Costs - The origin of the distinction between disbursements and profit costs





Introduction

These days a lot of civil litigation is carried out without solicitors as the parties can now engage barristers directly without a solicitor, but because the idea of a disbursement originated with the assessment of solicitors' bills, in order to understand why some expenditure is regarded as a disbursement and other expenditure is not, it can be useful to think about what a solicitor would have done if a solicitor had been involved.

If a solicitor had been engaged the solicitor would have managed the clients' money, asking the client to pay an initial lump sum (and asking for further lump sums as the litigation proceeded) and using the money to pay the costs of the litigation as they arose. When a solicitor is spending a client's money in this way there is obviously a need for the client to be protected and the courts have for a long time provided protection to clients of solicitors by allowing the client to ask the court to assess the solicitors' bill. This procedure is still available but assessment these days more often occurs in the context of one party being ordered to pay the other's costs so the question is not so much whether a solicitor' charges to their own client are reasonable but whether it is reasonable for the other side to be ordered to pay them in whole or in part.

Protection is needed when a solicitor's firm chooses, negotiates with, and pays out money to, an external supplier such as a expert witness or mediator but control is especially needed when a solicitor's firm decides to spend the client's money on services it provides internally charging the client an hourly rate for work done by a fee-earner which, of course, includes a profit element. In order to distinguish between the two situations the former are called disbursements and the latter are called profit costs. So disbursements are always external payments but it does not follow that all external payments are necessarily disbursements. Take this example.

  • A solicitor's firm pays an external print shop to do some bulk printing of a trial bundle - this is a disbursement.
  • A solicitor's firm does bulk printing in-house, using its own printer. In order to run the printer the solicitors' firm needs periodically to buy stationery - paper, printer ink, lever arch files, etc. - from external suppliers but these purchases are not disbursements. This is because these purchases are not made on behalf of a specific client but are just general bulk purchases by the firm - the client will be charged for printing at some rate per page set by the firm to take account of its overall costs with a profit element.

Not all external payments are disbursements

In the above example the purchase of printer ink was not made on behalf of a specific client and for that reason alone would not be a disbursement but items which could in theory be attributed to a specific client are also often not treated as disbursements by solicitor's firms if they are small. For example postage costs of letters are treated as part of the running costs of the solicitor's firm and not as disbursements, but a charge by a courier for delivery, or the postage cost of a very large parcel, would be disbursements.

It can be seen from the example of postage that at the margin it is not always clear whether smaller items are disbursements or not. The courts/tribunals tend to use the general practices of solicitors as a guide but practices vary between solicitors' firms and change over time often due to technological changes - no doubt when the telephone was first invented any solicitors' firm deciding to use this new-fangled invention for a call would have charged the significant call cost to the client as a disbursement but now that telephone calls are so cheap nobody would think of directly charging for the costs of the call itself: the cost is simply recovered, along with other overheads, as part of the hourly rate charged for the solicitor making the call.

Transactions not at arm's length

Because of the origin of the distinction between disbursements and other costs (i.e. in the court seeking to protect the client) any payment which is not at arms length is not likely to be treated as a disbursement. For example if a solicitor's firm were to set up a separate company to provide printing services then payments by the solicitor's firm to that company for printing services might not be treated as disbursements because they are not at arm's length. In fact any payment by one solicitors' firm to another is not treated as a disbursement even if there is no connection between the firms because to do so would undermine the court's power to assess solicitor's profit costs.               


Examples of Disbursements

  • Court/tribunal fees
  • Barrister's Fees
  • Expert Witness Fees - e.g. fees for an engineer, surveyor or other expert to provide a report, answer questions, or give evidence at a hearing
  • The fees of a private investigator engaged to trace witnesses and/or take statements
  • Mediator's Fees (if a mediation is held to explore the possibility of a settlement) and the cost of hiring rooms for the mediation
  • Charges by Caselines or other legal-case related document storage/bundle production service
  • Charges by a high street print shop for printing or scanning
  • Costs of a courier (where necessary to make a fast delivery)
  • Postage costs of a very large parcel
  • The travel and overnight accommodation costs of witnesses giving evidence at trial 


Examples of expenditure which is not a disbursement 

  • Costs of general purpose software - e.g. Office 365, Google Drive
  • Paper and printer ink for use in your own printer
  • Ordinary postage costs
  • Telephone costs
  • The extra fuel costs of giving a witness a lift to court/tribunal             


Disclaimer

This information page is designed to be used only by clients of John Antell who have entered into an agreement for the provision of legal services. The information in it is necessarily of a general nature and is intended to be used only in conjunction with specific advice to the individual client about the individual case. This information page should not be used by, or relied on, by anyone else.

This page was lasted updated in April 2018 Disclaimer