Taking a debtor to Court – who pays the costs

Posted in July 2015

Taking a debtor to Court – who pays the costs | Advocate

The legal fees involved in taking Court action against a debtor include:

  1. The Court fee
  2. A solicitors’ claim issue fee
  3. Solicitors’ fees for advising you and represent your case in Court
  4. Fees paid to Expert witnesses’ for attending Court and giving evidence or supply expert reports

How do the Courts apportion costs?

Small claims

If you are successful in obtaining a Judgment in the Small Claims Court (the track your claim will be assigned to if it is below £5,000), the Court will usually order the Defendant to pay the Court fee and your solicitors issue fee.

The Court may order the Defendant to pay further costs only if they acted unreasonably, for instance by not attending a hearing or by persisting with a defence or claim which clearly has no chance of success.

Fast Track Claims

If you win a case in the Fast Track the Court will normally order the Defendant to pay a share of your solicitor’s fees, and the disbursements you have paid, in addition to their own solicitor’s fees and disbursements. However, there are limits on the total amount the Court can order the Defendant to pay.

A claim will normally be assigned to the Fast Track where:

  1. The claim value is more than £5,000 and less than £25,000
  2. The Court hearing is expected to last no longer than one full day
  3. The case is particularly complex and does not involve technical issues

The costs in Fast Track cases are divided in two. The Defendant will be ordered by the Court to pay reasonable costs in relation to preparation of the case, however, the costs of the solicitor drafting the claim and attending the hearing (trial costs) are limited. The Court will (other than in exceptional cases) award appropriate trial costs as below:

Costs of £485 for claims with a value up to £3,000

Costs of £690 for claims with a value up to £10,000

Costs of £1,035 for claims with a value up to £25,000

The Fast Track costs to be paid by the Defendant will normally be assessed by the Court and announced with the verdict; alternatively the Court may decide to assess the costs at a later date.

Multi Track Claims

The apportionment of costs in successful multi Track claims is similar to the Fast Track. The Court will normally order the Defendant to pay a share of your solicitor’s fees along with the cost of the disbursements you have paid, as well as their own disbursements and solicitor’s fees.

Your claim will be assigned to the Multi Track if the value is more than £15,000, or if complex technical details are involved, or if the hearing is expected to last longer than one full day.

The assessment of costs is always decided after the Court’s verdict is announced in Multi Track cases. The is a requirement for the successful party’s solicitor to compile a detailed invoice listing all of the tasks they completed, and the cost charged to complete each task. The Court will then scrutinise the invoice and asses each item, once completed the assessed amount rather than the invoice amount is ordered to be paid by the defeated party.

The Court, when assessing the invoice, will decide if each task completed was necessary and if the charge for each task is reasonable, considering the factors below:

  1. The total claim value, for instance the Court would take a dim view of costs of £20,000 in relation to a claim of £10,000, costs must be proportionate
  2. The novelty and complexity of any issues raised during the preparation and hearing
  3. The specialised skill, knowledge and effort involved and the responsibility required
  4. The time required to complete the tasks required
  5. The pre-trial and trial conduct of each party
  6. How each party has defended or pursued the claim
  7. Any counterclaim or exaggeration by either party
  8. How reasonable each party has acted in contesting or raising particular issues
  9. Whether the successful party succeeded on any points
  10. The willingness of each party to reach settlement

Where there is doubt as to whether a task or the cost associated is reasonable, the Court will generally rule in the favour of the unsuccessful party. This is referred to as “Standard” assessment. Only on rare occasions will the Court, if in doubt, rule in favour of the successful party. This is referred to as “indemnity” assessment. For this to happen the unsuccessful party would have had to have behaved very badly, perhaps by being in contempt of Court.

Usually the amount the unsuccessful party will be ordered by the Court to pay you will be considerably less than the invoice total submitted by your solicitor, generally in the region of 75%, payment of the remaining balance will be your responsibility, this is referred to by solicitors as the “nuisance value” of a Court case.

Where the defeated party is insolvent it may not be possible for them to pay the amount ordered by the Court. In such cases the Court will order them to contribute a reasonable amount proportionate to their circumstances.

Planning your position

If you are considering issue a claim, and you are concerned that you may not be able to reclaim your costs from the Defendant if you are successful because, for instance, they are an overseas company or you believe they cannot afford to pay, or you believe they are hiding assets or presenting false details, you can in order to avoid the potential liability to pay costs, make an application for an order that the proposed Defendant pay an amount to the Court, pending the verdict of the hearing. This is referred to as “security of costs”, and is applied at the total discretion of the Court.

There are certain circumstances where the successful party may have to pay their own costs, or pay the defeated party’s costs, the Court may order the other party to pay costs regardless of who wins the case. You can be ordered to pay:

  1. Costs from a specific date only
  2. Cost up to a specific date only
  3. The costs of a specific preliminary process or application

Preliminary application costs

You can make specific applications to the Court in the time prior to the case being heard to decide certain preliminary matters. For instance:

  1. Either party can apply for the other party’s case to be dismissed on the basis it has no reasonable chance of success
  2. Either party can apply for disclosure of documents they believe are being deliberately concealed from the Court process
  3. Either party can decide to object to the calling of an expert witness

The Court can at its discretion decide that one of the parties must pay the other party’s costs for a particular preliminary hearing, regardless of who goes on to be successful in the principal case. For instance, if the calling of a particular preliminary hearing is deemed by the Court to be unreasonable, or if the application was made due to the failure of one of the parties to carry out an action.

Counterclaims

If you issue a claim and the Defendant responds with a counterclaim, the apportionment of costs can be complicated, it is possible that one party is successful in part of a claim and unsuccessful in the counterclaim.

Offer to settle

You can at any time make a formal offer, or deposit an amount of money as an offer with the Court, indicating that you are intending to make payment now to close the case. The aim here is to encourage the other party to settle. Following payment they would have 21 days to accept the amount and settle the case.

If your offer is declined and the other party goes on to win the case, but the costs awarded are lower than your offer, the Court will normally order the other party to contribute towards the legal costs you have paid since the expiry of your offer, despite the fact you have lost, because the other party could have settled in time with your offer. If you win the case, you will get your money back, along with any costs that are due from the defeated party.

Arrangements of conditional fee

Your solicitor may suggest an agreement with you, that if you lose, there will be no charge, but if you win, they can charge an increased fee. This is a type of no-win no-fee agreement referred to as an “arrangement of conditional fee”. The solicitors standard fees are the “base costs”, the additional charges are a “success fee”. The concept is designed to compensate the solicitor given the risk involved and the lack of payment prior to the case being decided. Furthermore any disbursements will be your liability until the case has been heard and decided.

If you win, you can expect your solicitor’s fees to be around double what they would be outside of this type of arrangement. However, if as normally happens the other party is ordered to contribute to your costs and disbursements, only the balance of fees will be payable.

If you lose, there will be no solicitors costs to pay, but the Court will order that you pay at least part of the other party’s costs in addition to their disbursements and of course your own.

Your solicitor should advise you to take out insurance to cover the other party’s costs in the event you lose the case. If you are declined insurance, your solicitor should propose an alternative arrangement. If you are successful in Court you can add the cost of the insurance premium to the costs claimed from the Defendant.

General insurance

You should always check your business insurance as it may include a provision for legal costs. If so you must contact the insurance provider and notify them prior to issuing a claim. Additionally you can arrange after the event cover for legal expenses arising from a dispute. This will cover both your costs and the costs of the other party should you be unsuccessful.

Cost agreement

The Claimant and defendant can in theory agree how costs are to be apportioned or paid prior to hearing, however, in reality this seldom happens.

Legal advice

If you are unsure on any aspect of issuing a claim or the costs involved, you should seek legal advice.

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