Out-Law Guide | 17 Aug 2018 | 3:48 pm | 3 min. read
This guide is based on UK law. It was last updated in August 2018.
'Costs' is a general term usually considered to include legal fees, official court fees or charges, and related expenses, including, for example, fees for expert witnesses and technical experts, incurred in preparation of or during litigation.
Typically, the unsuccessful party is responsible for paying the successful party's costs of litigation, in accordance with the EU's Directive on the enforcement of intellectual property (IP) rights.
Under Part 44 of the Civil Procedure Rules (CPR), which contains general rules regarding costs, courts in England and Wales retain a broad discretion to manage costs, including whether costs are payable by one party to another, the amount of those costs, and the time and manner in which they are to be paid.
Following the substantive decision and either a hearing or agreement by the parties, the court will make an order as to costs. The general position on costs is that costs follow the event – the unsuccessful party is ordered to pay the costs of the successful party.
However, in exercising its discretion as to what order to make about costs, the court will have regard to all the circumstances of the case. This includes consideration of the outcome in respect of each issue, claim or element and allocation of costs accordingly. For example, where the overall losing party has nonetheless succeeded on one or more elements of its case. Although issue or element-specific payments from the overall winner to the overall loser are unusual, in exceptional circumstances they do occur. The court will also consider the conduct of the parties immediately before and throughout the proceedings, together with any admissible offer to settle made by a party and drawn to the court's attention, provided it is not an offer to which costs consequences under Part 36 of the CPR apply.
Typically, the parties will seek to agree costs, as an inquiry as to costs is time-consuming and results in additional costs for the parties beyond the trial as to liability.
In general, costs assessed on the standard basis will result in the successful party recovering approximately 60-70% of its incurred legal costs.
Where a costs-management order has been made under the CPR costs scheme, provided these costs have been reasonably incurred then the court will not without good reason depart from the agreed or approved, and subsequently ordered, costs budgets.
Further, the court retains a discretion to award indemnity costs, in which proportionality is not considered a relevant factor. However, in practice indemnity costs orders are unusual and tend to be made only where the relevant conduct of the party liable for costs is considered abnormal and/or 'unreasonable to a high degree' in the circumstances of a particular case.
In awarding indemnity costs, any doubt as to whether the costs are 'reasonably incurred' will favour the indemnified party – that is, the receiving party. Orders for indemnity costs tend to result in costs exceeding by 10-20% costs awards made on the standard basis.
Costs before the Intellectual Property and Enterprise Court (IPEC)
In the IPEC, recoverable costs are capped for each phase of a claim, For example particulars of claim, defence and counterclaim, preparing witness statements, expert reports, disclosure and inspection, and experiments.
The total costs for a proceeding to determine liability is capped at £50,000; the total cap for an inquiry as to damages or an account of profits (quantum) is £25,000.
Because of the division into specific phases, the total cap for both liability and quantum will only be available to a successful party if each of the phase caps is reached, which is uncommon.
Claims before the UK courts are often subject to significant cost management in the form of cost budgets.
Claims with a value of less than £10 million that are issued in the Patents Court, and the broader Intellectual Property List and Chancery Division, are subject to a CPR-mandated costs-management scheme. The purpose of this is to further the court's overriding objective. Parties to claims above £10 million in value can mutually agree to submit to the budgeting rules.
A key component of the CPR costs-management scheme is the preparation, filing and exchange of detailed costs budgets which anticipate costs for the entire action. Pre-action costs include those incurred in relation to pre-action warning letters, formal letters of claim and related correspondence.