CostsDirect Access ClientsLegal ArticlesLegal costs and cashflow: payments on account of costs

February 24, 20180

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If you win your civil litigation case, or indeed are successful on an interim application, you will normally be entitled to an order for legal costs in your favour against the other side. But it may take some time to recover them, which will affect your cashflow. For that reason it is important to consider requesting a payment on account of costs.

Rule 44.2 of the Civil Procedure Rules provides that the general rule is that the successful party will be entitled to an order for costs; the court has a discretion as to what order to make and must consider all the circumstances, including the conduct of the parties and in particular any offers made.

So much for the principle. Now for the procedure. If you are successful in persuading the court that a costs order should be made in your favour, the next question is how the amount of the costs should be quantified. There are two options:

(a)        summary assessment, where the judge determines the amount of costs then and there, usually in a matter of minutes;

(b)       detailed assessment, where the details of costs go off to a costs judge, to be quantified on a later date, as part of a procedure which requires the service of a breakdown of the Bill and of Points of Dispute, and a separate hearing.

The court has a discretion to order a summary or detailed assessment, and is supposed to be guided by the factors in the Practice Direction to CPR Part 44, paragraph 8: where the hearing has lasted less than a day, the court should conduct a summary assessment, unless, in particular, the paying party shows that there are substantial grounds for disputing the costs which cannot be dealt with summarily.

However, often in practice the decision just turns on the time available: a summary assessment may be more obviously appropriate, but by the time the court has dealt with the substantive

The crucial provision is CPR 44.2(8). This states:

Where the court orders a party to pay costs subject to detailed assessment, it will order that party to pay a reasonable sum on account of costs, unless there is a good reason not to do so.”

Thus the court is required to consider whether to order a payment on account, and it does not have an entirely free hand: the starting point is that it should order one.

A payment on account has two particular advantages for the receiving party:

(a)        most obviously, from a cashflow perspective, some money will be received sooner. A detailed assessment might take a year to complete, whereas a typical order requires a payment on account to be made within 28 days;

(b)       sometimes there may be a concern that the paying party may not be good for the money; going to detailed assessment can be expensive in itself and carries the risk that it could prove to be an exercise in throwing good money after bad. If an order for a payment on account is made, the receiving party can wait to see whether the order is complied with before deciding whether or not to press ahead with detailed assessment: if the payment is made, that may give confidence that detailed assessment is more likely to be worthwhile; if it is not paid, that may indicate that the detailed assessment would be futile, but at least enforcement action can be considered in respect of the payment on account: for example a charging order can be sought for that amount against a property in which the paying party has an interest.

On a practical level, thought should be given in advance of the hearing as to the amount of the payment on account of costs which will be sought if successful, and as to how the court can be satisfied as to the amount of costs. If a Schedule of Costs in form N260 has been served, that can obviously be used. Otherwise, some details of costs can be provided in different form, for example in a witness statement indicating the total amount of costs which have been incurred and giving broad details of how that figure is made up, for example the totals of counsel’s fees or other disbursements and the amount of the solicitors profit costs.

No formal application for a payment on account needs to be made in advance, it can be made orally at the hearing. Nevertheless, it is good practice to give the other side some advance warning that a payment will be sought, and as to the level of payment which will be requested. That is particularly so where the other side is not legally represented.

What level of payment is likely to be awarded? A distinction needs to be made here between cases where a costs management order has been made (ie where a budget has been agreed or has been approved by the court) and one where no such order has been made.

Prior to costs budgeting, a body of caselaw developed in which the courts awarded a relatively conservative proportion of the overall costs, typically 40 or 50%. The rationale is that the costs will be reduced on detailed assessment, and the court should not order more for a payment on account than the sum likely to be determined at the final assessment. The best known case is Mars UK Ltd v Tecknowledge [2008] EWHC 226, in which an order for a payment on account of 40% of the total was ordered. It is less often noted that the percentage was based on specific features of that case suggesting that the costs claimed were excessive, and arguably does not justify a figure as low as 40% in more routine cases. Nevertheless, in my experience it is very difficult to achieve a payment on account of costs of more than 50%.

Where a costs management order has been made, the courts have taken a different approach, and have been prepared to order payments on account of 80% or even 90%. That is because when the costs have been set according to a budget, on a detailed assessment the court will not depart from the budget except for good reason, hence the court can be confident that the amount allowed on assessment is likely to be close to the budgeted sums: see Thomas Pink v Victoria’s Secret UK Ltd [2014] EWHC 3258. However, an important argument for the paying party is that the costs management process only dealt with the estimated (ie future costs) and did not set the incurred costs; thus it can be argued that whilst 80 or 90% may be the appropriate percentage for costs which were estimated in the budget, 40 or 50% would be the appropriate figure for costs which were shown on the budget as incurred. This was the approach adopted in Cleveland Bridge UK Ltd v Sarens (UK) Ltd [2018] EWHC 827 (TCC)

There has been some uncertainty as to whether an application for a payment on account can be made after the hearing where the order for costs is made. In Ashman v Thomas (2016) EWHC 1810 (Ch) Master Matthews found that the order could be made after the costs order was made, but before the cost order had been sealed. However, in Culliford v Thorpe [2018] EWHC 2532 (Ch) HHJ Paul Matthews held that there was no rule that an application for a payment on account could not be made after the costs order had been sealed.

Neverthless, the receiving party would be well advised to be prepared to make the application at the costs hearing, to avoid the delay which may be caused by the need for a separate application to be listed, and the risk of the court taking that into account either in declining to exercise its discretion on the application or not allowing the costs of the separate hearing.

In Bank St Petersburg PJSC v Arkhangelsky [2018] EWHC 2817 (Ch), the judge rejected the Defendant’s submission that their inability to pay could constitute good reason for not making an interim payment order under rule 44.2(8).

The Court has jurisdiction to order a payment on account of costs where a costs order is deemed to have been made under the provisions of rule 44.9 on discontinuance of a claim: Barnsley v Noble [2012] EWHC 3822 (Ch).

It had been held that where a deemed costs order is made following acceptance of a Part 36 offer, the court had no jurisdiction to order a payment on account of costs: Finnegan v Spiers [2018] EWHC 3064 (Ch). However, that was held recently to have been wrongly decided by the Court of Appeal in Global Assets Advisory Service Ltd v Grandlane Developments [2019] EWCA Civ 1764, as it saw no difference between the deemed order made on discontinuance and the deemed order on acceptance of a Part 36 Offer.

If an application for a payment on account under CPR 44.2(8) is not made, it is possible to seek an interim payment in the detailed assessment process, under CPR 47.16, which provides for the court to issue an interim costs certificate. However, that power only arises once a request for a hearing has been filed, which in turn is after the Bill and Points of Dispute have been served: thus it may be necessary to wait several months – although in one case in which I was involved we were able to save some time by making the application shortly before filing the request for the detailed assessment hearing – the request had been filed by the time the application for the interim costs certificate had been listed.

So these points emphasise the need to be prepared to make an application for a payment on account at the hearing where the order for costs is made. Failing to do so could have a serious impact on cashflow. For further reading on legal costs in civil litigation, please try my other posts and

Stephen Innes

21 March 2020

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