New Costs Lawyer report requirement welcomed

The Association of Costs Lawyers (ACL) has expressed its support for a new requirement set by the Office of Financial Sanctions Implementation (OFSI). This rule mandates that any application to pay legal fees from frozen funds must be accompanied by a report from a practising Costs Lawyer. The initiative aims to help OFSI fulfil its legal responsibility to ensure that the fees and expenses requested are "reasonable" when issuing licences for payments related to legal services.

In its guidance, OFSI noted the significance of this requirement, stating, “Some of these applications request permission for payment of fees in the millions of pounds. It is for the applicant to demonstrate to OFSI that the legal fees and expenses they are requesting payment for are reasonable.” The independent report referred to as a Costs Draftsperson’s Report (CDPR) can only be compiled by a Costs Lawyer regulated by the Costs Lawyer Standards Board and must not be part of the legal team involved in the case.

OFSI has also outlined specific thresholds for when a CDPR is necessary: if the total legal fees to be licensed exceed £2 million, including VAT, within any six-month window, or £1 million for counsel instructed directly. In circumstances where these thresholds are not met but other factors complicate the application, OFSI encourages applicants to submit a CDPR voluntarily. The guidance states that “Applicants may also choose to provide a CDPR proactively even where the relevant threshold has not been met but there are other factors which increase the complexity of the application. This may assist OFSI’s assessment of reasonableness.”

In addition, OFSI has made provisions for anticipated legal costs. It stated that “for long-running legal matters, where it is not feasible to obtain a CDPR covering anticipated costs, applicants are encouraged to consider applying for licences on a quarterly basis, with an enclosed CDPR covering costs incurred during the relevant period.” However, caution was advised as OFSI can still conclude that reasonableness hasn’t been fully established, license a lesser amount, or deny certain costs even if a CDPR indicates that the costs are reasonable.

The ACL chair, David Bailey-Vella, acknowledged the importance of this requirement, stating, “We are pleased that OFSI has recognised the need to use a Costs Lawyer in undertaking such important work. Following on from the Mazur case highlighting the benefit of independent rights of conduct litigation, the move reinforces the value to both the public and the profession of properly trained and regulated costs professionals.” This new rule reflects an evolving emphasis on transparency and accountability in legal funding, particularly in contexts involving sanctioned funds and high-stakes financial transactions.