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Who pays the legal costs in litigation?

Mike Gossage

The most common presumption I come across is that, if your litigation case goes to a hearing and you are successful, then your opponent must reimburse you in full for your legal costs. The expectation is ‘the other side pays my legal costs if I win’, and in my experience, many prospective clients expect this to be an automatic rule.

It makes sense, right? You have incurred expense to take another party to court, you have been successful at court against that other party, and you would not have incurred such expense had it not been for the other party’s conduct.

However, the position is not as clear cut as you may think. Unless there is an indemnity between the parties, the costs position is dependent on the type, value, and complexity of the case, and the conduct of the parties.

What factors affect who pays legal costs?

Firstly, you must assess the type and likely value of your case. There are case types which are subject to limited fixed costs, such as limited compensation claims for injuries sustained in road traffic accidents, or money claims worth less than £10,000. There can be exceptions to that general rule, such as cases which may require the court to make a declaration, or cases which are sufficiently complex.

So, how do costs operate in claims which fall outside of fixed costs? The starting point is the “losing” party pays the “winning” party’s reasonable costs, and the court will assess what is reasonable. This is what is known as the ‘standard basis’. In my experience, this often falls within the 60-80% range and you will be responsible for the remainder. If you lose, the opposite likely applies.

Paying legal fees in complex cases

For cases worth £25,000 or more, or that are deemed significantly complex, the standard basis will likely not apply. At an early stage of the case the parties will forecast their anticipated costs for each stage, which is then assessed by the court. This is known as ‘cost budgeting’ and it provides clarity on what costs will be recoverable depending on the stage at which the case finishes.

Judges always have discretion on costs, which is a big unknown factor. If you succeed with part of your case but fail with another, the judge will need to decide whether you are deemed to have “won”. Also, if a judge determines a party’s conduct was unreasonable, which in my experience requires significant and continual poor conduct and/or rejecting an opponent’s invitation to mediate, the court may penalise that party on costs.

Why the uncertainty?

In summary, the lack of certainty on costs may seem unfair, however it encourages parties to negotiate and to only consider litigation as a last resort. If parties were guaranteed to recover costs at court if successful, it would only follow that parties will be much less likely to seek an amicable resolution, and the courts would be further burdened with hearings.

With the position on costs often being uncertain, you should always consider whether your claim is capable of early direct settlement with your opposing party and, if not, you should query how costs are likely to operate in your case before you pay to instruct a legal representative.

If you have questions about a litigation matter, or want advice you can contact our expert legal team here