It is often tempting in cases of dispute with another party to start thinking about legal proceedings early on. Many people have a misconception that legal proceedings are the most effective way of resolving an issue 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 first consideration should be the legal obligation set out in the Civil Procedure Rules (CPR). The Practice Direction Pre-Action Conduct and Protocols (PDPACP) require that both 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.’
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.
- Ombudsmen schemes – where the dispute will be reviewed by the appropriate Ombudsmen’s office and a decision made on the outcome.
The PDPACP also states:
‘Parties may be required by the Court to provide evidence that ADR has been considered. A party’s silence in response to an invitation to participate or a refusal to participate in ADR might be considered unreasonable by the Court and could lead to the Court ordering that party to pay additional Court costs.’
Cost Recovery Rules
If ADR has not been successfully utilised, the cost recovery rules should be considered before making the decision to commence legal proceedings. The cost recovery rules stipulate the situations in which a party is able to recover the costs of the proceedings from their opponent and the amount that may be recovered.
Ongoing Legal Costs
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:
- Lawyer fees for each party
- Disbursements
- Expenses
These fees are usually included in the terms and conditions of a legal team and there are limited exceptions for individuals who may be unable to pay them. However, it should always be assumed that these costs will need to be met during the course of the legal action. Ensuring that adequate finances are available prior to issuing proceedings is the best practice to ensure that the case does not result in financial struggles. If finances will be an obstacle to continuing litigation, it should be considered before filing any claim, whether litigation is the best course of action.
Liability of Litigation Costs
At the end of litigation, the default position is that the party who was not successful will be required to pay the costs that have been incurred by the party who has been found in favour. This may seem very beneficial to the winning party; however, it should be noted that it is very rare that a party will be ordered to cover 100% of the costs incurred by the winning party.
The court has the discretion to rule on litigation costs in two ways:
- Whether the winning party is entitled to cover any of the costs it has incurred from the other party.
- What amount can be recovered.
It is the norm that the court rules in favour of the losing party covering some of the costs of the winning party, and this is often 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 Financial Impact of Unsuccessful Litigation
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 Financial Impact of Successful Litigation
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, it is worth considering whether litigation is the most appropriate way forward and consult a legal expert before taking the first steps.
For more information or assistance, you can contact Carter Bond Solicitors at 020 3476 6751 or via email at info@carterbond.co.uk. You can also find valuable resources on their YouTube channel and website at www.carterbond.co.uk.
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.
