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Costs turn winners into losers

03 February 2010 #Dispute Resolution


Lord Justice Jackson`s Final Report on civil litigation costs ("the Report") was published on 14 January 2010.  The Report is 584 pages long and makes many suggestions for change, far too many to cover here, but as a flavour they include:

  • That the indemnity principle (where the amount which the paying party must pay cannot exceed the amount which the successful party must pay to his own solicitor) should be done away with in favour of the Court assessing costs so as to allow reasonable amounts in respect of work actually and reasonably done
  • Changes to the definition and the application of "proportionality" of costs
  • The introduction of a fixed costs system for all Fast Track cases with pre-trial costs limited to £12,000 (£13,500 where a London firm of solicitors is instructed)
  • More robust case management by judges
  • A campaign to educate about alternative dispute resolution.

Two recent cases highlight how costs can turn a "winning" party into a loser.  Earles -v- Barclays Bank was a case in the Birmingham Mercantile Court.  The Bank successfully defeated the claim against it.  However, it was only awarded 25% of its costs.  Why so? 

The Judge was critical of the Bank`s conduct of the proceedings.  These had been made unnecessarily complicated by the fact that both parties had failed to preserve and disclose electronic documents that were relevant to the dispute.  The Judge was especially critical of an apparent lack of awareness by the Bank and its lawyers on the rules concerning e-disclosure.  The Judge was not interested in the Bank`s excuse that one of its employees had retired.   The Bank`s Bill of Costs was reduced by 50% on this ground alone. 

The Judge also made substantial reductions to the hourly rates claimed for by the Bank`s City of London lawyers, which were generally double the guideline rates for Birmingham.    The combined effect of the Judgment was that the bank was awarded just £38,517 of the total £154k claimed.

Another recent case concerned an application for a Costs Capping Order.  This is a relatively new device, under which a Court may place a cap on the costs a successful party can later recover.  The claim in Barr -v- Biffa Waste Services was brought by 163 individuals, with the benefit of a Conditional Fee Agreement (CFA) and after the event insurance (ATE) with cover of up to £1 million.

Although the total value of the claim was £1 million, if the Claimants succeeded they estimated that they would claim costs of £4 million (including 100% uplift under the CFA).  The Defendant`s estimated costs were £3.3 million but, as the ATE cover was limited to £1 million,  the Defendant would be substantially out of pocket even if it won.  In an attempt to level up the playing field the Defendant sought an Order that the Claimants` costs be capped at the £1 million ATE limit. 

The Judge refused to do so.  Although the estimated costs substantially exceeded the damages claim this did not automatically mean that they were disproportionate.  The Judge took account of the similar level of estimated Defendant costs.  He did however order that the Claimants` costs would be limited to the amount in its estimate.

Clarkslegal, specialist Dispute Resolution lawyers in London, Reading and throughout the Thames Valley.
For further information about this or any other Dispute Resolution matter please contact Clarkslegal's dispute resolution team by email at disputeresolution@clarkslegal.com by telephone 020 7539 8000 (London office), 0118 958 5321 (Reading office) or by completing the form on this page.

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Stephen James

Stephen James
Partner

E: sjames@clarkslegal.com
T: 0118 953 3931
M: 07884 188 021

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