Think! Could crossing swords prove costly?

Think! Could crossing swords prove costly?


Author: David Nessim

We take a closer look at costs and the changes scheduled for April 2013 that are set to change the litigation costs landscape.

Costs: the basic position

One of the first considerations before crossing swords in litigation is establishing how much you could end up out of pocket.

General principles to bear in mind are:

  • Costs generally incurred include your own solicitors costs plus disbursements of which the common ones are Counsel's fees, court fees and third party fees such as experts or e-disclosure software providers.
  • You are responsible for your legal costs. If a dispute ensues, however, you may be able to recover some of those costs from your opponent.
  • You cannot recover your own costs for preparing your case yourself i.e. acting as a litigant in person without legal representation. This is subject to a few exceptions; most notably wasted staff time addressing or investigating the issue provided you can demonstrate those staff have been significantly diverted from their usual activities.

How much can I recover?

If the dispute settles?
If the dispute is settled you should try to reach agreement with your opponent about the costs of the dispute. If you agree who should pay (i.e. who is liable for the costs) but you are unable to agree the amount, you can issue "costs only proceedings" which will enable you to obtain a costs order to have the costs assessed by the court.

Contractual entitlement to costs?
It is important to remember that where there is a contractual entitlement to legal costs, CPR 48.3 takes effect and those costs incurred will be presumed to be reasonably incurred and be reasonable in amount unless the contract provides otherwise. A party challenging a contractual costs entitlement must satisfy the court that the costs payable under the contract should be disallowed on the basis that they were unreasonably incurred or the amount of those costs is unreasonable.

If the case goes to court?
If the dispute in question is not settled and the matter proceeds to trial or goes before a judge at another hearing, the court has wide discretionary costs powers. It can decide who is to pay the costs, to whom and how much is to be paid. The exceptions to the rule are specified circumstances where costs follow automatically i.e.

  • Where a claimant discontinues a claim; or
  • Where an offer to settle is made.

Many factors can influence the eventual costs position including the extent to which a party was successful with its case and if there was any offer to settle e.g. where the Part 36 costs regime may apply.

Initially the court will determine which party should be liable for costs (not how much), the general principle being that the loser pays the costs of the successful party.

The court will also determine whether interest should be awarded and for what period. The rate of interest granted can be up to 8%.

Upon determining who is to pay, the decision on how much is then made. On the basis that the costs cannot be agreed, the court will decide the amount payable using one of the following ways of assessment:

1. Summary assessment -The court decides the figure at the hearing, generally to be paid within 14 days. Such a method may be inappropriate, particularly if there have been substantive issues raised as to the amount of costs to be awarded.

2. Detailed assessment - A separate hearing will be listed which will take place before a specialised costs judge and the figure awarded will be determined via a much more thorough assessment of the costs incurred. This will typically require the assistance of a costs draftsman to prepare a detailed costs schedule.
The final issue to be determined is the basis on which the assessment is to be made. The two possible ways being:

1. Standard Basis - The most common basis which takes into account both proportionality and reasonableness of the costs incurred. This therefore works in favour of the party paying the costs and typically results in a recovery of approximately 60-70%

When determining proportionality, the court will take a number of factors into account including the amount of the claim, the complexity of the case and the financial position of the parties

2. Indemnity basis - Closer to full recovery and removes the element of proportionality being a consideration. Unlike the standard basis therefore, this basis works in favour of the party receiving the costs as the burden is on the paying party to prove unreasonableness. Costs on an indemnity basis must be applied for. The court has been persuaded to make an indemnity costs order where there has been misconduct or an abuse of process by the other party.

A change will do you good?

Lord Justice Jackson reviewed the underlying ethos behind litigation costs culminating with the publication of his final report on 14 January 2010.

This report has led to various landmark changes to be implemented in the future and which will change the litigation costs landscape. It is expected that the changes will take effect from April 2013.

Specific changes include:

  • An overhaul of the considerations of the amount of costs to award under both the standard and indemnity basis with particular note to the meaning and use of the proportionality test. In future, only reasonable and proportionate costs will be recoverable from the losing party.
  • Abolition of success fees and After the Event Insurance premiums being recovered from the losing party.
  • Damages based agreements to be a funding option in all types of civil litigation under which the lawyers fee is calculated as a percentage of the damages recovered.
  • In terms of disclosure of documentation, prior to the first case management conference taking place, each party will serve a report describing the documents that are likely to be disclosed and how much the exercise will cost. The court can then direct appropriately in a bid to keep costs down in this regard.
  • Costs budgets to be provided from a very early stage of proceedings to be approved by the court

If you would like further information about costs or how the Jackson reforms will affect you or your business, please get in touch.