Payment on account of costs – up to 90% in budgeted cases
You’ve settled the substantive action and now you’re doing your happy dance…
But apart from the joy of reducing your caseload you should also have an eye to reducing the costs outstanding and improving your firms’ cashflow, particularly where you are operating on a conditional fee agreement (CFA). Consideration should always be given at the close of litigation to requesting a payment on account of costs.
There are limited opportunities to make such a request but receiving parties should, as a matter of course, request a payment on account at the earliest opportunity. If the initial window is missed, then it may be some time before the next opportunity arises.
The final hearing of a matter offers the first opportunity to secure partial payment of your costs before you have even contemplated instructing a costs draftsman to prepare a formal bill of costs for assessment by the court.
CPR 44.2(8) provides a clear mandate to the court that,
“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.”
In the matter of Ashman v. Thomas  EWHC 1810, it was even found that the court had power to ‘alter’ the final order prior to the same being entered and sealed to include a provision for a payment on account. So, all is not lost if time constraints prevent making of submissions at the hearing, you can still request a payment on account if the order is still being perfected and, in this case, it can be inferred that such a request would be considered on the basis of written submissions.
In matters that do not proceed to final hearing it is open to the parties to incorporate into the Consent Order a provision for the payment of an interim sum on account of costs.
Requests for payment on account after settlement of action has been agreed
If you do not request or agree a payment on account at the final hearing or as part of the terms contained within a Consent Order the next opportunity to request a payment on account, if your opponent will not agree to the same, may not arise for quite some time depending on your approach to costs recovery.
The provisions in CPR 44.16(1) provide as follows:
“The court may at any time after the receiving party has filed a request for a detailed assessment hearing- (a) issue an interim costs certificate for such sum as it considers appropriate; or (b) amend or cancel an interim certificate.”
Time can very quickly slip away if you do not have a strict policy of adherence to the time frames contained in CPR. (i.e. assessment hearing is to be requested within six months of the order giving rise to the entitlement to costs.)
How long can you really keep waiting to receive payment or more importantly can your firm afford to wait until the conclusion of assessment proceedings to be paid?
How much is reasonable?
The purpose of a payment on account is to reimburse the receiving party for amounts outstanding. In long running litigation where costs are inevitably higher, it should be easier to persuade the court that a payment on account is appropriate than it would be in relation to a run-of-the-mill matter concluded within a short period of time where costs are not substantial.
The court’s general approach in determining the amount to be paid was set out in the case of Mars UK Ltd v. Teknowledge Ltd  EWHC 226, in which an order for payment on account of 40% of the total sought was ordered. The percentage was based on specific features of the case which resulted in adjustments to the amount ordered to also factor in an unnecessary allegation raised by the claimant, other conduct issues, and a perception that starting the proceedings was ‘heavy handed’.
It was also stated in this case that,
“A payment of some lesser amount which he will almost certainly collect is a closer approximation of justice. So I hold that where a party is successful the court should on a rough and ready basis also normally order an amount to be paid on account, the amount being a lesser sum than the likely full amount.”
This rationale was followed in the case of Hurndell v. Hozier  EWHC 321 where 60% of the costs claimed were ordered to be paid on account, the Judge having been persuaded by a detailed calculation provided by the defendants (receiving party) that such a payment on account was unlikely to exceed the minimum amount which the defendants were likely to be awarded on detailed assessment.
The implications of costs budgeting have extended to requests for payments on account with a pattern of case law developing that changes the approach that will be taken to requests for payments on account where a costs management order has been made.
In the matter of Thomas Pink v Victoria’s Secret UK Ltd  EWHC 58, it was held that because the costs have been set according to a budget, and that the court will not depart from that budget on assessment without good reason, that the court can be confident in the amount that will be assessed and is likely to order a payment on account close to the budgeted sums. In this case, the amount allowed was 90% of the approved budget.
In the matter of MacInnes v Gross  EWHC 127, 90% was again allowed with the judge finding that,
“…when making an interim payment on account of costs in a case with an approved costs budget, the days of the educated guesswork identified by Jacob J in Mars UK Limited v Teknowledge ... are now gone. Instead the court can be confident that there is a figure for costs which, because it has already been approved, is both reasonable and proportionate.”
Future cashflow considerations
A request for a payment on account of costs should be regarded as a vital tool in aiding cashflow. Early requests should be made at the end of the substantive claim and there is a reasonable expectation in budgeted cases that you will secure up to 90% of your approved budget on account. If you miss this window of opportunity all is not lost, as paying parties are usually keen to minimise their exposure to interest which continues to accrue on any balance until a settlement has been reached.
You can also seek an order for payment on account of costs once you have requested an assessment hearing, however if you have left it this long, such an application is only likely to be attractive in larger cases as the provisional assessment process for costs under £75,000 will probably conclude faster than any application can be considered.
This article was written by Michelle Barron who is a Costs Lawyer and Head of Operations based at the Carlisle office.