For years, lawyers in England have advised their clients that if they win their case, around two thirds of the legal costs of bringing the case are ordered to be paid by the loser (known as standard costs).
In exceptional cases, when the loser behaves particularly badly, the Court can order the loser to pay virtually all of the winner’s costs (known as indemnity costs).
These broad rules address the share of the costs payable by the loser to the winner, but started to lose sight of whether the costs to which the shares ordered to be paid were reasonable or not.
A particularly celebrated example of this was ‘a win’ for the supermodel Naomi Campbell who won £3,500 damages for a breach of privacy claim. Her lawyers presented a costs claim against the losers (the Daily Mirror) for £1,086,000.
The losers eventually obtained a declaration after 8 years of argument that the costs were so high that they infringed European Convention Right Article 10, Freedom of Expression and the costs reputedly settled at around £500,000.
Whilst this summary comprises a simplification of the complex costs issues in the Campbell case, this case well illustrates the concerns of the Court over proportionality and the reason for it.
Accordingly, in 2009 the judiciary concerned at this escalation of legal costs in litigation directed Sir Rupert Jackson, Lord Justice of Appeal that he should review civil legal costs and how rules might be put in place which promoted access to justice at proportionate cost.
The upshot of this is that for cases commenced after 1 April 2016, legal costs in litigation are subject to a new test of proportionality. Costs are proportionate if they bear a reasonable relationship to:
- The amount the case is about
- The value of any claim which is not for money
- The complexity of the case
- Any costs caused by the behaviour of the loser
- Any other public interest or reputational factor
The costs can be disallowed even if they were reasonable or had to be incurred.
This new change hit the news last week in an action involving the rock band Queen’s guitarist Brian May and his wife Anita Dobson. They claimed £208,000 legal costs in a neighbour dispute claim which was ‘won’ by settling early for £25,000.
Even though they ‘won’ the Court ordered that only £42,000 (around 20%) of their legal costs be paid by the losers.
The loser’s advisers said:
“Costs incurred should be tightly focussed on the issue at large in the proceedings.
If any party wishes to pursue matters outside of that focus, they cannot reasonably expect to recover the costs of such matters if they are successful in their case. The Courts are likely to scrutinise ever more carefully the costs incurred”.
The practical consequence of this is that all litigants should ensure their disputes are direct, clear and fully addressed as early as possible in a claim and while there are strategies that can improve costs recovery ( for example court approved costs budgets or carefully framed offers) we are likely to see increasing examples of largely pyrrhic ‘wins’ reported in the courts.
Lord Justice Jackson may have sought to promote access to justice at proportionate cost, but the reality that litigation appears the province of the wealthy is hardly dispelled by the decision in Brian and Anita’s case which one suspects but for their wealth may not have been brought or if brought, would not have settled so early.
The answer to the question above is therefore more than ever, that the loser will only pay the winners costs to the extent they are proportionate and all those in litigation need to keep a very careful eye on the costs of the claim relative to the likely value of the win.
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