Commercial litigation costs draftsmen and costs lawyers

Commercial litigation involves resolving disputes related to business, ranging from breach of contract to intellectual property issues. This guide explores the costs associated with commercial disputes in England and Wales, the role of costs draftsmen/lawyers, and the process of detailed assessment for recovering or disputing legal costs and disbursements.

Commercial litigation costs: An overview

The costs of running a commercial litigation case can be substantial. The level of costs vary widely based on the complexity of the case, the length of proceedings, and the strategies employed by the involved parties.

The rule of thumb in civil and commercial litigation is that the winning party is entitled to recover their costs incurred from the losing party. The successful party becomes known as the “receiving party” and the losing party becomes known as the “paying party” in commercial litigation costs proceedings.

Direct Costs

A number of direct costs arise throughout the commercial dispute resolution process, including:

• Legal fees: These are payments made to solicitors and barristers for their professional services. Fees can be charged at an hourly rates basis, or in some cases, a fixed fee might be agreed upon.
• Court fees: These fees are paid to the court and depend on the value and type of the claim.
• Expert witness fees: Experts may be needed to provide technical knowledge or an independent opinion on certain aspects of the case.
• Miscellaneous costs: Other costs can include travel, accommodation, and subsistence expenses, particularly if litigation requires travel or prolonged stays away from the office.

Indirect costs

• Time: The time spent by the company’s own staff, including senior management, can be significant and represents an indirect cost.
• Opportunity costs: Engaging in litigation may divert resources from other business activities, potentially leading to lost opportunities.

Costs draftsmen (also known as costs lawyers when they have the appropriate accreditation) specialise in the management and assessment of legal costs. They play a crucial role in both pursuing and defending claims for legal costs.

Services provided by commercial costs professionals

Costs budgeting:

This involves preparing a detailed forecast of anticipated costs recoverable at different stages of litigation to help manage and contain costs effectively.

Bill of costs:

After the litigation, a detailed bill of costs is prepared by the costs draftsman to claim the winning party’s costs from the losing party.

Negotiation of costs:

If you are the unsuccessful party to a case, you may wish to consider negotiating the level of costs you should pay your opponent. Costs draftsmen negotiate with the opposing side to agree on the amount of costs to be paid.

Costs litigation:

If costs cannot be agreed upon, costs draftsmen may represent their client in costs litigation proceedings.

Detailed Assessment Process:

When parties cannot agree on costs, the matter may proceed to a detailed assessment, where the court examines the costs to determine their reasonableness.

Legal costs advice:

Costs draftsmen and costs lawyers provide extremely valuable advice to solicitors throughout litigation. Examples can include costs implications of accepting or rejecting a Part 36 Offer.

Recovering commercial litigation costs – Detailed Assessment

Preparation of Bill of Costs:

The receiving party must prepare a detailed bill of costs that itemises every expense claimed. This should be server upon the paying party alongside a Notice of Commencement

Points of Dispute and Replies:

The opposing party may raise specific objections to items in the bill in a document called “Points of Dispute.” The claiming party may respond with “Replies.” Parties should attempt to negotiate costs using these instruments. If Points of Dispute are not received within 21 days of serving the Bill of Costs, the receiving party may apply for a Default Costs Certificate.

Hearing:

If the parties still cannot agree, the dispute is resolved at a detailed assessment hearing before a Costs Judge or a Costs Officer.

Assessment by the Court:

The court will assess the costs line by line, deciding what is necessary and reasonable. The final amount awarded can be significantly different from the amount claimed.

Cost management strategies

Effective cost management in commercial litigation is crucial. Here are several strategies:

Proactive Costs Management:

Engaging a costs draftsman early can help in accurately estimating and controlling costs throughout the litigation process from an early stage.

Alternative Dispute Resolution (ADR):

Methods such as mediation or arbitration can be less costly than full-scale litigation and should be considered as viable alternatives.

After the Event (ATE) Insurance:

This insurance covers the legal costs incurred in the litigation process, particularly useful in case of a loss.

Fixed costs in commercial litigation

In October 2023, England and Wales introduced a new regime of fixed recoverable costs in civil and commercial litigation to streamline the cost management process and reduce the financial unpredictability associated with litigation. This regime applies to most claims with a value up to £100,000, with specific exceptions.

Fixed recoverable costs The amendments to the Civil Procedure Rules have established a more structured cost framework, which now includes a new ‘Intermediate Track’ that caters to claims between £25,000 and £100,000. The existing ‘Fast Track’ covers claims up to £25,000. These changes are designed to extend the existing fixed costs system to a wider range of cases, previously applicable primarily to lower-value claims.

Track assignments and complexity bands

Claims are assigned to one of four tracks based on their value and complexity:

• Small Claims Track: For claims up to £10,000.
• Fast Track: For claims between £10,000 and £25,000, usually limited to simpler cases.
• Intermediate Track: For claims between £25,000 and £100,000, designed for moderately complex cases.
• Multi-track: For claims over £100,000, typically handled in the High Court due to their complexity and value.

Each claim within the Fast and Intermediate Tracks is further categorised into one of four ‘complexity bands,’ which help determine the fixed recoverable costs. These bands consider factors like the financial value, the complexity of the issues involved, and the expected trial duration.

Costs and recoveries

The fixed costs in each track and band are predetermined and listed in the revised Practice Direction 45. These costs vary depending on the stage at which the case is resolved—whether it settles early, goes to a full trial, or is discontinued. The system aims to encourage early settlement by providing clear cost implications for continuing to trial.

Disbursements and additional recoveries

While fixed costs cover most of the general legal expenses, disbursements (like expert fees) remain recoverable based on their reasonableness. Additionally, there are provisions for ‘exceptional circumstances’ where the court can award costs outside the standard fixed costs framework, although this is expected to be applied sparingly.

Impact of the new regime

The introduction of fixed recoverable costs is intended to reduce the overall cost of litigation, make cost outcomes more predictable, and streamline the process. However, it might also lead to increased unrecoverable costs for parties, affecting decisions about whether to proceed with litigation.

Our panel of commercial litigation costs experts

Expert Commercial Law have a panel of commercial litigation costs experts who can be instructed to assist on all legal costs matters. 

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