Litigation costs can make or break a high-value dispute. When millions are at stake, the costs associated with taking a case to court can have a significant impact on the final outcome. From lawyer’s fees to heavy external disbursements, the financial burden of litigation often prompts parties to think twice before pursuing a claim or mounting a defence.
Understanding the intricacies of litigation costs is crucial for anyone involved in high-stakes legal battles. We delve into the various types of cost categories that will often feature in heavy commercial litigation, explore matters that go to the incidence of costs and recovery best practices, and offer insights on managing these costs effectively.
Types of costs in high-value litigation
High-value litigation often involves substantial financial outlay. Understanding these costs is crucial for the parties involved. The main categories of costs in high-value disputes include solicitor’s fees and a range of external disbursements – including fees of barristers, experts and other third-party service providers – whose fees would be deemed to be of and incidental to the litigation. Additionally, there would be Court Fees if the matter has been litigated through issued proceedings.
Legal fees
Legal fees typically constitute the most significant portion of litigation costs – which broadly are the collective fees of solicitors and instructed barristers (referred to as “counsel”).. Solicitors’ charges vary based on experience, type of dispute and the complexity of the case. Counsel’s fees, can be substantial, especially for complex cases requiring extensive court time.
Court fees
Court fees are unavoidable expenses in litigation when the matter has been issued. These fees are payable to the court for various services, including filing claims and scheduling hearings and the judiciary’s time. The amount of court fees often depends on the value of the claim.
Expert witness fees
Expert witnesses play a crucial role in high-value litigation, providing specialised knowledge to support cases. Their fees can be significant, varying based on their expertise and the complexity of the case. Expert witness fees are discretionary but should be proposed and agreed upon before court attendance. These fees may include charges for preparing reports, analysing evidence, and testifying in court.
Disbursements
Disbursements encompass various additional expenses incurred during litigation. These may include costs for document production, travel expenses, accommodation etc. Other potential disbursements include costs for forensic accountants, tracing agents, and mediation services. While these costs might seem minor individually, they can accumulate to substantial amounts in high-value cases.
Cost mitigation and recovery
The ‘loser pays’ principle
In England and Wales, typically, there is a ‘loser pays’ principle. This approach, also known as the ‘Costs Follow the Event’ or “Costs Shifting”, dictates that the unsuccessful party is generally ordered to pay the reasonable legal costs of the successful party. This principle significantly impacts litigation costs, as it introduces a substantial financial risk for parties considering and pursuing legal action.
The ‘loser pays’ principle serves as a deterrent to frivolous litigation and encourages parties to carefully consider the merits of their case before proceeding. It also aims to provide a measure of fairness by ensuring that the party who has been vindicated in court does not bear the financial burden of proving their case.
Factors affecting cost orders
While the ‘loser pays’ principle is the general rule, courts have broad discretion in making cost orders. Several factors can influence the court’s decision on the incidence of costs:
- Conduct of the parties: The court considers the behaviour of both parties before and during the proceedings. This includes their adherence to pre-action protocols and reasonableness in pursuing or defending claims.
- Partial success: If a party succeeds in some aspects of their case but not others, the court may adjust the cost order accordingly.
- Settlement offers: The court considers any admissible settlement offers made during the proceedings.
- Complexity of the case: The intricacy of the legal issues and the volume of evidence can impact cost orders.
- Proportionality: The court assesses whether the costs incurred are proportionate to the matters and amounts in dispute.
Standard vs. indemnity Basis
When awarding costs, courts will award either standard basis or indemnity basis. On the standard basis, the court only allows costs that are proportionate to the matters and amounts in issue and resolves any doubts in favour of the paying party.
On the other hand, the indemnity basis is more favourable to the receiving party. Here, the court resolves any doubt in favour of the receiving party, which in principle might lend itself to a higher recovery rate of costs. Indemnity costs are typically awarded, when the court considers the conduct of the losing party has been such that it warrants such a costs order against it. . There is no requirement to meet any specific test of proportionality when costs are assessed on the indemnity basis.
Managing litigation costs
Cost budgeting
Cost budgeting has a significant impact on managing litigation costs in high-value disputes. This process involves creating detailed estimates of incurred and future costs for each phase of a case. Courts scrutinise these budgets to ensure they are reasonable and proportionate to the matters in dispute. The goal is to provide transparency and predictability in legal costs, helping parties make informed decisions about pursuing or defending claims and can be a measurable yardstick by which costs can be recovered following any resultant costs order.
Alternative Fee Arrangements
To help manage litigation costs, law firms are increasingly offering alternative fee arrangements (AFAs) alongside traditional hourly rate billing. These arrangements can benefit both clients and law firms by providing more flexibility and cost predictability.
Common types of AFAs include:
- Conditional Fee Agreements (CFAs): Under a CFA, part or all of the legal fees become payable only if the claim is successful. This arrangement reduces upfront costs for clients while allowing law firms to share in the risk and potential reward of the case.
- Damages-Based Agreements (DBAs): In a DBA, the legal team receives a percentage of the damages recovered if the claim is successful. If unsuccessful, the legal team receives no fee.
- Fixed or capped Fees: For certain types of work, law firms may offer a fixed or capped fee, providing clients with more certainty from the outset.
Third-party funding
Third-party funding has emerged as a valuable option to manage litigation costs in high-value disputes. This arrangement involves an external investor financing all or part of the legal costs in exchange for a share of any damages awarded. Third-party funding can be particularly beneficial for clients who may not have the resources to pursue a strong claim otherwise.
Conclusion
Monitoring litigation costs in high-value disputes demands careful consideration and strategic planning. Understanding the various heads of costs, from legal fees to the various external disbursements, is crucial to navigating these challenging waters. The ‘loser pays’ principle, and the court’s discretion in awarding costs adds another layer of complexity, making it essential to evaluate the strength of one’s case before proceeding.
In the end, a thorough understanding of litigation costs is key to successfully navigating high-value disputes.