Payments on account – Nishma Shah considers how much is just right?
In Webster v Ridgeway School [2010] EWHC 318 the Court stated that ‘Where a litigant has a costs order in his favour there may well be some inevitable delay while the precise amount to which he is entitled is ascertained by a detailed assessment. Yet if he is bound to receive a certain part of those costs there is no justification in making him wait even for that part.’
Therefore, to deal with this issue, under CPR 44.2 (8), the Court is able to order a party to pay costs subject to a 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.
The purpose of a payment on account is to reimburse the Receiving Party for bills previously rendered. This is of particular important where there have been lengthy proceedings.
In Mars UK Ltd v Teknowledge Ltd [2008] EWHC 226 (Pat), the Court considered the merits of ordering a payment on account of costs following a trial. It found that the Court should normally order an amount to be paid on account to the Receiving Party. Although this would be on a rough and ready basis, it would mean that the Judge would have to form a view, albeit a rough view, as to the ultimate amount of assessed costs in order to ascertain the level of payment that should be made.
In this case, based on various facts, the Court ordered that the Claimant was awarded two thirds of the costs that the Court considered were likely to be recovered on assessment, payable on an installment basis.
The Court does take a dim view of parties which unreasonably refuse to make a payment on account.
For example in the case of Soliman v Islington Borough Council, the Claimant settled the claim for £50,000.00 plus costs to be assessed if not agreed. The Claimant had asked for a payment on account. The Defendant after re questing details as to the amount of costs claimed failed to acknowledge that a payment on account was appropriate. As the trial date had not been vacated, the parties attended Court. The Judge awarded a payment on account and the Claimant was awarded costs on the standard basis for the hearing.
It is always beneficial for the Paying Party not to oppose a reasonable request for a payment on account. It also benefits the Paying Party by lowering the amount of interest payable.
For the Receiving Party it is always important to request a reasonable sum. Remember that on assessment, costs claimed typically are reduced by 15-25%.
So what is a reasonable sum to request?
In Hurndell v Hozier [2011] EWHC 321 (Ch) Justice Morgan indicated that where costs were assessed on the indemnity basis 60% of the costs as claimed should be paid. The Court was assisted by a detailed breakdown of the way the costs had been incurred.
Where costs are to be assessed on the standard basis a successful party should expect to receive about 50-60% of the costs claimed in the Bill. In Fitzroy Robins v Mentmore Towers [2010] EWHC 98 Justice Coulson awarded the Receiving Party 50% of the Bill as claimed.
The cases of Scullion v Bank of Scotland [2010] EWCH 2253 and Oakhurst Property Developments (Lowndes Square No.2) Limited v Blackstar (Isle of Man) Limited [2012] EWHC 1131 Ch reinforce the principle that the Receiving Party should expect approximately 50% as a payment on account from the Bill as drawn.
As a Paying Party, it would be prudent to make an interim payment for 60% of the Bill (where the Receiving Party has obtained indemnity costs) or 50% of the Bill (where costs are to be assessed on the standard basis) with a view to avoiding a significant liability for interest at the conclusion of the assessment process.
