Minimise litigation costs
- Alex Kleanthous
- Updated: Wed, 22nd Feb 2017
Litigation costs shape how cases are run. A well managed case will include on going review on containing litigation costs. There are no prizes for instructing expensive solicitors only to find the courts disallow your legal expenses as they are not proportionate.
Litigation costs management
We offer a fixed fee service to provide an initial response on likely prospects of success for £500 to £1000 plus VAT depending upon complexity.
Litigation costs management – the modern approach
Litigation cost containment is at the forefront of judicial thinking. The emphasis of the courts is to prevent unnecessary costs. Litigation costs are approached in two ways:
- The first is that legislation now imposes a requirement for reasonable and proportionate costs.
- The second is the string of recent court decisions striking out unreasonable costs even if the party won the case.
Practical litigation cost management
Litigation costs can be minimised or preserved where:
- A commercial settlement is agreed to bring the litigation dispute to an early end; or
- Costs are effectively managed at all times leading up to either settlement or judgment.
Costs management is an important part of our litigation dispute service. The legal representatives should be proportionate to the nature of the litigation dispute.
Relying on a heavyweight “name” may not win favour with the courts if the merits do not warrant the instruction. The court may disallow some or all of the litigation costs meaning your expenses are increased.
Litigation costs management – how to reduce exposure
From an early stage you should be considering the following pointers:
- Very importantly, how strong is the evidence?
- Are there any initial low-cost ways to bring the other party to the negotiating table before issuing proceedings in court? Example being instructing an industry expert to determine fault.
- Is mediation likely to be suitable?
- How can we pitch an initial commercial settlement offer to reduce your costs?
- Do we need to apply for an injunction due to concerns over the other party’s standing?
- If working for the person bringing the claim – how can we block defences?
- If working for the defendant – how can we prevent the claim from taking off in court?
Litigation cost risk
Broadly speaking, there are two types of litigation cost orders the court can make on the losing party:
- Standard basis: the loser only has to pay those costs of the winner that are reasonable and proportionate.
- Indemnity basis: the loser will have to pay the winner’s reasonable costs, whether or not they are proportionate.
Risk with the standard basis
The risk is that the court orders legal costs be assessed on a standard basis. This means that a winner could receive an award of say £50,000 but face a legal bill of say £100,000. The loser then argues that the legal costs are not proportionate – and therefore the winner’s costs not recoverable. If the court agrees, the winner then has to foot the costs shortfall. Hence – no prizes.
Circumstances justifying indemnity basis costs
Certain situations may force a court’s hand to order costs on the indemnity basis. Examples being where:
- Conduct – the loser has conducted the case in a poor manner. For example, the loser may have made numerous interim applications, each having little merit or application to the case.
- Offers – the winner made numerous offers to the loser. All were rejected or ignored. The court then awarded the winner damages equal to or in excess of the offers made.
- Alternative resolution methods – the loser refused to engage with a mediation offer. Or, the dispute could have been resolved with the opinion of an expert, and offers were rejected or ignored.
The list is not exhaustive.
Use of commercial settlement agreements to settle disputes
Usually, you will be best served to agree a commercial settlement with the other side. A commercial settlement will not only save on costs but also bring finality to the litigation dispute. Litigation is always a disruptive process.
A commercial settlement agreement can be reached at any time before or during the court litigation process. Obviously, the sooner the case is disposed of the better. But sometimes, there is work to be done by us to create an appetite to settle.
Recording settlement terms
If a settlement is reached it needs to encompass areas which could cause difficulties in the future if not settled. We prepare the written terms of any commercial settlement agreement.
You need to consider:
- Any satellite disputes that could arise that you want dealt with as part of the full and final payment.
- The terms of payment and timing from one party to the other.
- How legal costs are to be dealt with.
- If claims have been lodged in court the timescale for withdrawing claims, and the appropriate forms that will be filed in support.
Using the court system to contain litigation costs
The courts operate a number of procedures designed to contain litigation costs. The court procedures also help the parties focus on the risk and address whether there could be an opportunity for settlement outside of court.
The court procedures are summarised below and include:
- Part 36 offers;
- Part admissions of liability; and
- Calderbank offers.
Part 36 offers
A Part 36 offer can be used as a cost effective tool to resolve a commercial dispute. An offer must be accepted within 21 days. This is known as the “relevant period”.
We set out below why Part 36 offers are used to ramp up the pressure.
Pressure on the person who brought the claim
If the party who brought the claim did not accept a defendant’s Part 36 offer and:
- Failed to obtain a more advantageous judgement, then:
- Claimant to pay the defendant’s costs from end of relevant period to trial, plus interest.
- Lost the case, then:
- Claimant to pay the defendant’s costs from initial instructions to trial,
- With consideration for an increase on costs.
- Beat the offer at trial, then:
- Costs decided in the usual way.
Pressure on the defendant
If the claimant offers to settle under part 36 and:
- Obtains a judgement more advantageous at trial, then:
- Claimant’s costs will be subject to potential uplift on the indemnity basis, plus
- 10% interest on those costs,
- Additional award up to £75,000.00,
all payable by the defendant.
- Claimant obtains less than it offered, then:
- Costs decided in the usual way.
Part admissions of liability
Part-admissions of liability can create complexities. The courts have said a payment in “part-admission” of liability does not influence whether the court deems the judgment “more advantageous”. Thus, a party could make:
- A Part 36 offer of £30,000.00; then
- Part-admit liability, and
- Offer to pay £10,000.00.
Courts do not “reduce” the sum for the claimant to beat at trial to reflect the £10,000.00 already received. The hurdle is still £30,000.00. Defendants – take note.
A calderbank offer is an offer of settlement which is kept secret until the court decision. A calderbank offer avoids the drastic consequences of failing to match a Part 36 offer. This is because it is not subject to the same rules as a Part 36 offer.
Cost management applies to any type of case
Whichever side we support, costs affect all litigation disputes including:
- Agency disputes;
- Commercial contracts;
- Directorship disputes;
- Employment disputes;
- Franchise disputes;
- High value commercial debts;
- Intellectual property disputes;
- Partnership disputes;
- Shareholder disputes;
- Shareholder valuation disputes.
Our broad commercial dispute litigation experience enables us to approach your case in a systematic way designed to achieve the best achievable in the circumstances.
Alex Kleanthous is a partner in the litigation and dispute resolution team. He works with a variety of businesses, directors, and shareholders, always seeking to resolve issues and keep his clients out of court wherever possible.