Paying Legal Costs
Legal costs are often a very important consideration in any legal case. This is how to pay your own costs of funding the case, but it also concerns your potential exposure to pay the other sides costs if matters do not go to plan.
If a case goes to court Judges generally have a discretion to order who pays the costs but there are some principles which can guide us here. The general rule is that costs follow the event. Put simply, this just means the loser pays the winners costs. However, if you were to find yourself in this position it is important to realize:
- You may have had to pay your own costs up front, and thus even if you get an order someone else has to pay your costs
you then have the job of getting the costs from them and if they do not have such funds you may see this as a hollow
victory - Even if you get an order the other side pay your costs, often they are only ordered to pay a proportion of your costs,
as an indication say two thirds to three quarters of your costs (this is a guide, each case is judged on its merits
and more or less costs could be ordered) - The legal costs of both parties can believe it or not greatly exceed the amount in dispute!
Case Study
The following case study shows how one of our clients was able to use the above to minimize the risk of disproportionate costs. A claim was made against our client for £11,000. At the outset the advice we would give in this type of claim is that if the firm making the claim won the client may be ordered to pay
If the client won the firm may be ordered to pay:
Their own costs £15,000
The clients costs (we estimate in this case 70% of £15,000) £10,500
Firm to pay £25,500
If the firm won the client may be ordered to pay:
Damages (plus interest) £11,000
Their own costs £15,000
The firms costs (we estimate in this case 70% of £15,000) £10,500
Total £36,500
In this case we had instructed a Barrister to prepare a detailed defence for a fixed fee of £840. The Barrister indicated that it was likely the client would lose the case. Thus after careful consideration and our advice the client paid £1,500 to the firm just reducing the claim to £9,500 to ensure it would be decided in the small claims court, and did the case themselves which is what the small claims court encourages and is designed for. The client thus avoiding the potential costs of losing of £25,500.
Example
Solicitors are under a duty to provide their clients with information about costs at the outset to enable important decisions to be made about proceeding. In this example we are assuming a homeowner is making a claim against a builder for £30,000 for bad and unfinished work to an extension to their house. Broadly speaking the advice a Solicitor should give a client at the outset is as follows:
If the case went to Trial each sides costs could be £60,000 each. This if the householder won damages of £25,000 plus interest and costs, the householder may have had to pay their own costs of say £60,000 but:
The builder may be ordered to pay
Damages to the homeowner (plus interest) £25,000
The homeowners costs (e.g. 70% of £60,000) £42,000
Their own costs £60,000
Total for Builder to pay (plus interest) £127,000
If the homeowner lost they may be ordered to pay:
The builders costs (e.g. 70% of £60,000) £42,000
Their own costs £60,000
Total for homeowner to pay £102,000
The point being the total costs may be £120,000 over a £30,000 dispute. Unsurprisingly the above can lead to parties trying to settle and avoid court. In fact, the law requires this to be done and many cases, but not all settle. There are trials every week in the civil court across the land.
An interesting exception to the above rules is that generally if a case involves a sum of money of less that £10,000 it will usually be dealt with in the small claims court. The significance of this is that in this scenario, generally neither party recovers any costs, except if the party making the claim succeeds they may be awarded the court fee and
some relatively very modest costs.
