial preparation.
9. Trial.
10. Any additional or contingent costs.

The budget must be prepared in the prescribed format and supported by appropriate assumptions.

For example, a party anticipating a three-day trial with four witnesses and two experts should reflect those assumptions in the relevant budget phases.

A budget based on a one-day trial and one expert may be inadequate if the actual case requires substantially more work.

The purpose is to provide a realistic financial plan rather than an aspirational estimate.

11.1 When must costs budgets be filed?

CPR 3.13 establishes the general timetable.

Unless the court orders otherwise, parties who are not litigants in person must file and exchange costs budgets:

• Where the stated claim value is below £50,000, with their directions questionnaires.
• In other cases, no later than 21 days before the first case management conference.

The parties must also prepare a budget discussion report.

This report identifies which budget figures are agreed, which remain disputed and the reasons for the disagreement.

The court can then address the disputed matters during the costs management process.

11.2 The budget discussion report

The budget discussion report is an important part of the process because it encourages parties to examine each other’s anticipated expenditure before asking the court to intervene.

The prescribed document is Precedent R.

For example, the parties may agree that £8,000 is a reasonable allowance for disclosure but disagree about the amount required for expert evidence.

The report identifies the disagreement and provides a concise explanation of each party’s position.

This allows the court to focus on the actual financial disputes rather than examine every item without prior discussion.

11.3 Why costs budgets matter

Costs budgets help identify disproportionate expenditure at an early stage.

A party may propose a substantial amount for disclosure even though the dispute involves relatively few documents.

The opposing party may challenge the estimate, arguing that a narrower search or more efficient review procedure would be sufficient.

Similarly, a proposed trial budget may be challenged if the expected length of trial appears excessive.

The court can examine these matters before the parties incur the anticipated costs.

This is particularly valuable because reducing an unreasonable budget at an early stage may prevent unnecessary expenditure rather than merely produce a reduction during a later assessment.

12. Costs Management Orders

The court may make a costs management order under CPR 3.15.

Such an order records the court’s approval of the parties’ budgets or the court’s decisions concerning disputed budgeted amounts.

The purpose is to establish an appropriate financial framework for the proceedings.

When reviewing budgets, the court does not conduct a detailed assessment in advance of the actual work being undertaken.

Instead, it considers whether the proposed expenditure falls within a reasonable and proportionate range.

The court may:

• Approve the parties’ budgets.
• Make adjustments to disputed phases.
• Record agreed and approved amounts.
• Give directions concerning future costs.
• Require revised budgets where appropriate.

The result is a structured framework against which the parties can monitor litigation expenditure.

12.1 The effect of a costs management order

A costs management order does not mean that the court guarantees payment of the approved amount.

It is important to distinguish between the costs that a party is permitted to budget for and the costs ultimately recoverable from the opposing party.

An approved budget provides a framework for controlling costs, but the receiving party must still comply with the relevant costs rules.

The court may also examine the work actually performed and whether the final expenditure was reasonably incurred.

12.2 Costs management and the final assessment

CPR 3.18 governs the relationship between approved budgets and the final assessment of costs.

Where a costs management order has been made, the court will have regard to the receiving party’s last approved or agreed budget when assessing costs on the standard basis.

The court will not depart from that budget without good reason.

This provision gives practical significance to the costs management process.

It encourages parties to prepare realistic budgets and to seek appropriate revisions when the circumstances of the litigation change.

It also reduces the risk that a party will incur substantially greater expenditure than anticipated and later attempt to recover it from the opponent without justification.

13. Failure to File a Costs Budget

The consequences of failing to file a costs budget can be severe.

CPR 3.14 provides that, unless the court otherwise orders, a party that fails to file a budget when required will be treated as having filed a budget comprising only the applicable court fees.

This is a significant restriction.

A party may therefore find itself unable to recover substantial legal expenditure from the opposing party, even if it ultimately succeeds in the proceedings.

The rule reflects the importance of complying with costs management requirements.

However, the court retains the ability to make a different order where justified.

A party affected by the sanction may seek relief under the relevant procedural provisions, including CPR 3.9 where applicable.

The court will consider the circumstances of the failure and the applicable principles governing relief from sanctions.

The risk of failing to file a costs budget is therefore not merely administrative. It may have a direct and substantial financial impact on the proceedings.

14. Revising an Approved Costs Budget

Litigation rarely proceeds exactly as originally anticipated.

New evidence may emerge, the court may order additional disclosure, a party may introduce new allegations or the trial may become longer than expected.

For this reason, the rules provide a mechanism for revising an approved budget.

CPR 3.15A deals with revisions following significant developments in the litigation.

A party seeking to revise its budget must submit a revised budget in the prescribed form, identifying the relevant changes and explaining why the additional expenditure is justified.

The application should be made promptly after the significant development becomes apparent.

The purpose is to prevent parties from simply exceeding their approved budgets and attempting to justify the additional costs at the end of the proceedings.

For example, a contractual dispute may initially require only one expert witness. Following disclosure, however, the parties may discover that the technical issues are substantially more complicated than anticipated.

Additional expert evidence may become necessary.

The party seeking to increase its budget should therefore consider the appropriate revision procedure rather than assume that the additional expenditure will automatically be recoverable.

The court will examine whether the development genuinely justifies the revised amount.

15. Costs Management Conferences

A costs management conference is a hearing convened specifically to address costs budgeting matters.

It may take place where the court needs to resolve disagreements concerning the parties’ proposed expenditure or consider a revised budget.

The court may examine the disputed phases, the assumptions underlying the estimates and whether the proposed costs are reasonable and proportionate.

The objective is not to conduct a detailed assessment of every anticipated legal task.

Instead, the court seeks to establish an appropriate financial framework for the proceedings.

Practice Direction 3D encourages costs management conferences to be conducted by telephone or in writing where practicable.

This is consistent with the broader objective of preventing the costs management process itself from becoming disproportionately expensive.

The costs of preparing and arguing about budgets must not defeat the purpose of controlling litigation expenditure.

16. Detailed Assessment and Summary Assessment of Costs

Once the court has made a costs order, it may be necessary to determine the precise amount payable.

The Civil Procedure Rules provide two principal methods for assessing costs:

• Summary assessment.
• Detailed assessment.

These procedures are governed principally by CPR 44.6 and Part 47.

16.1 Summary assessment

Summary assessment is a relatively straightforward procedure through which the court determines the amount of costs payable without ordering a separate detailed assessment.

It is commonly used following shorter hearings and applications.

The parties provide information about the costs incurred, usually through a statement of costs.

The judge examines the figures and determines the amount recoverable.

Summary assessment is particularly useful where the costs are relatively limited and can be assessed fairly during or shortly after the relevant hearing.

16.2 Detailed assessment

Detailed assessment is a more extensive procedure.

It is generally used where the costs are substantial or cannot conveniently be determined through summary assessment.

The receiving party prepares and serves a detailed bill of costs.

The paying party may serve points of dispute identifying the items or amounts challenged.

The parties may attempt to agree the amount payable.

Where agreement cannot be reached, the matter may proceed to a detailed assessment hearing before a costs judge or other authorised judicial officer.

The court examines the disputed items and determines the recoverable amount.

This may involve considering:

• The work undertaken by legal representatives.
• The time reasonably spent.
• The hourly rates claimed.
• The necessity of particular work.
• The proportionality of the expenditure.
• The applicable costs orders and budgets.

The procedure is governed by CPR Part 47 – Procedure for Assessment of Costs.

16.3 The distinction between costs management and costs assessment

These procedures must not be confused.

Costs management takes place during litigation and concerns the costs expected to be incurred.

Costs assessment generally takes place after a costs order and determines the amount recoverable.

An approved costs budget may influence the final assessment, but it does not replace it.

The two procedures are complementary: costs management controls anticipated expenditure, while assessment determines the recoverable amount after the relevant work has been undertaken.

17. Part 36 Offers and Their Costs Consequences

One of the most important mechanisms influencing litigation costs is the Part 36 offer.

Part 36 allows parties to make formal offers to settle proceedings with specific costs consequences.

Its purpose is to encourage settlement and reduce unnecessary trials.

A Part 36 offer may be made by either claimant or defendant and may relate to the entire claim, part of the claim or a particular issue.

To qualify, the offer must satisfy the formal requirements of CPR 36.5.

These include being made in writing, stating that it is made under Part 36, identifying the claim or issue to which it relates and specifying a relevant period of at least 21 days in the ordinary case.

17.1 The consequences of a claimant’s Part 36 offer

Suppose a claimant brings proceedings seeking £100,000 in damages and makes a valid Part 36 offer to accept £75,000.

The defendant refuses the offer.

Following trial, the court awards the claimant £90,000.

Because the claimant has obtained a judgment at least as advantageous as its own Part 36 offer, the court will generally apply the enhanced costs consequences under CPR 36.17, unless it considers it unjust to do so.

These may include:

• Interest on damages at a rate not exceeding 10% above base rate.
• Costs on the indemnity basis from the expiry of the relevant period.
• Interest on those costs.
• An additional amount calculated according to the prescribed formula, subject to the applicable maximum.

The purpose is to encourage defendants to take reasonable settlement offers seriously.

17.2 The consequences of a defendant’s Part 36 offer

Now consider the opposite situation.

A defendant offers to settle a claim for £60,000.

The claimant refuses and proceeds to trial.

The court ultimately awards the claimant £50,000.

Because the claimant has failed to obtain a judgment more advantageous than the defendant’s offer, CPR 36.17 will generally provide for the defendant to recover its costs from the expiry of the relevant period, together with interest on those costs, unless the court considers that outcome unjust.

This may significantly reduce the claimant’s financial recovery.

The example demonstrates why settlement offers must be evaluated carefully.

17.3 Part 36 and fixed recoverable costs

Part 36 also contains special provisions for claims subject to fixed recoverable costs.

Rules 36.22–36.24 address the relevant consequences.

In these cases, the costs consequences are generally calculated by reference to the fixed-cost stages and applicable provisions of Part 45 rather than an ordinary assessment of legal costs.

This ensures that the settlement incentive operates consistently within the fixed-cost framework.

The official provisions are available here: CPR Part 36 – Offers to Settle.

18. Costs of Applications and Interim Proceedings

Civil litigation involves more than the final trial.

During proceedings, parties may make applications concerning disclosure, amendments, expert evidence, injunctions, extensions of time and other procedural matters.

These applications can generate substantial additional costs.

The court may make a costs order at the conclusion of an application hearing.

The unsuccessful party may be ordered to pay the successful party’s costs, although the court retains discretion to make a different order.

Common orders include costs in the case, costs reserved, no order as to costs and costs thrown away.

For example, where a defendant successfully opposes an unnecessary application for additional disclosure, the claimant may be ordered to pay the defendant’s costs of that application.

Alternatively, where the application is closely connected to the overall proceedings, the court may reserve the question of costs until trial.

The costs of interim applications may therefore affect the overall financial position of the parties long before final judgment.

Under fixed recoverable costs, the applicable rules may also determine whether and to what extent the costs of an application are recoverable separately or are included within the prescribed amounts.

19. Misconduct and the Court’s Powers Concerning Costs

The court’s costs jurisdiction is not limited to rewarding the successful party.

It also serves as an instrument for controlling procedural behaviour.

CPR 44.11 allows the court to disallow costs where a party or its legal representative has been guilty of misconduct.

The court may also order a legal representative to pay costs personally where the relevant requirements are satisfied.

Misconduct may include:

• Deliberately obstructive litigation behaviour.
• Failure to comply with court directions.
• Unreasonable procedural applications.
• Conduct that unnecessarily increases the costs of proceedings.
• Improper use of litigation procedures.

The court may disallow particular costs, order a party to pay costs that would otherwise not be recoverable, or make another appropriate order.

These powers reinforce the principle that litigation must be conducted responsibly.

A party should not be able to impose unnecessary expenditure on its opponent without facing potential financial consequences.

20. The Practical Importance of Costs Planning

Costs rules are not simply technical provisions that become relevant after judgment.

They influence litigation strategy from the earliest stages of a dispute.

Before commencing proceedings, a claimant should consider the likely value of the claim, the costs of pursuing it, the applicable procedural track and the amount that may realistically be recovered.

A defendant should similarly evaluate the financial consequences of defending the claim, the prospects of success, the possibility of an early settlement and the risks associated with Part 36 offers.

In many cases, the most economically rational outcome may be settlement rather than a full trial.

For example, a business pursuing a £40,000 contractual claim may reasonably expect to recover only a prescribed amount of legal costs under the intermediate-track regime.

If its actual legal expenditure is likely to be substantially higher, it must consider whether the additional expense is justified by the importance of the dispute.

Similarly, a defendant may have a strong defence but still face considerable legal expenditure in establishing it.

The costs system therefore encourages parties to evaluate litigation not only in terms of legal entitlement but also in terms of financial proportionality.

This is one of the central purposes of the modern costs framework.

Key Takeaways

1. The general rule is that the unsuccessful party pays the successful party’s costs. However, CPR 44.2 gives the court discretion to make a different order depending on the circumstances.

2. Costs are not automatically recoverable in full. The court determines which expenses are legally recoverable and whether they were reasonably and proportionately incurred.

3. There are two principal bases of costs assessment. The standard basis applies the reasonableness and proportionality requirements, while the indemnity basis is more favourable to the receiving party.

4. The court considers litigation conduct. Unreasonable behaviour, procedural non-compliance and unjustified refusal to settle may influence costs orders.

5. Fixed recoverable costs provide greater predictability. They establish prescribed amounts for qualifying categories of litigation and procedural stages.

6. The fast track and intermediate track are subject to fixed recoverable costs. The intermediate track generally accommodates qualifying claims valued above £25,000 and up to £100,000.

7. Complexity bands determine the applicable fixed costs. Both the fast track and intermediate track use four complexity bands.

8. The small claims track has a separate restricted costs regime. Legal representation costs are generally not recoverable, subject to specified exceptions.

9. Qualified One-Way Costs Shifting protects certain personal injury claimants. However, the protection is subject to exceptions, including provisions concerning fundamental dishonesty.

10. Costs management allows the court to supervise litigation expenditure. It is particularly important in multi-track proceedings.

11. Costs budgets are prepared using Precedent H. They identify incurred and anticipated costs across the principal phases of litigation.

12. Costs management orders establish a financial framework. Under CPR 3.18, approved budgets are relevant to the final assessment of costs on the standard basis.

13. Failure to file a required costs budget can have serious consequences. Under CPR 3.14, the default position is that the party is treated as having filed a budget limited to applicable court fees.

14. Costs budgets may be revised following significant developments. CPR 3.15A provides the relevant procedure.

15. Summary assessment and detailed assessment are different procedures. The former determines costs relatively quickly, while the latter involves a more extensive examination.

16. Part 36 offers can substantially affect costs liability. A party that unreasonably rejects a reasonable settlement offer may face significant financial consequences.

17. The court can impose costs sanctions for misconduct. CPR 44.11 provides powers to address improper litigation conduct.

Frequently Asked Questions (FAQs)

1. Who pays legal costs in civil litigation in England and Wales?

The general rule under CPR 44.2 is that the unsuccessful party pays the successful party’s costs. However, the court has discretion to make a different order based on the circumstances, the conduct of the parties and the extent of their success.

2. Does the successful party recover all its legal costs?

No. The successful party generally recovers only those costs that are legally recoverable under the applicable rules and court orders. On the standard basis, costs must be reasonable and proportionate. Fixed recoverable costs may also limit the amount recoverable.

3. What is the difference between standard-basis and indemnity-basis costs?

Standard-basis costs must be reasonable and proportionate, with doubts resolved in favour of the paying party. Indemnity-basis costs must be reasonable but are not subject to the separate proportionality test, and doubts are resolved in favour of the receiving party.

4. What are fixed recoverable costs?

Fixed recoverable costs are prescribed amounts or formulas that determine how much a successful party may recover in specified categories of litigation. They reduce uncertainty and limit disputes over the assessment of individual legal expenses.

5. When were fixed recoverable costs extended in England and Wales?

The major extension came into effect on 1 October 2023. It extended fixed recoverable costs across the fast track and introduced the intermediate track for qualifying claims generally valued above £25,000 and up to £100,000.

6. What are the four complexity bands?

The four complexity bands classify claims according to their procedural and factual complexity. They determine the applicable fixed-cost amounts in the fast track and intermediate track. Band 1 represents the lowest complexity, while Band 4 represents the highest.

7. Are all civil claims subject to fixed recoverable costs?

No. The principal extended regime applies to qualifying fast-track and intermediate-track proceedings. Other proceedings, including most multi-track claims, generally remain subject to ordinary costs assessment, unless another specific fixed-cost provision applies.

8. What is costs management?

Costs management is the process through which the court supervises anticipated litigation expenditure. It enables the court to assess whether proposed costs are reasonable and proportionate and to establish an appropriate financial framework for proceedings.

9. What is a costs budget?

A costs budget is a document identifying the legal costs already incurred and those anticipated during the remaining stages of litigation. It is normally prepared using Precedent H and forms part of the costs management process.

10. What happens if a party fails to file its costs budget?

Under CPR 3.14, a party that fails to file a required costs budget will ordinarily be treated as having filed a budget comprising only the applicable court fees, unless the court orders otherwise.

11. Can an approved costs budget be changed?

Yes. CPR 3.15A allows parties to seek revisions following significant developments in the litigation. The party seeking a revision must comply with the prescribed procedure and explain why the additional expenditure is justified.

12. What is a costs management order?

A costs management order is an order made under CPR 3.15 through which the court manages the costs expected to be incurred by the parties. It may approve budgets or determine disputed amounts.

13. What is Qualified One-Way Costs Shifting?

QOCS is a costs protection regime generally applicable to certain personal injury proceedings. It limits the enforcement of adverse costs orders against claimants, subject to specified exceptions.

14. What is the difference between summary assessment and detailed assessment?

Summary assessment is a relatively quick determination of costs, usually undertaken by the judge at or shortly after a hearing. Detailed assessment involves a more extensive examination of a bill of costs and any objections raised by the paying party.

15. What is a Part 36 offer?

A Part 36 offer is a formal settlement offer made under CPR Part 36. It carries specific costs consequences designed to encourage reasonable settlement and discourage unnecessary trials.

16. Can refusing a settlement offer result in paying the other party’s costs?

Yes. Depending on the circumstances and the terms of the offer, refusing a valid Part 36 offer may result in significant adverse costs consequences. A claimant who fails to obtain a judgment more advantageous than a defendant’s offer may become liable for the defendant’s costs from the expiry of the relevant period.

17. Can the court order costs against a party for unreasonable behaviour?

Yes. The court has broad discretion under CPR Part 44 and may make adverse costs orders where a party has behaved unreasonably or engaged in misconduct. CPR 44.11 specifically addresses the consequences of misconduct.

Conclusion

The law of costs in civil litigation in England and Wales forms an essential part of the administration of justice. It determines not only who ultimately bears the financial burden of proceedings but also how litigation should be conducted and how judicial resources should be allocated.

The traditional principle that costs follow the event remains the starting point, but the court’s discretion under CPR Part 44 ensures that costs orders can reflect the actual circumstances of each dispute.

The expansion of fixed recoverable costs, particularly through the reforms introduced in October 2023, represents a significant development in the modern civil justice system. By establishing prescribed costs for qualifying fast-track and intermediate-track claims, the reforms seek to make litigation expenditure more predictable and proportionate.

Costs management provides a complementary mechanism through which the court supervises anticipated expenditure, examines proposed budgets and prevents unnecessary financial escalation during proceedings.

Finally, Part 36 settlement offers demonstrate that costs rules have a broader strategic function. They encourage parties to evaluate their positions realistically and resolve disputes without unnecessary trials.

Taken together, these provisions establish a system in which financial accountability, procedural efficiency and access to justice must operate alongside one another. The objective is not simply to minimise litigation costs, but to ensure that the resources devoted to resolving disputes remain justified by their legal complexity, financial significance and importance to the parties.