Understanding Costs in English Civil Procedure: Rules, Definitions, and Assessments, Study notes of Civil procedure

Download Understanding Costs in English Civil Procedure: Rules, Definitions, and Assessments and more Study notes Civil procedure in PDF only on Docsity! PART 43 Scope of Cost Rules and Definitions Contents 43.1 Scope of this Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . para.43.1 43.2 Denitions and application . . . . . . . . . . . . . . . . . . . . . . para.43.2 43.3 Meaning of summary assessment . . . . . . . . . . . . . . . . para.43.3 43.4 Meaning of detailed assessment . . . . . . . . . . . . . . . . . para.43.4 The Costs Practice Direction (CPR Pt 43 . . . . . . . . . para.43PD.1 Editorial introduction The rules relating to costs in Pts 43 to 48 deal with the main provisions as to costs and the way in which the court will award and assess costs. These parts do not however provide a complete self contained code and other provisions relating to costs may be found under other rules and particularly Pt 36 Oers of settlement Transitional Provisions Paragraph 18 of the Practice Direction supplemental to Pt 51 (see para.51PD.1) deals with the extent to which the CPR apply to proceedings issued before April 26, 1999. So far as costs are concerned all the provisions in the new costs rules apply from April 26, 1999, both as to the procedure to be adopted and also the way in which costs are to be assessed. It is recognised that litigation may well have been in progress for some considerable time before April 26, 1999 without the parties or their lawyers be- ing aware that the new rules might alter the way in which the steps which they were undertaking would be viewed by the court at the time of assessment of costs. When the court is assessing costs of work done prior to April 26, 1999 the new rules will ap- ply, but the judge dealing with the costs (whether by summary or detailed assessment) will not disallow anything in respect of that work which would not have been disal- lowed under the rules in force prior to April 26, 1999. The Costs Practice Direction deals with the detailed transitional provisions in respect of proceedings for taxation commenced prior to April 26, 1999 (see s.57 of the Costs Practice Direction para.48PD.8). Costs judges have all the powers of the court under the CPR and accordingly the overriding objective set out in Pt 1 and the court’s general powers of management set out in Pt 3 apply equally to all questions of costs. Authorised court o
cers have all the powers of the court when making a detailed assessment except certain penal powers (see r.47.3). Under the transitional provisions the court cannot ignore that the parties have been acting under the old regime, but the court is not constrained to reach the same deci- sion as would have been made previously. The position under the CPR is fundamen- tally dierent from under the old regime. Rule 1.1 makes it clear that the CPR is a new procedural code whose overriding objective is to enable courts to deal with cases justly; Biguzzi v Rank Leisure Plc [1999]1 W.L.R. 1926, CA. Scope of this Part 43.1 This Part contains de
nitions and interpretation of certain matters set out in the rules about costs contained in Parts 44 to 48. (Part 44 contains general rules about costs; Part 45 deals with
xed costs; Part 46 deals with fast track trial costs; Part 47 deals with the detailed assessment of costs and related appeals and Part 48 deals with costs payable in special cases.) 43.0.1 43.0.2 43.0.3 43.1 1240 Denitions and application1 43.2—(1) In Parts 44 to 48, unless the context otherwise requires— (a) “costs” includes fees, charges, disbursements, expen- ses, remuneration, reimbursement allowed to a litigant in person under rule 48.6, any additional liability incurred under a funding arrangement and any fee or reward charged by a lay representative for acting on behalf of a party in proceedings allocated to the small claims track; (b) “costs judge” means a taxing master of the Senior Courts; (ba) “Costs Oce” means the Senior Courts Costs Oce; (c) “costs ocer” means— (i) a costs judge; (ii) a district judge; and (iii) an authorised court ocer; (d) “authorised court ocer” means any ocer of— (i) a county court; (ii) a district registry; (iii) the Principal Registry of the Family Division; or (iv) the Costs Oce, whom the Lord Chancellor has authorised to assess costs; (e) “fund” includes any estate or property held for the bene
t of any person or class of person and any fund to which a trustee or personal representative is entitled in that capacity; (f) “receiving party” means a party entitled to be paid costs; (g) “paying party” means a party liable to pay costs; (h) “assisted person” means an assisted person within the statutory provisions relating to legal aid; (i) “LSC funded client” means an individual who receives services funded by the Legal Services Commission as part of the Community Legal Service within the mean- ing of Part I of the Access to Justice Act 1999; (j) “
xed costs” means the amounts which are to be al- lowed in respect of solicitors’ charges in the circum- stances set out in Section I of Part 45. (k) “funding arrangement” means an arrangement where a person has— (i) entered into a conditional fee agreement or a col- lective conditional fee agreement which provides for a success fee within the meaning of section 58(2) of the Courts and Legal Services Act 1990; 1 Amended by the Civil Procedure (Amendment No.3) Rules 2000 (SI 2000/1317), the Civil Procedure (Amendment) Rules 2001 (SI 2001/256), the Civil Procedure (Amendment No.2) Rules 2003 (SI 2003/1242), the Civil Procedure (Amendment No.3) Rules 2003 (SI 2003/1329) and the Civil Procedure (Amendment) Rules 2008 (SI 2008/2178). 43.2 Part 43 Scope of Costs Rules and Definitions 1241 C P R 4 3 the special status of the solicitor’s certicate of accuracy attached to a bill of costs (see Bailey v IBC Vehicles Ltd [1998] 3 All E.R. 570, CA and Hollins v Russell [2003] EWCA Civ 718; [2003] 1 W.L.R. 2487). The Law Society submitted that the eect of Practice Rule 15 properly construed was that a breach would not render the solicitor’s fees ir- recoverable, but that the failure to provide an estimate was likely to be relevant in determining what costs clients could reasonably be expected to pay. The court inferred that the Client Care Code is to protect the legitimate interests of the client and the administration of justice rather than to relieve paying parties of their obligations to pay costs which have been reasonably incurred. Arden L.J., with whom the other members of the court agreed, found that the contract of retainer is not rendered unenforceable by the failure to give an estimate. The Code, like the Solicitors Practice Rules, constitutes subordinate legislation for the purposes of the Solicitors Act 1974. That means that it is binding and has statutory eect, it does not mean however that any contract made or performed in breach of a requirement imposed by the Code is unenforceable. In those circumstances that is a question for the discretion of the judge assessing costs whether to take into account any failure by the receiving party to provide an estimate in the circumstances and of the kind required by the Code. It is open to the paying party to submit that if the receiving party’s work had been estimated in accordance with the requirements of the Code a lower amount of costs would have been incurred. In those circumstances they may ask the costs judge to require the receiving party to prove that such an estimate was given. The procedure established in Pamplin v Express Newspapers Ltd [1985] 1 W.L.R. 689, Hobhouse J. would then apply. The costs judge must however give weight to the certicate as to accuracy. The costs judge must be satised that there is some real basis for the paying party’s contention that the receiving party should be required to prove that there was an estimate or an adequate estimate that is not (to quote the words of Hobhouse J. in Pamplin) a sham or fanciful dispute. In addition the costs judge must be satised that the absence of an estimate as to costs could have had both a calculable eect and a not immaterial eect on the costs claimed. The court gave some guidance as to how the costs judge should take the fact that there is no estimate into account. The judge should consider whether, and if so to what extent, the costs claimed would have been signicantly lower if there had been an estimate. If the situation is that an estimate was given but not updated the rst part of the guidance given by the court in Leigh v Michelin [2003] EWCA Civ 1766; [2004] 1 W.L.R. 846 may be applied. Arden L.J. stressed that the guidance given was not exhaustive since it was impossible to foresee all the diering circumstances that might arise in any individual assessment: Garbutt v Edwards [2005] EWCA Civ 1206; [2006] 1 W.L.R. 2907; [2006] 1 All E.R. 553, CA. Where a solicitor’s bill to the client far exceeded an estimate which had been given, the court held that the estimate of costs was not a xed quotation nor did it put an up- per limit on costs. The retainer was subject to the Supply of Goods and Services Act 1982 s.15 and it was therefore an implied term that the solicitors would be paid rea- sonable remuneration for their services. Although the solicitors had informed the cli- ent that they would update the cost estimate, this was not a condition precedent to the solicitors recovering any sum in addition to the sum set out in the estimate. In decid- ing what sum should be payable the court could have regard to the estimate and it was a factor in assessing reasonableness. For this purpose it was relevant, as a matter of law, to ask what, in all the circumstances, it was reasonable for the client to be expected to pay. The cases cited (Wong v Vizards [1997] 2 Costs L.R. 46; Leigh v Michelin Tyre Plc [2003] EWCA Civ 1766; [2004] 1 W.L.R. 846 and Garbutt v Edwards [2005] EWCA Civ 1206; [2006] 1 W.L.R. 2907) were not authority for the proposition that the solicitors had any automatic entitlement to add a margin to the estimate or that the client could cap its liability at the estimate plus a margin (MasterCigars Direct Ltd v Withers LLP [2007] EWHC 2733 (Ch); [2009] 1 W.L.R. 881, Morgan J.). Following the decision in MasterCigars Tugenhat J. dealt with another appeal (Rey- nolds v Stone Rowe Brewer [2008] EWHC 497 (QB)) in which the costs judge at rst instance held that the solicitor should be bound by an estimate of £18,000 to which he added a 15 per cent margin in accordance with Wong v Vizards [1997] 2 Costs L.R. 46. The costs judge also limited the claimant’s liability for counsel’s and expert’s fees to the estimates which had been given. The judge held (para.63) that it could not be shown that there was any error of law on the part of the costs judge about which the solicitors could complain. The costs judge was entitled to have regard to the estimates. He did so by giving them an interpretation which, in eect, meant that he treated the Section A Civil Procedure Rules 1998 1244 estimates as being for a much higher sum than that which the solicitors themselves at- tributed to the estimates. The court held that the judge did not treat the estimate of £18,000 as a xed quotation but merely treated it as a yard stick; the gure that the costs judge certied was a gure that it was reasonable to expect the claimant to pay in the case. Rule 43.2(2) Application of CPR Arbitration As to costs in regard to arbitrations, see Arbitration Act 1996 ss.59–65 (Vol.2, Sec- tion 2E, paras 2E–224 to 2E–234). The costs judge is merely the delegate of the arbitrator or other tribunal assessing the amount (Perkins (H.G.) Ltd v Best-Shaw [1973] 1 W.L.R. 975; [1973] 2 All E.R. 924). Family proceedings The Family Proceedings Rules 1991 have been amended to provide that Pts 43, 44 (except rr.44.9 to 44.12), 47 and and 48 of the CPR shall apply. Rule 44.3(2) (costs fol- low the event) does not apply. Family Proceedings (Miscellaneous Amendments) Rules 1999 (SI 1999/1012). The Family Proceedings Rules 1991 have been further amended to make provision about the costs of ancillary relief proceedings. The existing rules about costs in such proceedings are omitted and a new rule (2.71) inserted which sets out a general rule that the court will not make a costs order in ancillary relief proceedings unless it is ap- propriate to do so because of the conduct of one of the parties in relation to those proceedings. The new rules require the completion of a costs estimate at interim hear- ings and the completion of a detailed statement of costs at any nal ancillary relief hearing. The new provisions apply to proceedings commenced after April 3, 2006. The Family Proceedings (Costs) Rules 1991 are revoked. See President’s Practice Directions 48BPD.1 et seq. The general rule under r.2.71(4)(a) of the Family Proceedings Rules 1991 that there should be no order for costs in ancillary relief proceedings does not apply to the issue of costs between two parties who intervene in ancillary relief proceedings in or- der to establish a benecial interest in the matrimonial home, since those proceedings between the interveners are not ancillary relief proceedings for the purposes of the rule. They were proceedings for rival declarations regarding the benecial interest in a property: Baker v Rowe [2009] EWCA Civ 1162. Insolvency proceedings Rule 7.33 of the Insolvency Rules 1986 provides that, subject to any inconsistency with Ch.6 of Pt 7 of the third group of the Rules (i.e. rr.7.3–r.7.42, CPR Pts 43, 44, 45, 47 and 48 apply to insolvency proceedings with any necessary modications. Mediation Following mediation the parties compromised the claim and counterclaim on the basis that the claimant should pay the defendant’s costs of the counterclaim and vari- ous subsidiary provisions. The Tomlin Order concluding the proceedings did not deal explicitly with the costs of the mediation itself. The defendant sought the costs of the mediation. Prior to the mediation the parties had entered into an agreement that the mediated fee would be borne equally by each party and that each would bear its own costs. It was held at rst instance as a matter of general principle that costs incurred in a mediation could form part of the costs of the action, in the same way as the reason- able costs of negotiation (see Costs Practice Direction para.4.6(8)). On appeal the de- fendant argued that the Tomlin Order took precedence over the mediation agree- ment and that therefore the costs were recoverable. The judge held that the mediation agreement was binding on the parties and to argue that it was eectively discharged by the Tomlin Order was reading too much into the Tomlin Order. The defendant was therefore unable to recover its share of the mediator’s fee or any of its costs of at- tending on the mediation: NatWest Bank v Feeney (QB), May 14, 2007, Eady J. Meaning of summary assessment 43.3 “Summary assessment” means the procedure by which the 43.2.3 43.2.4 43.2.5 43.2.6 43.3 Part 43 Scope of Costs Rules and Definitions 1245 C P R 4 3 court, when making an order about costs, orders payment of a sum of money instead of
xed costs or “detailed assessment”. Editorial note Judges are required to assess the costs of a case if practicable. In cases lasting not more than one day, the parties are under an obligation to provide the court and their opponents with details of the costs which may be sought in the event of success (see Section of the Costs Practice Direction). See Guide to Summary Assessment of Costs, para.48.16. The court has a discretion as to whether or not to carry out a summary assessment and there is no implied general rule requiring detailed assessment of costs in hearings lasting longer than one day. Paragraph 13.1 of the Costs Practice Direction requires the court to consider making a summary assessment in every case: Q v Q (Costs: Sum- mary Assessment) [2002] 2 F.L.R. 668, Wilson J. It is the duty of the parties and their legal representatives to assist the judge in making summary assessments by providing a statement of costs; see paras 3.2 and 13.5 of the Costs Practice Direction. The statement should follow as closely as possible Form N260 (Statement of Costs (summary assessment)); see Guide to the Summary Assess- ment of Costs, Appendix 3 (para.48.52.1 below). Two pharmaceutical companies applied for the revocation of a patent owned by a third company. The two applications were independent, but the case managing judge ordered that they should be heard simultaneously using the same evidence. The two actions then proceeded together. The rst company discontinued its application, and the second company lost its application. The judge ordered that the two applicant companies should bear equally the costs of the successful company. The company which had discontinued appealed, arguing that the order was perverse, and that it should only be liable for the extra costs incurred as a result of its own involvement. The appeal was dismissed, the court stating that as soon as the rst company had joined the action it put itself at risk of paying the successful party’s costs if the action failed: Actavis UK Ltd v Eli Lilly Co Ltd [2010] EWCA Civ 13. The court’s power to carry out a summary assessment of costs is not restricted to hearings at which it is exercising its discretion under r.44.3 to determine where costs are to fall (ENE Kos v Petroleo Brasileiro SA (The “Kos”) [2009] EWHC 1843 (Comm); [2010] 1 Lloyd’s Rep. 87 (Andrew Smith J.) (accordingly, power could be exercised at the conclusion of the trial of a question as to whether expenses incurred were “incidental to” proceedings within SCA 1981 s.51)). Contentious probate In contentious probate proceedings the court held that there was a public interest in wills being proved in solemn form where there were grounds for reasonable suspicions on the particular facts of the case. Reasonable suspicions had been raised which justied an investigation of the will. The public interest requirement did not however justify a potential exhaustion of the estate in legal costs, nor could it defeat the public interest in encouraging sensible settlements. The question for the court was whether the cost should be paid by the claimant, the defendant or out of the estate. On the basis that the claimant ought to have accepted the defendant’s oer to settle, which was entirely reasonable, the claimant was ordered to pay the costs: Perrins v Hol- land [2009] EWHC 2558 (Ch) Lewison J. Appeal Appeals from summary assessment are dealt with under the ordinary rules relating to appeals (see CPR Pt 52 and Practice Direction supplementing that Part). Meaning of detailed assessment 43.4 “Detailed assessment” means the procedure by which the amount of costs is decided by a cost ocer in accordance with Part 47. Editorial note “Detailed assessment” is the name given to the procedure formerly known as taxation. (See Section 3 of the Costs Practice Direction and Part 47.) 43.3.1 43.3.1.1 43.3.2 43.4 43.4.1 Section A Civil Procedure Rules 1998 1246 (3) items of costs claimed under theheadings specied in paragraph 4.6; (4) summary showing the total costs claimed on each page of the bill; (5) schedules of time spent on non-routine attendances; and (6) the certicates referred to in paragraph 4.15. 4.2 Where it is necessary or convenient to do so, a bill of costs may be divided into two or more parts, each part containing sections (2), (3) and (4) above. Circumstances in which it will be necessary or con- venient to divide a bill into parts include: (1) Where the receiving party acted in person during the course of the proceedings (whether or not that party also had a legal representative at that time) the bill must be divided into dierent parts so as to distinguish between; (a) the costs claimed for work done by the legal representa- tive; and (b) the costs claimed for work done by the receiving party in person. (1A) Where the receiving party had pro bono representation for part of the proceedings and an order under section 194(3) of the Legal Services Act 2007 has been made, the bill must be divided into dierent parts so as to distinguish between: (a) the sum equivalent to the costs claimed for work done by the legal representative acting free of charge; and (b) the costs claimed for work done by the legal representa- tive not acting free of charge. (2) Where the receiving party was represented by dierent solicitors during the course of the proceedings, the bill must be divided into dierent parts so as to distinguish between the costs payable in respect of each solicitor. (3) Where the receiving party obtained legal aid or LSC fund- ing in respect of all or part of the proceedings the bill must be divided into separate parts so as to distinguish between; (a) costs claimed before legal aid or LSC funding was granted; (b) costs claimed after legal aid or LSC funding was granted; and (c) any costs claimed after legal aid or LSC funding ceased. (4) Where value added tax (VAT) is claimed and there was a change in the rate of VAT during the course of the proceed- ings, the bill must be divided into separate parts so as to distinguish between; (a) costs claimed at the old rate of VAT; and (b) costs claimed at the new rate of VAT. (5) Where the bill covers costs payable under an order or orders under which there are dierent paying parties the bill must be divided into parts so as to deal separately with the costs payable by each paying party. (6) Where the bill covers costs payable under an order or orders, in respect of which the receiving party wishes to The Costs Practice Direction (CPR Pt 43) 1249 C P R 4 3 claim interest from dierent dates, the bill must be divided to enable such interest to be calculated. 4.3 Where a party claims costs against another party and also claims costs against the LSC only for work done in the same period, the costs claimed against the LSC only can be claimed either in a sepa- rate part of the bill or in additional columns in the same part of the bill. Precedents C and D in the Schedule of Costs Precedents an- nexed to this Practice Direction show how bills should be drafted when costs are claimed against the LSC only. 4.4 The title page of the bill of costs must set out: (1) the full title of the proceedings; (2) the name of the party whose bill it is and a description of the document showing the right to assessment (as to which see paragraph 40.4, below); (3) if VAT is included as part of the claim for costs, the VAT number of the legal representative or other person in re- spect of whom VAT is claimed; (4) details of all legal aid certicates, LSC certicates and rele- vant amendment certicates in respect of which claims for costs are included in the bill. 4.5 The background information included in the bill of costs should set out: (1) a brief description of the proceedings up to the date of the notice of commencement; (2) a statement of the status of the solicitor or solicitor’s em- ployee in respect of whom costs are claimed and (if those costs are calculated on the basis of hourly rates) the hourly rates claimed for each such person. It should be noted that “legal executive” means a Fellow of the Institute of Legal Executives. Other clerks, who are fee earners of equivalent experience, may be entitled to similar rates. It should be borne in mind that Fellows of the Institute of Legal Executives will have spent approximately 6 years in practice, and taken both general and specialist examinations. The Fellows have therefore acquired considerable practical and academic experience. Clerks without the equivalent experience of legal executives will normally be treated as being the equiva- lent of trainee solicitors and para-legals. (3) a brief explanation of any agreement or arrangement be- tween the receiving party and his solicitors, which aects the costs claimed in the bill. 4.6 The bill of costs may consist of items under such of the follow- ing heads as may be appropriate: (1) attendances on the court and counsel up to the date of the notice of commencement; (2) attendances on and communications with the receiving party; (3) attendances on and communications with witnesses includ- ing any expert witness; Section A Civil Procedure Rules 1998 1250 (4) attendances to inspect any property or place for the purposes of the proceedings; (5) attendances on and communications with other persons, including o
ces of public records; (6) communications with the court and with counsel; (7) work done on documents: preparing and considering documentation, including documentation necessary to comply with Practice Direction (Pre-Action Conduct) or any relevant pre-action protocols where appropriate, work done in connection with arithmetical calculations of compensation and/or interest and time spent collating documents; (8) work done in connection with negotiations with a view to settlement if not already covered in the heads listed above; (9) attendances on and communications with London and other agents and work done by them; (10) other work done which was of or incidental to the proceed- ings and which is not already covered in the heads listed above. 4.7 In respect of each of the heads of costs: (1) “communications” means letters out, e-mails out and telephone calls; (2) communications, which are not routine communications, must be set out in chronological order; (3) routine communications must be set out as a single item at the end of each head; 4.8 Routine communications are letters out, e-mails out and telephone calls which because of their simplicity should not be regarded as letters or e-mails of substance or telephone calls which properly amount to an attendance. 4.9 Each item claimed in the bill of costs must be consecutively numbered. 4.10 In each part of the bill of costs which claims items under head (1) (attendances on court and counsel) a note should be made of: (1) all relevant events, including events which do not constitute chargeable items; (2) any orders for costs which the court made (whether or not a claim is made in respect of those costs in this bill of costs). 4.11 The numbered items of costs may be set out on paper divided into columns. Precedents A, B, C and D in the Schedule of Costs Precedents annexed to this Practice Direction illustrate various model forms of bills of costs. 4.12 In respect of heads (2) to (10) in paragraph 4.6 above, if the number of attendances and communications other than routine com- munications is twenty or more, the claim for the costs of those items in that section of the bill of costs should be for the total only and should refer to a schedule in which the full record of dates and details is set out. If the bill of costs contains more than one schedule each schedule should be numbered consecutively. 4.13 The bill of costs must not contain any claims in respect of costs or court fees which relate solely to the detailed assessment The Costs Practice Direction (CPR Pt 43) 1251 C P R 4 3 5.6 Where there is a dispute as to whether any service in respect of which a charge is proposed to be made in the bill is zero rated or exempt, reference should be made to HM Revenue and Customs and wherever possible the view of HM Revenue and Customs obtained and made known at the hearing at which the costs are assessed. Such application should be made by the receiving party. In the case of a bill from a solicitor to his own client, such application should be made by the client. Form of bill of costs where VAT rate changes 5.7 Where there is a change in the rate of VAT, suppliers of goods and services are entitled by ss.88 (1) and 88(2) of the VAT Act 1994 in most circumstances to elect whether the new or the old rate of VAT should apply to a supply where the basic and actual tax points span a period during which there has been a change in VAT rates. 5.8 It will be assumed, unless a contrary indication is given in writ- ing, that an election to take advantage of the provisions mentioned in paragraph 5.7 above and to charge VAT at the lower rate has been made. In any case in which an election to charge at the lower rate is not made, such a decision must be justied to the court assessing the costs. Apportionment 5.9 All bills of costs, fees and disbursements on which VAT is included must be divided into separate parts so as to show work done before, on and after the date or dates from which any change in the rate of VAT takes eect. Where, however, a lump sum charge is made for work which spans a period during which there has been a change in VAT rates, and paragraphs 5.7 and 5.8 above do not ap- ply, reference should be made to paragraphs 8 and 9 of Appendix F of Customs’ Notice 700 (or any revised edition of that notice), a copy of which should be in the possession of every registered trader. If necessary, the lump sum should be apportioned. The totals of prot costs and disbursements in each part must be carried separately to the summary. 5.10 Should there be a change in the rate between the conclusion of a detailed assessment and the issue of the nal costs certicate, any interested party may apply for the detailed assessment to be varied so as to take account of any increase or reduction in the amount of tax payable. Once the nal costs certicate has been issued, no varia- tion under this paragraph will be permitted. Disbursements not classified as such for VAT purposes 5.11(1) Legal representatives often make payments to third par- ties for the supply of goods or services where no VAT was chargeable on the supply by the third party: for example, the cost of meals taken and travel costs. The question whether legal representatives should include VAT in re- spect of these payments when invoicing their clients or in claims for costs between litigants should be decided in ac- cordance with this Direction and with the criteria set out in the VAT Guide (Notice 700) published by HM Revenue and Customs. Section A Civil Procedure Rules 1998 1254 (2) Payments to third parties which are normally treated as part of the legal representative’s overheads (for example, postage costs and telephone costs) will not be treated as disbursements. The third party supply should be included as part of the costs of the legal representatives’ legal ser- vices and VAT must be added to the total bill charged to the client. (3) Disputes may arise in respect of payments made to a third party which the legal representative shows as disburse- ments in the invoice delivered to the receiving party. Some payments, although correctly described as disbursements for some purposes, are not classied as disbursements for VAT purposes. Items not classied as disbursements for VAT purposes must be shown as part of the services provided by the legal representative and, therefore, VAT must be added in respect of them whether or not VAT was chargeable on the supply by the third party. (4) Guidance as to the circumstances in which disbursements may or may not be classied as disbursements for VAT purposes is given in the VAT Guide (Notice 700, para- graph 25.1). One of the key issues is whether the third party supply (i) was made to the legal representative (and therefore subsumed in the onward supply of legal ser- vices), or (ii) was made direct to the receiving party (the third party having no right to demand payment from the legal representative, who makes the payment only as agent for the receiving party). (5) Examples of payments under (i) are: travelling expenses, such as airline ticket, and subsistence expenses, such as the cost of meals, where the person travelling and receiving the meals is the legal representative. The supplies by the airline and the restaurant are supplies to the legal repre- sentative, not to the client. (6) Payments under (ii) are classied as disbursements for VAT purposes and, therefore, the legal representative need not add VAT in respect of them. Simple examples are payments by a legal representative of court fees and payment of fees to an expert witness. Legal Aid/LSC Funding 5.13(1) VAT will be payable in respect of every supply made pur- suant to a legal aid/LSC certicate where— (a) the person making the supply is a taxable person; and (b) the assisted person/LSC funded client— (i) belongs in the United Kingdom or another member state of the European Union; and (ii) is a private individual or receives the supply for non-business purposes. (2) Where the assisted person/LSC funded client belongs outside the European Union, VAT is generally not pay- The Costs Practice Direction (CPR Pt 43) 1255 C P R 4 3 able unless the supply relates to land in the United Kingdom. (3) For the purpose of sub-paragraphs (1) and (2), the place where a person belongs is determined by section 9 of the Value Added Tax Act 1994. (4) Where the assisted person/LSC funded client is registered for VAT and the legal services paid for by the LSC are in connection with that person’s business, the VAT on those services will be payable by the LSC only. 5.14 Any summary of costs payable by the LSC must be drawn so as to show the total VAT on Counsel’s fees as a separate item from the VAT on other disbursements and the VAT on prot costs. Tax invoice 5.15 A bill of costs led for detailed assessment is always retained by the Court. Accordingly if a solicitor waives his solicitor and client costs and accepts the costs certied by the court as payable by the unsuccessful party in settlement, it will be necessary for a short state- ment as to the amount of the certied costs and the VAT thereon to be prepared for use as the tax invoice. Vouchers 5.16 Where receipted accounts for disbursements made by the so- licitor or his client are retained as tax invoices a photostat copy of any such receipted account may be produced and will be accepted as su
cient evidence of payment when disbursements are vouched. Certificates 5.17 In a costs certicate payable by the LSC, the VAT on solicitor’s costs, Counsel’s fees and disbursements will be shown separately. Litigants acting in person 5.18 Where a litigant acts in litigation on his own behalf he is not treated for the purposes of VAT as having supplied services and therefore no VAT is chargeable in respect of work done by that liti- gant (even where, for example, that litigant is a solicitor or other legal representative). 5.19 Consequently in the circumstances described in the preceding paragraph, a bill of costs presented for agreement or assessment should not claim any VAT which will not be allowed on assessment. Government Departments 5.20 On an assessment between parties, where costs are being paid to a Government Department in respect of services rendered by its legal sta, VAT should not be added. Payment pursuant to an order under section 194(3) of the Legal Ser- vices Act 2007 5.21 Where an order is made under section 194(3) of the Legal Services Act 2007 any bill presented for agreement or assessment pursuant to that order must not include a claim for VAT. Section A Civil Procedure Rules 1998 1256