Another Upside To Costs Budgeting? Orders For Interim Payments On Account Of Costs

Clare Dixon of 4 New Square looks at the impact which costs budgeting has had on interim payments on account of costs and explains why, when an indemnity costs order is made, the budget won't necessarily be a ceiling to recovery.

Victory having been secured in litigation, attention often then turns to costs. First on the agenda is securing a favourable costs order but, having achieved that, the receiving party wants to know how much they are going to recover, and when.

CPR 44.2(8) 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". Obtaining such an order has several benefits:

Unless the Court orders otherwise, payment should be made within 14 days and, in default of payment, enforcement action can be taken; If payment is not forthcoming and/or enforcement proceedings reveal there to be little or nothing to enforce against, then the successful party can take an informed decision about whether pursuing a detailed assessment is worthwhile; and If a high enough percentage is secured then, even if the paying party has the means to pay, the successful litigant may take the view that the prospects of recovering the remaining sum do not justify the expense of such action. Before costs budgeting, and perhaps because of a previously more restrictive wording of the relevant rule, the percentages ordered by way of interim payments were (according to Birss J. in Thomas Pink Ltd v Victoria's Secret UK Limited [2015] 3 Costs LR 463) generally a little over 50% of the incurred costs. However, following the introduction of costs budgeting, CPR 3.18 was introduced which provides: "In any case where a costs management order has been made, when assessing costs on the standard basis, the court will... (b) not depart from such approved or agreed budgeted costs unless satisfied that there is a good reason to do so". Two consequences of this are the focus of this note. First, the impact which costs budgeting has had on the proportion of costs which Judges are prepared to award when making interim costs orders and, second, the relevance of costs budgets to interim costs orders where the paying party is ordered to pay costs on an indemnity basis.

In Elvanite Full Circle Ltd v AMEC Earth & Environment (UK) Ltd [2012] EWHC 1643 the successful defendant's approved costs were about half their actual costs. Coulson J. (as he...