Recovering legal costs in the UK after a dispute can be a daunting and stressful experience. That’s were having a cost clause in your contract can help you out.
But what is a cost clause? And why should you get one?
In her latest article Dispute Resolution Solicitor Olivia Parkinson answers those questions and more in this article…
What is a cost clause in a contract UK?
A cost clause in a contract allows for you to recover legal costs from the other party, in the event of a dispute.
Litigation can often become costly and having a cost clause in your contract can serve as a helpful tool to maximise your chances of recovering your costs.
Related article: Contractual; disputes & dispute resolution clauses?
What are the two bases of cost assessment?
Generally, costs orders are made at the discretion of the Court. The general rule is that the costs follow the event (i.e. losing party pays the winning parties costs), however the Courts still have discretion to order otherwise.
The Court’s discretion may be impacted by the presence of a contractual cost clause, making them a valuable tool in litigation.
The wording of a cost clause can vary but generally, there are two types of cost recovery “standard” and the “indemnity basis”.
What is the standard basis of assessment?
For costs to be recoverable on the “standard basis” they must be reasonably incurred and proportionate.
Often, for low value cases, if your legal costs are close to or even exceed the amount you are trying to claim, this will not be considered ‘proportionate’ and therefore the Court may not award you all of your costs, resulting in sometimes substantial losses.
What is the indemnity cost basis?
For costs to be recoverable on an “indemnity basis” still have to be reasonable but there is no requirement for them to be proportionate. There is also a presumption in favour of the party claiming their costs, and it is therefore down to the party being ordered to pay costs to demonstrate that they are unreasonable. Indemnity costs are therefore clearly more favourable for the person claiming them and is how any cost clause should be worded to give you a good chance at recoverability.
Costs in the various tracks
The general rule is that cost recovery is not possible in the small claims court (i.e. for claims that are straightforward and have a value of less than £10,000
However, if you have a contractual cost clause, the Court has discretion to award costs in line with the contractual obligation.
With the introduction of the new fixed cost regime in the fast track and the intermediate track, a contractual cost clause can also be an incredibly helpful tool for a party to recover what would otherwise be irrecoverable costs.
Do I need a cost clause in my contract UK?
Costs clauses are crucial in various contracts such as:
- service agreements
- tenancy agreements
- construction contracts
Having a cost clause in your contract will put you in a much stronger position for you to argue that you should be allowed to recover your costs when enforcing a breach.
We can provide assistance in drafting a suitable cost clause or reviewing and advising on an existing one.
Advice from a solicitor about cost clause?
“As cost recovery is down to the Court’s discretion, having a contractual costs clause serves as an incredibly helpful tool to shift that discretion in your favour and allow you to recover your legal costs in the event of a dispute.” – Olivia Parkinson, Dispute Resolution Solicitor.
Specialist Cost Clause Solicitors
If you have any questions following this article, or would like to discuss your options with an expert, please don’t hesitate to get in touch with our bright Dispute Resolution Team.
We provide tailored advice in plain English to help make retrieving your costs as easy and pain free as possible.
You can call us on 01202 499255, or fill out the form for a free initial chat.
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