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Litigation costs during the COVID-19 pandemic

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By James Gliddon

6 Oct 2020 | 2 minute read

The economic impact of COVID-19 has underlined the need for effective and proportionate dispute resolution - as the volume of disputes begin to increase.

If litigation and instructing lawyers are known to be expensive, no wonder instructing litigation lawyers is often viewed as a last resort. Understandably, most businesses will explore what they can do independently and, failing that, might decide to cut their losses (e.g. by settling). However, as you might expect, we strongly challenge the pre-conception that litigation is prohibitively expensive, and this article sets out examples and our recommendations of how litigation can be done at proportionate costs and how it can produce real commercial benefits, particularly when businesses are struggling with the economic fallout of COVID-19.  

The "Loser Pays" Principle

It is well known that there is a "loser pays" principle in the English system (codified in CPR44.2), meaning that the successful party's costs of the litigation should be paid.

In practice, this does not offer a cost-free outcome for a winner – as there are limits on what is recoverable from the other side. But, as we explain below, there are steps that can be taken to improve recovery and minimise the cost risk.

What can be done to help strengthen a party's costs position?

Conducting litigation in the right way can keep costs down and, more importantly, improve costs recoverability (or minimise costs exposure).

Pre-Action Process

  • In our recent article on the importance of effective pre-action conduct, we focused on exploring the pre-action process and what steps should be taken in order to comply with the relevant pre-action protocols. Complying with the pre-action can; (1) help you settle a dispute, (2) if settlement isn’t possible, you might be able to narrow the issues in dispute and (3) if litigation cannot be avoided, it will help you save time and money.
  • Particularly where capacity is stretched, if a party fails to comply with the relevant rules, costs sanctions offer a Judge an effective case management tool.

Alternative Dispute Resolution

  • In our previous article (here) we discussed the topic of Alternative Dispute Resolution and how engaging in some form of ADR at the earliest opportunity is a must as; (1) it can often by very successful and allow the parties to focus on the more important ongoing commercial actives, (2) it may help narrow the issues of the dispute and (3) it is costs protective.
  • Another way to increase cost protection, is to effectively utilise settlement offers. In particular, Part 36 Offers, if used correctly, provide significant cost protection and incentivise early settlement.
  • Not currently utilised by many, is the preparation of a costs-only letter. Often parties include very generic reference to costs such as: “we reserve the right to bring this to the Court’s attention on the question of costs” but it is very rarely relied upon and is quite often overlooked.

However, a standalone letter which deals specifically and solely with the position as to costs and offering an alternative way out of the litigation, which formally requests a response and noting that if this alternative is not agreed, then the Court will be asked a costs order (irrespective of the decision of the underlying claim), is a tool that we strongly advocate.

Not only will this set out how reasonable a party has been in the litigation process, it may also strength your position as to costs.

Proportionate Costs

Aside from a party's subjective view on what is proportionate, the Court requires that only costs which are "proportionate to the matters in issue" will be recoverable. Therefore, a party seeking to maximise recovery from the other side should focus on ensuring its costs are proportionate.

What are "proportionate" costs in litigation?

Costs are proportionate providing they bear a reasonable relationship to the sums and relief claimed, as well as the complexity of the litigation.

However, this still leaves much to the individual circumstances of the case and emphasises the need for parties to consider how their costs will be incurred in a proportionate manner.

Due to this uncertainty, we offer a number of tools and fee arrangements that make costs manageable and ensure proportionality. This means that even now when real disputes arise, costs should not be a reason to abandon a legitimate position.

Examples of these are:

Fixed costs

We offer a fixed costs model, which will help clients with certainty. This is incredibly helpful, particularly when cash is king, to offer budgetary clarity.

Contingency costs

Flexible Conditional Fee Arrangements (where a proportion of a party’s costs are deferred until any recovery is made) are available.

Settlement Modelling

We are happy to offer our settlement modelling tool which will enable you to identify the optimum settlement points in the litigation and ensure every pound spent in costs delivers a better outcome in the case.

Conclusion

Litigation does not have to be prohibitively expensive, if it is conducted effectively, efficiently and correctly. There are a number of ways in which costs can be managed and we strive to enable you to achieve successful and proportionate litigation.

If you'd like some more guidance on costs, different pricing methods and/or help in obtaining costs protection, please do get in touch.

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