Litigation can be a lengthy, costly and stressful process. In this article I will discuss why litigation might not always be the best option and what other options are available to you.
It is often tempting in cases of dispute to start thinking about legal proceedings early on. A lot of times I often have clients tell me that it is a matter of principle. At this point it is important that I set out the risks and cost implications of pursuing legal proceedings.
Many people have a misconception that legal proceedings are the most effective way of resolving a dispute and are keen to inform the other party that they intend to start legal proceedings. It is often viewed as a threat that if one party does not comply, they will be ‘taken to court’. However, this isn’t always the best way forward for either party and it is advisable to stop and consider alternative ways of resolving disputes before involving the courts.
Civil Procedure Rules
The litigation process is governed by the Civil Procedure Rules (CPR) and all parties must consider these rules. The Practice Direction contained within the CPR require that all parties involved in the dispute think about if ‘negotiation or some other form of Alternative Dispute Resolution (ADR) might enable them to settle their dispute without commencing proceedings.’ Issuing court proceedings must be seen as the last resort.
Examples of appropriate types of ADR may include, but are not limited to:
- Mediation – where both parties agree to discuss the dispute with an independent mediator who will support them to come to an agreement.
- Arbitration – where the dispute is submitted to an independent arbitrator, or panel of arbitrators, who make a binding decision. This option can be costly and there are certain disputes whereby arbitration is not appropriate.
- Round table meeting – often by having a frank discussion can prevent legal proceedings and a sensible resolution is achieved.
If you do not consider ADR, the Court could view your refusal as being unreasonable which could lead to cost sanctions. Therefore, we strongly encourage our clients to engage in a form of ADR.
Cost Recovery
If ADR has not been successfully utilised, the cost recovery rules should be considered before making the decision to commence legal proceedings. The general rule is that the losing party will pay the successful party costs. However, this is dependent on various factors, such as the conduct of parties and consideration of settlement offers that have been made. I will discuss this in a little more detail below.
The cost recovery rules only come into effect once a ruling has been made and so it is necessary to highlight that the costs of litigation will need to be met by each party during the legal proceedings. These costs will include your legal fees, disbursements (such as court fees) and expenses.
Litigation Costs
At the end of litigation, the default position is that the party who has not been successful will be required to pay the costs that have been incurred by the party who has been found in favour by the court. This may seem very beneficial to the winning party; however, I always stress to our clients that you will not recover 100% of the costs you have incurred.
The court has the discretion to rule on litigation costs in two ways:
- Whether the winning party is entitled to recover any of the costs it has incurred from the other party.
- What amount can be recovered.
Usually, the court rules around 60%-70% of the total costs. In cases where costs are awarded on an ‘indemnity basis’, a successful party can expect to recover between 80%-90% of their costs. These cases occur where the losing party has acted in a way that justifies penalisation, such as:
- Unreasonable conduct
- Obstructing genuine offers of settlement
- Refusing to engage in ADR
It is important for both parties to act in a reasonable manner and to genuinely attempt to resolve a dispute to ensure that any liability for litigation costs when losing a case is kept to a minimum.
Further factors that impact the recovery of costs are which court the proceedings have been brought to and whether there has previously been a costs management order made. If there has, the court will need to understand whether this ‘cap’ has been exceeded or not. When considering the outcome of the case, the court will take into account:
- The outcome of the case, i.e., whether the winning party was successful in all aspects of the claim, or whether some parts of the claim were not upheld.
- Whether either party has been found to have exaggerated any part of its claim or defence.
- Whether each of the legal teams has charged hourly rates that would be regarded as reasonable.
- Whether other costs that have been incurred are considered reasonable in the course of the legal proceedings.
- The complexity and length of time of the case.
The consequences
The unsuccessful party in litigation is likely to be negatively impacted financially. This is because they will remain liable for the legal costs that they have incurred and are more than likely going to be ordered to pay a certain percentage of the legal costs incurred by the opposing party. Whilst it is unusual that 100% of costs must be covered, even a lower percentage could equal a large sum of money.
The advantages
Winning a court case is a cause for celebration, however, this could be short-lived as the cost of legal proceedings can be massive. With the cost recovery rules meaning a successful party is still likely to be liable for between 10%-40% of their legal costs, I ask clients to consider if litigation is the most appropriate way forward and to really think about whether the principle is worth the time, cost and stress of litigation.
If you have any questions regarding the above, please give me a call or drop me an email.
If you have any queries regarding this article or a litigation query, please contact Sonia Bhachuat sonia@carterbond.co.uk. Or call us on 020 3475 6751 or visit our website www.carterbond.co.uk We are happy to help!
This note comprises the view of the author at the time of writing. This note is not a substitute for legal advice. Information may be incorrect or out of date and may not constitute a definitive or complete statement of the law or the legal market in any area. This note is not intended to constitute advice in any specific situation. You should take legal advice in specific situations. All implied warranties and conditions are excluded, to the maximum extent permitted by law.
