Interim Payment on Account of Costs

Author: Simon Hill
In: Bulletin Published: Friday 27 January 2023

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Where the court orders a party to pay costs subject to detailed assessment, the party (the 'paying party') has been ordered to pay the other party's (the 'receiving party') costs, but the exact amount to pay, is to be quantified later, through a process known as a detailed assessment.

However, that detailed assessment process can take time, and the issue arises, should the paying party pay to the receiving party, a sum of money in the interim, while the exact quantification of costs remains still to be determined.

Where the CPR applies, CPR r.44.2(8) will govern the situation. CPR r.44.2 is entitled ‘Court’s discretion as to costs’ and r.44.2(8) reads:

‘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 good reason not to do so.’

As will be apparent, where the court does so order[1] a party (the paying party), to pay the receiving party's costs, subject to a detailed assessment, the court must (by the word 'will') order the paying party to pay to the receiving party, a reasonable sum on account of costs, unless there is good reason not to do so.

A few observations can be made on this:

(1) the purpose of the rule, is to enable the receiving party to receive a payment towards some of its expenditure on legal fees, so that it is not kept 'out of pocket' for the whole sum while the detailed assessment process progresses towards a final determination (if no agreement on quantum can be reached between the parties). For receiving parties with limited funds, this interim payment may ease financial difficulties, which might otherwise have pressurised the receiving party to settle for a lower sum than it might otherwise be entitled to, just to get early payment. It may also reduce the incentive on the paying party, to delay and prolong/protract the detailed assessment process[2].  

(2) In Excalibur Ventures LLC v Texas Keystone Inc [2015] EWHC 566 (Comm) (‘Excalibur Ventures’), Christopher Clarke LJ in the High Court observed:

'Under the new rule there is … a presumption that a payment will be made, subject to an exception, and a specific criterion as to amount.’ (Paragraph 14)

(3) In Bank St Petersburg PJSC v Arkhangelsky [2018] EWHC 2817 (Ch) (Hildyard J) the judge rejected a submission that inability to pay could constitute good reason for not making an interim payment order on account of costs, under r.44.2(8);

(4) There is no rule that the amount ordered to be paid on account should be the “irreducible minimum” of what may be awarded on detailed assessment. In Excalibur Ventures, Christopher Clarke LJ said, at paragraphs 22 to 24:

‘…It is clear that the question…is what is a “reasonable sum on account of costs”. It may be that in any given case the only amount that it is reasonable to award is the irreducible minimum. I do not, however, accept that that means that “irreducible minimum” is the test. That would be to introduce a criterion (a) for which the rules do not provide’ (b) which is not the same as the criterion for which they do provide; and (c) which has potential drawbacks of its own, not least because it begs the question whether it means those costs which could not realistically be challenged as to item or amount or some more generous test. On one approach it admits of every objection to costs, which cannot be treated as fanciful.

What is a reasonable amount will depend on the circumstances, the chief of which is that there will, by definition, have been no detailed assessment and thus an element of uncertainty, the extent of which may differ widely from case to case as to what will be allowed on detailed assessment. Any sum will have to be an estimate. A reasonable sum would often be one that was an estimate of the likely level of recovery subject, as the costs claimants accept, to an appropriate margin to allow for error in the estimation. This can be done by taking the lowest figure in a likely range or making a deduction from a single estimated figure or perhaps from the lowest figure in the range if the range itself is not very broad.

In determining whether to order any payment and its amount, account needs to be taken of all relevant factors including the likelihood (if it can be assessed) of the claimants being awarded the costs that they seek or a lesser and if so what proportion of them; the difficulty, if any, that may be faced in recovering those costs; the likelihood of a successful appeal; the means of the parties; the imminence of any assessment; any relevant delay and whether the paying party will have any difficulty in recovery in the case of any overpayment.’ [bold added]

In Excalibur Ventures, 80% of the sum claimed was held to be a reasonable figure in that case (paragraph 25) (though 60% was found reasonable in relation to certain Costs Claimants (paragraph 39)) 

In Boyle v Govia [2022] CAT 54 ('Boyle'), Marcus Smith J sitting the Competition Appeal Tribunal (as Sir Marcus Smith President of the Competition Appeal Tribunal) said, at paragraph 4:

‘It is common ground that the Tribunal may order a payment on account of costs. The principles governing the amount of costs to be ordered on account are not in dispute: the court or tribunal should seek to order a realistic estimate of the reasonable costs likely to be determined on detailed assessment, with an appropriate margin to allow for an overestimate: Excalibur Ventures LLC v Texas Keystone Inc [2015] EWHC 566 (Comm).’

(5) it must be recalled that, when determining the quantum of an order for an interim payment on account of costs, the judge is not undertaking a summary assessment of costs. The assessment of costs for the purposes of a final costs order, will come later. It is therefore not appropriate for the court when determining the quantum of an order for an interim payment on account of costs, to undertake an intensive review of the receiving party's cost schedule(s). In Boyle, Marcus Smith J said, at paragraph 10:

‘This is not a summary assessment of costs and I need to look at the matter in the round for the purpose of an interim payment. As set out by the Tribunal in Gutmann v London MTR South Western Trains Limited and Others [2021] CAT 36 at [54], it is not appropriate for me to conduct an intensive review of a costs schedule for the purpose of arriving at an interim payment.’[3].

Update: See Taylor v Savik [2024] EWCC 10, HHJ Matthews sitting in County Court at Bristol on 1.10.24, from paragraph 17[4].

SIMON HILL © 2023

BARRISTER

33 BEDFORD ROW

NOTICE: This article is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of Chambers or by Chambers as a whole.

[1] Two situations can also be noted:

(1) where a claim is discontinued under CPR r.44.9, so a costs order is deemed to have been made, the court has jurisdiction to order an interim payment on account of costs - Barnsley v Noble [2012] EWHC 3822 (Ch) (Proudman J).

(2) where there has been acceptance of a Part 36 offer within the relevant period, the court may also order an interim payment on account of costs - Global Assets Advisory Services Ltd v Grandlane Developments Ltd [2019] EWCA Civ 1764.

[2] See:

(1) Days Healthcare UK Ltd v Pihsiang Machinery Manufacturing Co Ltd [2006] EWHC 1444 (QB); [2006] 4 All E.R. 233 (Langley J); and

(2) Mars UK Ltd v Teknowledge Ltd [2000] FSR 138 (Jacob J) at 153

[3] In Gutmann v London MTR South Western Trains Limited and Others [2021] CAT 36, the Competition Appeal Tribunal (Roth J with 2 others) said, at paragraphs 54 and 55:

'The Applicant reminds us that an interim payment should seek to reflect an estimate of the likely costs that will be recovered, with an appropriate margin to allow for an over-estimate: Excalibur Ventures LLC v Keystone Inc. [2015] EWHC V566 (Comm) per Christopher Clarke LJ at [22]-[24]. However, it is not appropriate to conduct an intensive review of a costs schedule for the purpose of arriving at an interim payment, and in light of the considerations set out above we find it difficult to come to a reliable estimate of the likely recovery in this case. Accordingly, we consider that the fair approach is to apply a very substantial reduction to the total in the revised costs schedule. Taking a very broad brush approach, we therefore adopt a round figure of £1 million (plus VAT).

Applying 65% to that figure (since there is no attempt to split off costs for resisting the applications for summary judgment), produces £650,000 + VAT. We therefore order that the Respondents pay a total of £780,000. Subject to any application to vary the date, that sum is to be paid within 21 days.'

[4] In Taylor v Savik [2024] EWCC 10, HHJ Matthews sitting in County Court at Bristol on 1.10.24, said under the heading 'Payment on account of costs', from paragraph 17:

'Issue (iii) relates to payment on account, under CPR rule 44.2(8). In Excalibur Ventures LLC v Texas Keystone Inc [2015] EWHC 566 (Comm), Christopher Clarke LJ said: LJ

"22. It is clear that the question, at any rate now, is what is a 'reasonable sum on account of costs' …

23. What is a reasonable amount will depend on the circumstances, the chief of which is that there will, by definition, have been no detailed assessment and thus an element of uncertainty, the extent of which may differ widely from case to case as to what will be allowed on detailed assessment. Any sum will have to be an estimate. A reasonable sum would often be one that was an estimate of the likely level of recovery subject, as the costs claimants accept, to an appropriate margin to allow for error in the estimation. This can be done by taking the lowest figure in a likely range or making a deduction from a single estimated figure or or perhaps from the lowest figure in the range if the range itself is not very broad.”

The trustee and the first respondent agree that a payment on account should be made, but disagree on quantum. The first respondent asks for £207,081.07, and the trustee offers £120,000 (increased from an earlier offer of £80,000). In cases where costs budgeting was carried out, and a costs management order made, the court will pay close attention to the budget. But there was no such budgeting here, and no such order.

The first respondent says she has incurred total legal costs of £267,049.98, though this does not include costs allowed to a litigant in person at the prescribed rate. She accepts that she was ordered to pay the trustee’s costs of particular applications, and must deduct from her total costs her own costs of dealing with those applications. She has estimated these at just under £20,000, and therefore claims the reduced sum of £247,509.98. To that sum she has added £11,341.36 by way of estimated interest, making a total of £258,851.34.

The first respondent asks for 80% of that total if her costs are to be assessed on the indemnity basis, or 70% if they are to be be assessed on the standard basis. She relies on the lengthy and complex nature of the proceedings, what she says is the ease of recovery of any overpayment (given that the first respondent owns a property), the lack of suggestion of any appeal, the fact that the trustee was funded by insurance, and the likelihood of an assessment in the short term.

The trustee challenges the high proportion of partner time in Thrings’ costs (299.5 hours out of 447.6), and the use of average hourly rates, which exceed the guidelines. She also challenges costs incurred by Elliot Mather, the first respondent’s solicitors in the POCA proceedings, and QCH Legal, who did work in connection with the restrictions registered on the land register.

It is undesirable for me at this stage to delve too deeply into these matters, but I say that, at first sight, these points are, at the least, worth further investigation in due course. I accept that the first respondent points to factors complicating and lengthening the proceedings, which she says justify so much partner time and at higher rates, but still I need to reflect the challenges in my assessment of the "reasonable sum".

The trustee also says that the "fact of duplication of work by Mr Timson cannot be doubted”, and that “there must be a serious risk that R1 will not readily repay any overpayment to her..." As to the first point, duplication of effort is not the point. Instead, it is whether the costs were reasonably incurred and reasonable in amount. As to the second, I doubt on the facts here that the risk is anything like as serious as the trsuteee makes out. I bear these points in mind, but I do not treat them as of any significant weight.

Given that I have decided to order costs on the indemnity basis, I consider that I am justified in ordering a payment on account that is higher than if costs were to be assessed on the standard basis. But in all the circumstances I think that 80% s too high, in a case where there was no costs management and there is much that will need to be examined on assessment.

Overall, I will order a payment on account of two thirds of £258,851.34, that is, £172,567.56. No good reason has been advanced for this to be payable in other than the usual 14 days' time, especially since it is three weeks since my judgment was handed down. The convenience of insurers is not a good reason...'