Legal costs: proportionality & reasonableness

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Usually losers pay the winner’s legal costs. But the loser and the judiciary now scrutinise the winner’s costs. The courts can and do reduce the costs claimed by the winning party.

In a case discussed below, following a detailed assessment hearing, the High Court reduced a claimant’s costs by 66%. We explain the importance of being proportionate with costs incurred, both before and during proceedings, or the court could reduce the costs claimed even if you win your case.  Proportionality includes appointing the right type of law firm for the right type of case.

Legal costs: the High Court’s view

The High Court stated that where costs are to be assessed, disproportionate costs may be disallowed or reduced even if they were reasonably or necessarily incurred. The High Court has held that proportionality is not to be assessed on a global basis but rather on an item by item basis. This means:

  • Every minute has to be accounted for;
  • Every minute has to be proportionate; and
  • Necessity no longer renders a party’s costs as proportionate.

This applies across the civil litigation spectrum, from minor debt claims to cross border matters involving corporate entities.

The facts of this case

Following pre-action correspondence and a number of settlement offers, the claimant accepted the defendant’s offer to settle the claim for £35,000.00. The claimant claimed legal costs of just under £400,000.00.

Factors the High Court considered

The High Court reduced the claimant’s costs by 66% because of:

  1. The unnecessary use of a highly-experienced solicitor to handle the pre-action correspondence could not be justified, a less-experienced solicitor would have had sufficient knowledge to draft correspondence for the defendant’s solicitors;
  2. The simple nature of the claimant’s claim which did not require an extensive examination of legal principles, the case turned on facts rather than law;
  3. The claimant insisting on seeking two separate medical experts’ reports to cover broadly the same issues; and
  4. The unnecessary use of a conference with counsel to advise on factual matters already covered by two medical experts’ reports.

The High Court’s assessment of costs

The High Court rejected an argument from the claimant’s barrister that the costs were necessarily and proportionately incurred due to the defendant being a public body. In the opinion of The High Court, although the case had public importance:

  • The high legal costs incurred had no nexus to the public importance of the case; and
  • Such an argument was not justifiable given that all parties to the civil justice system are required to be proportionate.

Even the judiciary are required to be proportionate, following substantive recent reforms targeted at increasing cost awareness.

What this means for your legal costs

The starting point is not in the mind of the party as to how costs should have been incurred during the litigation. Rather, it is the lowest amount that could and should have been incurred had the case been conducted proficiently, with regard to all the circumstances. Expenditure over and above is not recoverable. Proportionality is the key driver to the judiciary’s approach when considering legal costs.

There are new rules being introduced shortly to further drive home the principle.

Alternative methods of dispute resolution

Cost proportionality is an increasingly common theme emerging in civil litigation. This follows the recent revisions to the civil procedure rules. Alternative methods of resolution may be available, such as mediation. Failing to engage in mediation can result in cost penalties after trial; we consider the scope for mediation, from the initial stages of instruction up to the final trial on damages.

Alex Kleanthous is the partner running the business dispute team at Gannons. Alex acts across a number of sectors. Recent cost reforms do impact on conduct. Please do not hesitate to get in touch with Alex if you wish to discuss further.