In the recent case of Tidal Energy Limited v Bank of Scotland plc [2014] EWCA Civ 847, the Court of Appeal refused the Claimant’s application for a “costs capping” order.

“Costs capping” is when the court places a limit on the amount that a party can recover from another party in litigation. The purpose of costs capping is to reduce the cost of litigation and make it less unpredictable.

Until April 2009, there was no specific reference in the Civil Procedure Rules (CPR) to the court’s power to impose a costs cap. However, costs capping orders are now defined under CPR 3.19(1) as an order limiting the amount of future costs (including disbursements) which a party may recover under any order for costs subsequently made. Costs capping orders can be made in respect of the whole litigation or in relation to any issues that are to be tried separately.

The Claimant made the application during its appeal of a decision rejecting its claim against the Bank of Scotland. The Claimant submitted that, without a costs capping order, the bank’s use of leading counsel in the appeal would lead to disproportionate costs.

The Court held that on this occasion a costs capping order was unnecessary as the risk that costs would be disproportionately incurred could be adequately controlled by the detailed assessment costs process that would take place following determination of the appeal.

In order to try and limit another party’s costs, a formal application to the court must be made. When deciding whether to cap costs, the court will consider:-

  • Whether it is in the interests of justice to do so.
  • Whether there is a substantial risk that, without such an order, costs will be disproportionately incurred.
  • Whether the risk can be adequately controlled by case management and detailed assessment of costs.
  • Whether there is a significant imbalance between the financial position of the parties.
  • Whether the costs of determining the amount of the cap are proportionate to the overall costs of the litigation.
  • The stage the proceedings have reached.
  • The costs which have been incurred to date and the likely future costs.

The consequences of a costs capping order are summarised in the case of AB v Leeds Teaching Hospital NHS Trust [2003] EWHC 1034. They are as follows:-

  • If a party exceeds the costs cap, then the paying party cannot be expected to pay more than the cap.
  • If the amount of the costs cap is broken down for specific work envisaged and some work is not carried out, it is not appropriate for the costs of that work to be recoverable. For example, if litigation settles before trial, it is not appropriate to recover trial costs included within the costs cap.
  • If exceptional circumstances arise, which were not contemplated within a cap, then an application can be made to the court for a variation. However such an application must be made promptly and it may be difficult to persuade the court to grant the application.

The solicitors in our Commercial Litigation department have experience in dealing with the new costs regime that has been in place since April 2013 and which is constantly evolving with new costs decisions being made on a frequent basis. For further information please contact a member of the team.

Myerson Solicitors LLP are the premier commercial litigation solicitors in Cheshire and South Manchester.  Our expert solicitors can advise on all aspects of commercial disputes and debt recovery.