In the first of our new series of articles on “How to Avoid…” common legal problems, Michael Axe provides some practical advice on steps that you can take to ensure that you don’t unnecessarily miss out on recovering legal costs in litigation.
Key points to remember:
How to avoid… losing out on recovering litigation costs:
- Carry out pre-action checks
- Comply with the pre-action court rules
- Consider security for costs
- Don’t ignore your e-disclosure obligations
One of the primary concerns for claimants and defendants involved in commercial disputes, whether at an early pre-action stage or right the way up to trial, is likely to be whether they will be able to recover their legal costs from the other side if they win the case. The general rule is that “the loser pays the winner’s reasonable legal costs”, but there are some straightforward steps that you can take to ensure that you do not unnecessarily lose out on costs recoveries.
1 – Carry out Pre-Action Checks on the Other Side
It is often said that there is nothing to be gained in suing a “man of straw” (i.e. a person of no means), regardless of the merits of your case. This is obviously sound advice, as in many cases a victory at trial will be all but meaningless if the losing party has insufficient assets to pay the judgment.
It is therefore vital that you carry out reasonable pre-action checks into the financial stability of your opponent. These could include, for example, bankruptcy/insolvency checks, property searches and, in the case of corporate entities, credit checks and reviews of up-to-date company accounts.
2 – Comply with the Pre-Action Court Rules
Many “specialist” disputes (such as Professional Negligence claims or Construction and Engineering disputes) have specific “Pre-Action Protocols”, which are special court rules setting out the procedures to be followed before Court proceedings are commenced. The Courts will expect the parties to have complied with the procedures set out in any relevant Protocol before a Court claim is issued, and a party’s failure to comply with the Protocol may result in the Court penalising that party in costs, even if it is ultimately successful at trial.
Those disputes which are not covered by the specialist Protocols (such as “general” contractual disputes) are still covered by the “Practice Direction on Pre-Action Conduct” (also known as the PDPAC). The PDPAC is not quite as formal as the Protocols, but it still requires the parties to exchange reasonable information and make appropriate attempts to resolve the matter at the pre-action stage. Once again, a failure to comply with the PDPAC can result in the Court penalising the defaulting party in costs.
3 – Consider Applying for Security for Costs
You might be thinking that the pre-action checks referred to above only apply if you are a claimant; after all, if you are a defendant you need to defend yourself regardless of whether or not the claimant is a “man of straw”. This is, however, not correct, as in some cases a defendant may be able to persuade the Court to make an Order that the claimant must pay a sum of money into Court as security for the defendant’s costs. If the Court makes such an Order for security for costs, the claimant will not be able to proceed any further with the claim until the security is paid into Court.
The purpose of an Order for security of costs is to protect the defendant from incurring the costs of defending a claim in circumstances where there are concerns that the claimant will not be able to satisfy an order for costs if the claimant loses at trial. There are a number of conditions to be satisfied when making an application for security for costs, and the Court will need to be convinced that it is “just” in all the circumstances to make the order, but if a defendant has concerns about the claimant’s ability to pay the defendant’s costs if ordered to do so, an application may be appropriate.
4 – Don’t Ignore your E-Disclosure Obligations
Another area (like pre-action conduct) where failure to comply with the relevant Court rules can result in very significant costs penalties (even if you win the case) is in relation to the disclosure of electronically stored evidence, also known as “e-disclosure”.
The e-disclosure rules cover all forms of electronic “documents”, from relatively common word-processing documents, spreadsheets and emails, to SMS text messages, digital voicemails, instant messages and even “deleted” files and hidden metadata. It also covers information stored on everything from desktop PCs and laptops, to smartphones, iPads/tablet computers, memory sticks, digital cameras, iPods/media players, servers and back-up archives.
The rules governing e-disclosure are arguably not the most straightforward, but the Courts have made it clear that parties cannot afford to ignore them. Perhaps the most famous example of this is the case of Digicel v Cable & Wireless, where the Court ordered Cable & Wireless to re-perform its search for e-disclosure documents because its original search had not complied with the e-disclosure rules, even though Cable & Wireless had spent over £2million carrying out the original search.
Summary
Whilst it is extremely unusual for the Courts to order the losing party to pay 100% of the winning parties costs, steps such as those highlighted above should help to ensure that if you are the winning party, the Courts will not penalise you in costs for breaches of the relevant procedural rules, and you do not lose out on recovering costs due to the financial instability of your opponent. Equally, these steps may also help to mitigate any liability to pay your opponent’s costs if you lose.
For more information on this or any other issue regarding litigation or litigation costs, please contact Michael Axe by emailing Michael or by calling him on 08450 990045, or speak to your usual contact in the Commercial Disputes Team.
For further details on these issues, please see our earlier articles The importance of pre-action searches, Failure to comply with your Electronic Disclosure obligations could prove extremely costly and Court rules emphasise the need for early cooperation on Electronic Evidence.
This document is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from taking any action as a result of the contents of this document.
