What are legal costs, and who pays them?

Legal costs usually have two parts. The first is legal fees, sometimes called profit costs: the charges your solicitor makes for their work. The second is disbursements: money paid to third parties on your behalf, such as court fees, barristers’ fees, medical reports, expert evidence and travel. VAT may be added to both.

Most law firms charge legal fees based on time spent. Each fee earner has an hourly rate depending on their experience, and time is often recorded in six-minute units. A short letter might be recorded as one unit, while preparing for a trial could take many hours. Some work is charged at a fixed fee instead, and some types of claim have fixed costs set by the court rules.

Because charging structures vary, your firm should explain at the outset how it will charge, give a realistic estimate, and update you if that estimate changes. That information is normally set out in a client care letter and terms of business.

The starting point is simple: you are responsible for paying your own law firm under the agreement you signed with them. That remains true even if you later win and the court orders the other side to contribute. If the other side pays less than your full bill, the gap, often called the shortfall, may be payable by you, depending on your agreement.

This is why it is worth reading the retainer carefully. It tells you the rates being charged, what work is covered, how often you will be billed, and what happens if the case ends early. If anything is unclear, ask before you sign. Good legal advice includes clear advice about costs.

In most civil court cases in England and Wales, the general rule is that the losing party pays the winning party’s costs. This is often described as costs following the event. The court has a wide discretion, though, and can reduce or change the order depending on how each side behaved, whether reasonable offers were made, and whether a party refused to try alternative dispute resolution.

Even when you win, you rarely recover everything. Costs ordered on the standard basis must be reasonable and proportionate, and any doubt is resolved in favour of the paying party. As a rough guide, many successful parties recover a substantial proportion of their costs, but not all of them.

Some cases work differently. In the small claims track, very little in the way of legal costs can be recovered. In employment tribunals, each side usually pays its own costs. Many lower-value claims are subject to fixed recoverable costs, which limit what can be claimed back regardless of the time spent.

A no win no fee agreement, also called a win no fee arrangement or conditional fee agreement, means you do not pay your solicitor’s basic charges if you lose. If you win, the solicitor can charge a success fee on top of their basic charges. Since 2013, that success fee generally cannot be recovered from the other side, so it is usually taken from your damages, subject to caps in some types of case.

No win no fee agreements are common in personal injury claims. In personal injury, qualified one-way costs shifting usually protects an unsuccessful claimant from paying the defendant’s costs, although there are exceptions. Many claimants also take out after the event insurance to cover disbursements and other risks. Another option is a damages-based agreement, where the lawyer takes an agreed percentage of the damages instead of charging by the hour.

Before signing any no win no fee agreement, ask what counts as a win, how much could be deducted from your compensation, whether insurance is needed, and what happens if you end the agreement early. Those answers let you make an informed decision.

When one party is ordered to pay another’s costs, the amount is often negotiated. If agreement cannot be reached, the court decides. At short hearings, the judge may carry out a summary assessment using a statement of costs. In larger matters, the winning party prepares a bill of costs and the case moves to detailed assessment.

In detailed assessment, the paying party serves points of dispute challenging items in the bill, the receiving party may reply, and the court decides what is reasonable. Smaller bills are often dealt with on paper through provisional assessment. Throughout, either side can make offers to settle the costs, and those offers can affect who pays the costs of the assessment itself.

Clients can also challenge their own solicitor’s charges. Under the Solicitors Act 1974, a client can ask the court to assess a solicitor’s bill, provided the application is made within the relevant time limits. The firm must also tell you about its complaints procedure and your right to complain to the Legal Ombudsman.

Ask for a written estimate and regular updates. Check whether the estimate covers disbursements and VAT. Keep track of the time spent on your matter by asking for interim bills or a running total. Think about settlement and mediation early, because the longer a dispute runs, the higher the legal fees tend to be.

If you receive a bill you do not understand, or you are facing a large costs claim from an opponent, a qualified Costs Lawyer can review it. Costs Lawyers are specialists regulated by the Costs Lawyers Standards Board, and can advise on whether the charges are reasonable, prepare or challenge a bill of costs, and represent you in detailed assessment.

This article summarises reported judgments for general information in England and Wales. Read the full judgment and any later guidance or appeals before relying on it in a particular matter.