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Costs and Funding for SQE1

Part of our SQE1 Dispute Resolution guide → View the full SQE1 Dispute Resolution guide

02 Apr 2026

Revise costs and funding for SQE1 Dispute Resolution, including Part 36 consequences, costs orders, proportionality and funding arrangements.

Dispute Resolution > Costs and Funding

A claimant makes a Part 36 offer of £90,000 which the defendant rejects. At trial, the judge awards £175,000 in damages. The claimant now seeks enhanced costs consequences under CPR Part 36—indemnity basis costs plus interest at an enhanced rate (up to 10% above base rate) plus an additional amount (up to £75,000). The defendant argues that the enhanced consequences should not apply because the judgment is for less than the original claim. The court must decide whether the judgment is "at least as advantageous" as the Part 36 offer. This scenario tests SQE1 candidates on the complex interplay between costs, Part 36 offers, and the bases for assessing costs.

What Are Costs and Funding in SQE1?

Candidates often lose marks on SQE1 by forgetting the costs consequences of failing to beat a Part 36 offer — the penalties are severe and SQE1 questions may test them repeatedly. Costs and funding are the mechanisms by which civil litigation is financed and how the parties' legal costs are allocated after judgment. The civil procedure rules set out two bases for assessing costs (standard and indemnity), the principles governing who pays costs and when, and the consequences of Part 36 offers for costs liability. Candidates must also understand the different funding mechanisms available to litigants: conditional fee agreements (CFAs), damages-based agreements (DBAs), before-the-event and after-the-event insurance, and legal aid.

Understanding costs and funding is essential for SQE1 because SQE1 questions may test Part 36 consequences extensively—these are high-value exam points. Candidates must also understand how costs interact with pre-action conduct, settlement and ADR, and interim applications. The distinction between standard and indemnity basis assessment, and the impact of costs budgeting in multi-track claims, are also worth revising carefully.

Key Principles for SQE1

  • Standard Basis and Indemnity Basis: On the standard basis, the court only allows costs which are proportionate to the matters in issue and resolves any doubt in favour of the paying party (CPR r.44.3(3)). On the indemnity basis, the court allows all reasonable costs except those shown to be unreasonable, and doubt is resolved in favour of the receiving party.

  • Part 36 Offers and Enhanced Costs: Where a claimant's Part 36 offer is not beaten at trial, the defendant is liable for indemnity costs from the expiry of the relevant period, plus interest at an enhanced rate (up to 10% above base rate), and an additional amount (up to £75,000). This is a major exam topic and requires careful analysis of whether judgment is "at least as advantageous" as the offer.

  • Costs Budgeting: Parties must file costs budgets in multi-track claims (CPR Part 3). The court may use budgeted costs to cap recoverable costs in later costs assessments.

  • Conditional Fee Agreements (CFAs): Used to fund litigation. The losing party may be ordered to pay the winning party's success fee (uplift), subject to reasonableness. Success fees are recoverable only in certain circumstances post-LASPO.

  • Damages-Based Agreements (DBAs): Alternative to CFAs. The lawyer is paid a percentage of damages recovered (up to 25% in personal injury cases, 50% in others). DBAs are restricted in scope and cannot be used in family or criminal cases.

  • General Rule: Loser Pays: The general rule is that costs follow the event (CPR Part 44)—the losing party pays the winning party's costs. However, the court has discretion to depart from this rule based on the parties' conduct.

Exam tip

The general rule is 'loser pays' (CPR Part 44), but SQE1 questions may test the exceptions—particularly qualified one-way costs shifting (QOCS) in PI claims and the effect of Part 36 offers on costs. Always check whether a Part 36 offer was beaten at trial. If a claimant's offer was not beaten, the defendant will be liable for indemnity basis costs plus interest and an additional amount. This is a useful area for focused SQE1 practice.

How This Appears in SQE1 Questions

SQE1 questions test Part 36 consequences extensively, particularly whether judgment is 'at least as advantageous' as the offer and what costs follow. Questions also test costs assessment on the standard versus indemnity basis, and may ask about the interaction between costs orders and Part 36 offers. You might see questions about qualified one-way costs shifting (QOCS) in PI claims, costs budgeting in multi-track claims, or the recoverability of success fees under CFAs. The key is to understand that Part 36 offers are a powerful procedural tool that can dramatically shift the costs liability if the offer is not beaten. This is a common SQE1 pitfall.

Common Mistakes Students Make

  • Confusing when standard basis and indemnity basis apply—remember that standard basis is the default, and the court must have a reason to move to indemnity basis (e.g., unreasonable conduct, non-compliance with court orders).
  • Overlooking Part 36 consequences—forgetting that if a claimant's offer is not beaten, the defendant must pay indemnity costs plus interest and an additional amount.
  • Misunderstanding "at least as advantageous"—the judgment must be at least as favourable to the offeror as the offer; this is assessed globally, not just on quantum.
  • Forgetting that costs budgeting applies in multi-track claims and may cap recoverable costs.

Quick Summary

  • Standard basis: only proportionate costs allowed, doubt resolved in favour of paying party.
  • Indemnity basis: all reasonable costs allowed, doubt resolved in favour of receiving party.
  • Part 36 offers trigger enhanced consequences if not beaten: indemnity costs, enhanced interest (up to 10% above base), additional amount (up to £75,000).
  • Costs budgeting in multi-track claims may cap recoverable costs.
  • Conditional fee agreements (CFAs) allow recovery of reasonable success fees.

Want to test this now? Try a few SQE1-style questions below before moving on.

Test Yourself

Test yourself

Quick check questions based on this article.

Question 1

Scenario

A solicitor acts for a claimant in a negligence claim valued at £200,000. The case is allocated to the multi-track. The court has made a costs management order, and the claimant's approved budget is £75,000. During the proceedings, the defendant makes two interim applications. The first is an application to strike out part of the claimant's statement of case, which fails. The court orders the defendant to pay the claimant's costs of that application summarily assessed at £4,000. The second is an application for specific disclosure, which succeeds. The court orders the claimant to pay the defendant's costs of that application summarily assessed at £3,000. At trial, the claimant succeeds and is awarded £185,000. The court orders the defendant to pay the claimant's costs on the standard basis. During detailed assessment, the question arises as to how the interim costs orders interact with the overall costs order and the approved budget. The claimant's solicitor submits that the interim costs orders should be dealt with separately from the budget. The defendant's solicitor argues that all costs, including interim costs, should fall within the approved budget figure.

How should the costs judge treat the interim costs orders in relation to the approved costs budget?

Question 2

Scenario

A claimant brings a breach of contract claim against a supplier in the County Court. The claim is valued at £40,000 and is allocated to the intermediate track. Both parties are represented by solicitors. Before the hearing, the defendant's solicitor writes to the claimant's solicitor offering to pay £30,000 in full and final settlement, plus the claimant's reasonable costs to be assessed on the standard basis if not agreed. The offer is expressed as a Part 36 offer and complies with the requirements of CPR Part 36. The offer provides for a 21-day relevant period. The claimant's solicitor receives the offer and discusses it with the claimant. The claimant instructs the solicitor to accept the offer on day 18 of the relevant period. The solicitor writes to the defendant's solicitor accepting the Part 36 offer within the relevant period. The defendant's solicitor acknowledges the acceptance and confirms that the defendant will pay the £30,000 within 14 days. The defendant's solicitor queries whether the defendant is also liable to pay the claimant's costs.

What costs is the claimant entitled to following acceptance of the Part 36 offer within the relevant period?

Question 3

Scenario

A solicitor acts for a claimant in a professional negligence claim against an architect. The claim is valued at £350,000 and is allocated to the multi-track. The claimant is a company with limited financial resources. The defendant applies for security for costs. The defendant's solicitor argues that security should be ordered under CPR 25.13(2)(c), on the basis that the claimant company will be unable to pay the defendant's costs if ordered to do so. The defendant produces evidence showing that the claimant company has net assets of only £15,000, significant outstanding debts, and no substantial revenue streams. The claimant's solicitor argues that security should not be ordered because the claimant's impecuniosity was caused by the defendant's negligence. The claimant's solicitor produces evidence showing that the defendant's negligent design caused the claimant to incur £200,000 in remedial works, which depleted the company's reserves. The court finds that the claimant company would be unable to pay the defendant's costs if ordered to do so. The court also finds credible evidence that the defendant's negligence was a substantial cause of the claimant's financial difficulties.

What order is the court most likely to make on the security for costs application?

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