The Art of War was written by Sun-tzu more than 2000 years ago, and ever since has been pressed into god-awful analogies on business development and management-speak. I have on my shelves, the Folio Society edition, and a handsome tome it is, in jet black, with a matching black slipcase and inlaid with golden Chinese calligraphy and possessing copious explanatory notes.
Shamelessly, what lessons can we draw from the book, of relevance to costs in commercial disputes in 2026? The book has a number of universal themes:
The importance of information.
The appreciation that there is no formula for successful practice.
The importance of acting quickly.
The need for clarity in command, through organisation and assignment of specific responsibilities.
Above all, the need to formulate and practise strategy.
When undertaking a commercial case, strategy is key. Not only strategy in relation to the substantive claim, but formulating a strategy in relation to the costs aspects of the claim. Although it would be nice to think that the costs “tail” never wags the dog, the reality is rather different. Costs are not something to be delegated or hived off. They are a golden thread running through a case.
Questions of costs intertwine with all aspects of the litigation and should be formulated as part of the overall case plan. I will now consider by way of a high level of overview, the various costs “touchpoints” which can be used to advance or attack an opponent’s case, and to seize the litigious high ground, forcing the other side toward settlement or establishing a commanding position for trial in the context of commercial litigation. These are the constituent elements of a costs strategy.
A sensible place to begin our consideration of strategy starts at the beginning of the case, with retainers. The retainer between a solicitor’s firm and a client is the starting point for a new commercial matter and it should not be regarded as a mere administrative burden or exercise in form filling. It is all too easy to inadvertently create a time bomb that will explode at the end of a case, into an inter partes costs challenge or which facilitates a damaging solicitor-client costs dispute
It might be thought that if a firm simply undertakes privately paid work, billing monthly or quarterly, and with funds flowing in regularly, that should be the simplest, most “vanilla” of solutions and may be thought to be unproblematic, but it is not that simple. Most commercial disputes will be charged at relatively high, commercial hourly rates. If those rates exceed the likely hourly rates recoverable from a losing opponent to litigation, they are classified as “unusual” costs under CPR 46.9.
Unless a client has been informed of the existence of “unusual” costs and their potential irrecoverability and gone on to give informed consent to incurring and paying them anyway, they are liable to be reduced in any solicitor-client dispute as costs that are unreasonably incurred by reason of the presumption in CPR 46.9.
When the retainer is of a more exotic nature, such as a damages based agreement (DBA) the problems can multiply. Such retainers can be rendered unenforceable by poor drafting. On numerous occasions, I have seen DBAs which are rendered unenforceable because someone has adapted a precedent document for a DBA, deployed in an employment dispute in the Employment Tribunal, for use in the High Court in commercial litigation.
But these immediately creates a problem. The statutory requirements for enforceability imposed by the Damages Based Agreements Regulations 2013, are quite different in those different contexts. A DBA fit for use in an employment dispute, will be unenforceable in a commercial dispute. An unenforceable DBA brings crashing down, the solicitors right to be paid for the work done, and if subsequently discovered by an opponent to litigation, to be unenforceable on a detailed assessment, will mean that no costs can be recovered inter partes because of the indemnity principle.
Conditional Fee Agreements (CFAs) create their own challenges. In particular a discounted CFA is also vulnerable to issues, arising from poor drafting. It is very easy when drafting a discounted CFA to create inadvertently a success fee which is not expressed as a percentage or which exceeds the statutory 100% cap.In short, an effective commercial costs strategy requires a carefully chosen retainer, drafted with precision, explained clearly to a client who gives their informed consent to it.
Costs budgeting and costs management have their origins in the recommendations of the Jackson Report. Like all legal reform projects, the proposals about costs management were based upon the gut feel of lawyers, a lack of quantitative data, and a disregard for the merits of evidence based policy.
Consider. The idea behind costs management, is to control costs so that they are reasonable and proportionate. But the process of costs management itself, consumes the parties resources, consumes the court’s resources and can add substantial delay to a case, as well as satellite litigation.
Courts solemnly cost manage the costs of trial preparation and trials that will never take place. How much money is saved by this process? Set against how much does the process cost? Is there a net saving at all? No one knows, as there is no data, merely an article of faith that costs management “works”.
But we are where we are, and costs management creates pitfalls and opportunities for the parties to a commercial dispute, and no litigator worth her salt, can afford to ignore it, or to fail to press the process for her client’s advantage. So a strategy for costs management must be adopted.
I would suggest three particular points could be borne in mind. First, devise a system, or buy some software that enables you to monitor the budget against the work you are doing. If the case changes, if unexpected developments occur, go back to your opponent and/or the court and seek to vary the budget.
Secondly get client buy in on the budgeting process. If your budget is managed down, but you need to spend the money anyway, get the client’s informed consent and avoid the CPR 46.9 trap that the disallowed costs, then become “unusual” costs.
Finally, get the budget in on time. There still lurks in the rules, the sanction that if a budget is not served timeously, it will be reduced to court fees. This provision sparked the whole Mitchell/Denton debate. From time to time, judges seem to like to metaphorically shoot a solicitor, “pour encourage les autres”.
On the chessboard of commercial litigation strategy, an application for security for costs in the middle game, is one of the more valuable pieces in play.In any substantial piece of commercial litigation, involving corporate parties, or parties domiciled outside the jurisdiction, the issue will arise of security for costs. In fact, in any case, part of the costs strategy, must be to consider whether an application for security for costs should be made, or if made, how it can be defended.
An application falls into two parts: first establishing the gateway, and secondly persuading the court as an exercise of discretion to make the order. The classic principles are drawn from Sir Lindsay Parkinson & Co Ltd v Triplan Ltd [1973] QB 609 and Keary Developments Ltd v Tarmac Construction Ltd [1995] 3 All ER 534.
The discretion in this context is broad. Even if a gateway is established, security is not automatic. The court carries out a balancing exercise: the injustice to the claimant if a proper claim is stifled by an order for security, against the injustice to the defendant if the claim fails and the defendant cannot recover the costs of defending it.
The jurisdiction must not be used oppressively. A defendant should not use security as a device to crush a genuine claim by an impecunious claimant, particularly where the claimant’s lack of funds may itself have been caused by the defendant’s alleged wrongdoing. But the converse also matters.
The court should not be so reluctant to order security that an impecunious claimant can use its inability to pay costs as a form of pressure. The court may have regard to prospects of success, but should not conduct a mini-trial. Unless it can be shown without detailed investigation that the claim is very likely to succeed or fail, the court should not embark on a detailed examination of the merits.
Stifling is often the practical heart of the application. A claimant says it cannot provide security. The defendant says that if the claim is valuable, someone standing behind the claimant should fund it. On appropriate circumstances, the court may consider whether funds could realistically be obtained from a third party closely connected with the litigant.
ATE insurance is sometimes relied upon as the answer to a security application. Sometimes it is. Often it is not. Premier Motorauctions Ltd v Pricewaterhouse Coopers LLP [2017] EWCA Civ 1872; [2018] 1 WLR 2955 makes the point that an appropriately framed ATE policy can, in principle, provide sufficient protection. But there are a lot of caveats which will apply.
Where commercial costs are concerned, I find that I come into a case at the beginning, and often come back to it at the end. When a case concludes in a trial, the common sequence is that judgment is handed down and then a consequentials hearing is listed.
The following are the issues which usually arise.
1· Costs order sought.
2· Issue-based or percentage adjustment.
3· Basis of assessment.
4· Interest on costs.
5· Payment on account.
6· Part 36 consequences.
7. Permission to appeal and form of order.
Dealing with three particular points. The losing party to litigation will be well advised, not to accept without contest, an obligation to pay the winning party’s costs, as cases are rarely cleanly won, and an issues based costs order will usually be arguable. If you can point to issues that the winning party has lost on, you can make the argument, their costs should be a percentage based order instead.
Secondly, the basis of assessment is crucial. If there is scope to argue for indemnity basis costs, whether due to a part 36 offer being beaten, or due to misconduct on the part of the opposing party, this has a very real value, as it means that the costs budgets cease to apply as a cap on the amount of costs that can be recovered, and the requirement of proportionality does not apply on assessement.
Thirdly, every case, that ends at trial should involve consideration of part 36 offers, because each party should have made one. Part 36 consequences for a claimant include an additional amount, enhanced interest, indemnity costs and interest on costs. Conversely, a defendant will wish to scour the offer to find a defect, or to argue it does not bite, or that it is unjust that it should bite.
It doesn’t end with the judgment, as a detailed assessment will likely ensue. But before I turn to look at some issues that may arise on a detailed assessment, I will consider some of the above topics, in a little more depth in the next few articles.