Litigation can be a costly process for individuals looking to an end to their legal dispute. The costs of litigation will vary depending on the complexity of the case, the expected length of the case, and the amount of fees and disbursements that could be incurred, for example, court fees, reports and counsel fees. The decision to go as far as to litigate should be considered carefully for those involved in legal disputes.
COSTS CONSEQUENCES
If the decision has been made to proceed with litigation, clients must be aware of the consequences surrounding the recovery of costs. Costs are governed by the Civil Procedure Rules (CPR) Part 44, which provides that the court has the discretion to decide whether a party should be liable to pay another party’s costs. The principle often found is that the losing party will be ruled to pay the winning party’s costs, however, this will be down to the discretion of the judge. Judges typically rule that 60-75% of costs are recoverable.
Prior to awarding costs, the courts will look at multiple different factors when deciding the amount to be awarded. The courts must evaluate the conduct of each party during the lifecycle of the whole dispute, and if unreasonable conduct has been found, the courts have discretion to deduct the amount of costs to the winning side.
FIXED RECOVERABLE COSTS
For most claims with a value of not more than £100,000 the costs that you can recover from the other side are likely to be fixed to a pre-determined amount. These are known as ‘fixed recoverable costs’ and your solicitor will advise you on this if your claim falls within the scope of the fixed recoverable costs regime.
claims worth up to £10,000 will be allocated to the small claims track where solicitors’ and counsel’s fees are not generally recoverable from the other party.
BUDGETING
Due to the ongoing costs of litigation, it is important to ensure that a budget is put in place by clients to prepare for the potential scenario of not receiving the full costs amount from the Defendant, even if there is a favourable judgment awarded. Additionally, although a best estimate will be provided to clients on the anticipated amount of costs likely to be incurred throughout the lifecycle of a matter, it is possible for further unexpected costs to arise which would need to be covered. For example, new issues may be raised by one or both parties which were not anticipated in the original budget. An effectively managed budget is therefore critical in the event of costs increasing beyond the initial estimate provided.
WORKED EXAMPLE
A claimant brings a case against the Defendant, where the Claimant has been successful in their claim, and the court have awarded the full amount in their favour. In this award, the court have also made a costs order against the Defendant. Throughout this legal dispute, the claimant has incurred costs of £10,000. Despite winning this legal battle, the courts have determined that the Claimant is only entitled to 70% of their costs, meaning there is a shortfall of £3,000 where the client would be out of pocket.
This would be classed as ‘irrecoverable costs,’ and in such a case, the client should factor the potential for irrecoverable costs into their litigation strategy when making or considering any offers to settle. It is important to note that it is rare for the courts to award costs in full, and even a successful party may only recover a fixed amount of their legal costs.
COSTS RECOVERY
With respect to costs in litigation, a court may order the other party to pay a certain amount for costs, for example, £20,000. What happens should the other side not have the means to pay these costs? Ultimately, the costs order will only be worthwhile if the other side can afford to pay the costs. For example, the other party may have limited assets or could be insolvent, meaning that they are unable to pay £20,000 in costs, which in this case, the winning party may still need to bear their own costs.
It is crucial in litigation to assess whether the other parties have the means to pay any costs ordered against them. This would be a part of the ‘litigation strategy’ in which should be considered prior to the commencement of proceedings.
ALTERNATIVE DISPUTE RESOLUTION
Litigation can be a costly and time-consuming process, and different forms of settlement can be used to resolve the dispute before litigation. A common form is alternative dispute resolution (ADR), which involves mediation, arbitration or negotiation to attempt to resolve the dispute. This comes with several potential benefits including speed, flexibility, and most significantly, cost-effectiveness. Although ADR will involve some fees, when compared with litigation, these fees will usually be considerably lower, and all parties are encouraged to seek an end to their dispute by way of alternative dispute resolution.
