I am tasked specifically within our firm to deal with cash flow. An important part of that role is to ensure that we get money in as soon as possible on conclusion of a case.
In recent years I have seen a shift in balance and attitudes towards payments on accounts of costs. There are now fewer challenges by paying parties as to whether a payment should be made; now, it is much more about how much should be paid.
The authority for making an application
CPR 44.2(8) allows a party to make an application for payment on account of costs where the court has ordered a party to pay costs (subject to detailed assessment) unless there is good reason not to order a payment on account.
Where a deemed order in respect of costs arises (for example, on acceptance of a Part 36 offer), you can also make an application even when an order for costs has not actually been made.
A payment on account is very likely to be awarded; it is for the paying party to persuade the court otherwise. The question therefore does not usually concern whether a payment should be made, but what amount should be payable.
When an application can be made
An application should be made as soon as the court orders a party to pay costs.
In practice, if liability is determined at trial, the request should be made before the trial judge. If you have agreed a settlement, you should incorporate the request in the consent order.
The only other basis for a payment on account of costs can be found in an alternative application for an interim payment, under CPR 47.16; this comes a lot later in the process and only arises after a bill of costs, points of dispute and replies have been exhausted and a party has filed a request for a detailed assessment hearing. Obviously, this can be many months after liability for costs has been determined.
It has been argued that, on a strict interpretation of the rule (CPR 44.2(8)), an application cannot be made after liability for costs is determined. In other words, once the opportunity to make an application early on under CPR 44 is lost, the party will have to wait until much later on when they can apply under CPR 47. However, my experience is that the opportunity to apply under CPR 44 is much wider; the courts are very willing to consider applications after the initial time for applying under CPR 44 has expired and before the need to apply under CPR 47 kicks in.
For example in Blackmore v Cummings and others, there had already been one order for a payment on account, and the receiving party later applied for another. The Court of Appeal had no difficulty in entertaining an order for a further payment on account made under CPR 44.3(8) (now, in its amended form, CPR 44.2(8)), even after detailed assessment proceedings had been commenced.
How to make an application
An application can be made within the relevant proceedings by application notice N244. In practice, however, have found that applications issued in the Senior Courts Costs Office (SCCO) tend to be dealt with more expeditiously (the process remains the same)
The process we follow is that, once liability for costs is determined, we immediately make a request for a payment on account from the paying party. We usually serve a schedule of estimated costs to support our request. If this is not forthcoming within a reasonable period, or is denied, we issue an application.
In Aliston Albert Ashman v Clyde Caulson Thomas, the court was prepared to make a payment on account based on a schedule of costs (even one which had been served late) and written submissions alone. As far as I am aware, an application was still required, but no hearing was necessary.
In Leeds and another v Lemos and others, the judge was prepared to grant each respondent an interim payment even though only one party had filed a summary of costs.
As a result, an argument by the paying party that no payment on account can be made without a fully particularised bill of costs should be resisted.
Once a bill of costs is prepared and ready for service, we may also make a further request (or application if necessary) for a payment on account (even if one has already been paid), as the bill will provide a much more accurate picture of the costs sought.
The application can and should (except in the most complex cases) be heard by way of a telephone hearing (by a district judge or master, depending on the court). In fact, some judges are minded to deal with these applications on paper (although parties do then have the mandatory discretion to apply to set aside the order).
The amount in the application
CPR 44.2(8) provides for a “reasonable sum”. There have been significant variants between judges as to what this means in practice. Ideally, this would be the bare minimum sum one would expect to get on detailed assessment.
Issues relevant to this question include:
- The size of the overall costs sought.
- Likely points of dispute.
- Conduct and delays.
- Whether the claim was subject to costs management.
In Thomas Pink Ltd v Victoria’s Secret UK Ltd, the court awarded an interim payment on account of costs of 90% of the claimant’s budget. The judge said:
“It seems to me that the impact of costs budgeting on the determination of a sum for a payment on account of costs is very significant although I am not persuaded that it is so significant that I should simply award the budgeted sum.”
In Capital For Enterprise Fund A LP and another v Bibby Financial Services Ltd, the court confirmed that the sum on account of costs should be higher where there is a cost budget:
“In all cases where an interim payment is being considered it is necessary to balance the need to ensure that any sum ordered does not exceed the sum ultimately assessed to be due against a number of other factors including the fact that the receiving party has succeeded, and that it will be kept out of the money it is entitled to receive until the assessment proceedings are concluded.”
In MacInness v Gross No. 2, the judge considered that a party’s costs budget was the appropriate starting point for determining the appropriate amount of a payment on account. Again 90% was awarded as an interim payment.
Payments on account of costs are clearly useful for a firm’s cash flow, especially for cases funded on conditional fee agreements (CFAs), which rumble on for many years. Practitioners should not be shy of asking for large payments on account, especially in budgeted cases, and to follow this through with an application under CPR 44.2(8). My experience is that paying parties are now well aware of their obligations under CPR 44.2(8) and the question is always about what sums should be paid as opposed to whether a sum should be paid at all. I have yet to come across a good reason for a payment not to be made.
This article first appeared on the Practical Law Dispute Resolution Blog, September 2017.