Key Takeaways
- An adverse costs order in England and Wales requires the losing party in litigation to pay the winning side’s reasonable legal costs.
- The risk of an adverse costs order is a vital consideration when deciding whether to commence or defend legal proceedings.
- Responding late or failing to defend a claim increases the risk of a costly court order against you.
- Courts usually apply the “loser pays” principle but exercise discretion under the Civil Procedure Rules, considering conduct and proportionality.
- You can limit cost risks using early settlement offers (Part 36), cost capping, or litigation insurance.
- If you receive an adverse costs order, paying promptly is essential to avoid enforcement and extra penalties.
- Strict time limits apply for disputing the amount of costs ordered; immediate action is required.
- Our solicitors can advise on minimising adverse costs exposure in complex commercial disputes.
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For advice tailored to your circumstances, book a free consultation or call our specialist litigation team on 0207 459 4037.
What Are the Cost Risks if You Lose a Lawsuit in the UK?
The “loser pays” rule in English litigation means that, if you lose a case, you are usually ordered to pay a significant portion of your opponent’s legal costs—sometimes much more than your own fees. This adverse costs risk is real and immediate, carrying the potential for high-value enforcement and damaging financial consequences.
Understanding when and how courts make these orders, and the steps you can take to reduce your exposure, is crucial before entering into a dispute. If you are considering legal action or have received a claim, early insight into adverse costs can prevent expensive mistakes and financial hardship. For strategic guidance, call our team or request a free initial assessment.
What Does an Adverse Costs Order Mean in UK Litigation?
An adverse costs order is a court ruling requiring you to pay some or all of the other party’s legal costs, on top of your own. This additional liability is separate from your agreed fees with your solicitor and can quickly reach tens or even hundreds of thousands of pounds in complex cases.
Adverse costs orders are applied widely, impacting anyone involved in commercial, professional negligence, construction, insolvency, partnership, or landlord and tenant litigation. The judge decides the amount, influenced by the complexity of the case, the conduct of both parties, and any efforts to settle before trial.
Understanding the precise timing and circumstances when losing parties become liable for these costs helps clients assess risk and respond appropriately.
When Does the Losing Party Pay the Other Side’s Legal Costs?
The default position in England and Wales is that the losing party pays the winner’s reasonable costs—referred to as “costs follow the event.” However, the court has discretion and may vary this approach depending on the specific facts, the conduct of each party, and efforts to settle.
Common situations include:
- Losing a trial and being ordered to pay your opponent’s costs on losing the substantive issues.
- Failing at an interim application (such as an injunction request or a summary judgment bid).
- Discontinuing a claim before trial, which usually carries liability for costs incurred up to that point.
- Outcomes of mediation or settlement discussions where one side is ordered to pay because of case conduct or result.
Whether the losing party is required to pay costs, and in what amount, always depends on discretion and scrutiny by the court.
How Is an Adverse Costs Order Decided by UK Courts?
Courts make adverse costs decisions using the Civil Procedure Rules (CPR), with Part 44 setting out the requirement to consider “all the circumstances of the case.” The overriding goal is fairness and the encouragement of reasonable conduct.
Key points judges consider include:
- Identification of the true winner and loser—sometimes claims are partially successful, which can split the costs order.
- The behaviour of the parties—deliberately obstructive, dishonest, or unreasonable conduct will be penalised.
- Whether either party has wasted time or money by exaggerating or prolonging the dispute.
- Reasonableness of settlement offers (such as Part 36 or “without prejudice save as to costs” offers).
- Whether both sides complied with the court’s rules, timetables, and directions.
Poor conduct or ignoring settlement opportunities will increase your exposure. Acting sensibly at each stage is your best protection.
What Factors Can Increase or Reduce Your Cost Liability?
Several factors can increase your likelihood of facing a high adverse costs order, including:
- Refusing to consider or respond to reasonable settlement offers.
- Missing important court deadlines or disregarding procedural rules.
- Pursuing claims or defences that are clearly weak or unsubstantiated, causing unnecessary costs.
Your liability can be significantly reduced if:
- The other party has acted dishonestly or wasted costs by being unreasonable.
- You make a genuine Part 36 or Calderbank settlement offer, especially if it turns out to be more generous than the trial outcome.
- The claim only partially succeeds, or the successful party has exaggerated their claim.
Every step you take in your case can affect the court’s view on costs. Strategic decisions at the pre-trial stage are powerful tools for risk management.
What Steps Should You Take If Faced With an Adverse Costs Order?
Speed and decisiveness are crucial if you receive an adverse costs order. Delays can lead to immediate enforcement, escalating interest at 8% per year (as per the Judgments Act 1838), and worsening your financial risk.
Follow these steps:
- Read the order carefully—note payment deadlines, interest provisions, and whether costs are assessed or to be assessed later.
- Clarify if the order is made on the “standard” or “indemnity” basis (this affects how much you might owe).
- Immediately contact our team of solicitors for a detailed review of your options.
- Collect all relevant documents—court orders, legal invoices, and copies of previous settlement offers.
- Open dialogue with the other side if payment is not possible in full; negotiated solutions are available.
Taking immediate, proactive steps can reduce liability, improve your negotiating position, or halt enforcement. Do not ignore a costs order—act within the deadlines to preserve your rights.
What Are the Main Risks and Consequences of an Adverse Costs Order?
The risks following an adverse costs order can extend well beyond your legal spend:
- Large costs sums are frequently awarded, sometimes exceeding the original claim amount.
- Interest accrues quickly on unpaid costs, typically at 8% per annum.
- If unpaid, the other side may pursue enforcement—charging orders over property, third party debt orders, or asset seizures can follow.
- Businesses risk winding-up petitions and individuals may face bankruptcy proceedings.
- In partnership, director, or insolvency litigation, personal liability may attach to directors or partners in some cases.
Effective early strategy and realistic negotiation are vital to avoid such severe outcomes.
How Can You Minimise or Insure Against Litigation Cost Risks in the UK?
A range of strategies can limit or spread your exposure:
- Early settlement offers—making a Part 36 or Calderbank offer in writing shows reasonableness and can shift the eventual cost burden.
- After the Event (ATE) insurance—purchased after a dispute begins, this policy covers the potential costs you may owe the other party if you lose.
- Third-party litigation funding—suitable in large cases, external funders bear some or all of the risk in exchange for a share of any recovery.
- Continual review—at every stage, reconsider your prospects of settlement, and track all offers.
Our litigation team will advise on bespoke insurance, funding, and settlement options to protect your interests at all stages of a dispute.
What Laws and Deadlines Apply to Adverse Costs in UK Litigation?
Litigation costs in England and Wales are determined by the Civil Procedure Rules (CPR):
- CPR Part 44: Details the powers of the court to award costs and the key principles guiding cost decisions.
- CPR Part 36: Sets out how settlement offers can influence the allocation of costs, especially where a party achieves a better result than a previous offer.
- Payment deadlines: Orders often specify 14–28 days for payment, with interest accruing if missed.
- Detailed assessment: You have 21 days from service of a bill of costs to challenge the amount at a detailed assessment hearing (see CPR 47).
Missing a payment or failing to challenge costs within the prescribed period can result in immediate enforcement. Protect your position by acting promptly and keeping to all schedules.
What Do the Courts Say About Adverse Costs Orders?
| Case | Facts | Outcome | Why It Matters |
|---|---|---|---|
| Halsey v Milton Keynes [2004] | Party refused mediation/ADR. | Court reduced recoverable costs. | Unreasonable refusal of ADR can penalise you in costs. |
| Otkritie Capital v Urumov [2014] | Serious misconduct and dishonesty in complex fraud. | Indemnity costs awarded for bad conduct. | Dishonest defendants risk higher costs orders on the indemnity basis. |
| Dunnett v Railtrack [2002] | Defendant declined to negotiate. | Costs denied to technically “winning” party. | Failure to attempt settlement can lose even a successful party their costs. |
| Bank of Credit & Commerce v Ali [1999] | Large claims and aggressive litigation stance. | Court limited allowable costs. | Proportionality and conduct influence final costs, not just who wins. |
Courts look closely at parties’ behaviour, openness to settlement, and whether both sides acted proportionately—impacting costs outcomes as much as the final decision itself.
Our Winning Approach to Adverse Costs Orders
Our team provides leading adverse costs advice and defence in high-stakes litigation, with a service built on:
- Industry recognition for cost management strategies, including Law Society Gazette and LexisNexis features
- Fixed-fee risk reviews and second opinions on complex or urgent cost orders
- Secure sharing of documents via Go Transfer—our confidential portal
- Real-time solicitor access through our WhatsApp line for rapid decision making
- Early, evidence-based analysis harnessing Part 36 and Calderbank offers for cost leverage
- Decades of experience challenging, negotiating, and contesting cost orders throughout assessment proceedings
- Advice on funding, insurance, and risk-sharing, with selected cases considered for no-win-no-fee arrangements
If you face the risk of an adverse costs order, discussing your position with our experts will improve your strategic options and settlement prospects.
Frequently Asked Questions
Does losing a case always mean I have to pay all the other party’s costs?
Not always. Courts look at settlement offers, the conduct of parties, and the outcome on individual issues before deciding on the amount and scope of any adverse costs order.
Can I get insurance against an adverse costs order in the UK?
Yes. After the Event (ATE) insurance is available and covers some or all of your liability for the opponent’s costs if you lose. The terms depend on the claim and its complexity—speak to our solicitors before purchasing a policy.
What happens if I do not pay an adverse costs order on time?
If you delay, the other side may enforce the order through charging orders, third party debt orders, seizure of assets, or insolvency proceedings. Interest also accrues at 8%.
Are there options to settle legal costs without going to court?
Yes. Cost disputes are frequently resolved by negotiation, resulting in lump-sum reductions, instalment plans, or other agreements. Many parties avoid formal enforcement through a negotiated settlement.
What is a Part 36 offer and why does it matter for costs?
A Part 36 offer is a formal written proposal to settle all or part of a dispute. If not accepted and the eventual judgment is less favourable to the rejecting party, the court can impose adverse cost consequences.
Can the court limit how much I must pay in legal costs?
Courts have the power to ensure that only reasonable and proportionate costs are recoverable. They may reduce inflated or excessive claims after a detailed assessment.
How can I challenge the amount of costs in an adverse costs order?
You may apply for detailed assessment—the court will scrutinise the claimed costs and determine a fair sum. Time limits for requesting assessment are strict, so act quickly.
What is the difference between “standard” and “indemnity” basis in costs?
Standard basis: Only reasonable and proportionate costs are recovered, with any doubts resolved for the paying party.
Indemnity basis: More generous to the receiving party—costs are awarded unless clearly unreasonable.
How do I appeal an adverse costs order?
Appeals are allowed within 21 days and only where a procedural or legal error is identified. You’ll need detailed advice from our specialist litigation solicitors before proceeding.
If I withdraw my case, will I still be ordered to pay the other party’s costs?
Usually, yes. Unless a settlement specifies otherwise, discontinuing your claim means you must pay reasonable costs incurred by your opponent.
Get Expert Help With Adverse Costs Orders Today
Securing tailored legal advice on adverse costs orders early in any dispute is essential. Our team offers clear, decisive support to help you minimise liability, challenge unfair orders, and protect against future cost risks. With fast-moving deadlines and the real risk of enforcement, immediate strategic action is critical for businesses and individuals.
For trusted advice or to arrange a Free Consultation, call our expert litigation team on 0207 459 4037 or book online today.
