There is a Court rule whereby costs incurred by a lawyer cannot be disproportionate to the claim. This is recently being imposed on parties, reducing the costs which they can claim. Nonetheless the costs claimed are still high and this should be borne in mind when considering mediation. The cases are a warning to litigants that they may not get back all of their costs if they win the case, so why not mediate at an early stage. It is a question of looking at the costs that would be incurred and whether they would be proportionate. Litigation can amount to money down the drain.
BNM v MGN
The first case was BNM v MGN, where the Claimant accepted £20,000 damages. The costs claimed were some £167,000, including success fees at 33% for both solicitors and counsel. However, the Court went on to find that those costs were about twice the sum which would be proportionate. The court therefore concluded that the total recoverable costs were some £84,000, reducing each item by about one half (save for the court fee).
When applying the new test of proportionality, the court was entitled to take into account the total amount of the costs, including both base costs and additional liabilities (ie CFA success fees and ATE premium).
Applying the test, the court commented that there would be cases where the costs bear a reasonable relationship to the sums in issue even though they exceed those sums. This was such a case. However, the amount claimed was not proportionate.
The ATE premium was also disproportionate, even though the court could not conclude that the premium was unreasonable, and accepted that it was necessary for the claimant to purchase the insurance. The court noted that “costs may be disproportionate even though they were necessary”.
A premium of £58,000 (excluding tax) at the stage the claim settled, potentially doubling to £112,500, could not be said to bear a reasonable relationship to a claim which settled for £20,000, the court said, “where there was no substantial claim for non-monetary relief, which was not particularly complex, where no significant work was generated by the conduct of the paying party and where there were no wider factors involved”.
May v Wavell Group
The other case was one involving the Queen guitarist Brian May and his actress wife, Anita Dobson. The Court ordered that their costs would be slashed by 80%.
The couple had sought a costs order for more than £208,000 after settling a claim with Wavell Group over the development of a basement. They claimed that the development had caused an unreasonable nuisance, but they ultimately agreed to an out-of-court settlement with the developer of £25,000.
The Court ruled that the costs application should be slashed to £35,000.
The solicitor acting for Wavell, said: “This case is a lesson for parties and their legal advisers to consider very carefully the steps that they intend to take when dealing with a case, whether prosecuting a claim or defending.” It remains to be seen whether the damages obtained will now be eaten up by the costs.
The lesson from both these cases is that where a case is going to be expensive to pursue, it is worthwhile considering mediation at an early stage. this can cause a dilemma for lawyers as they do not generally want to cut corners in litigation, or they can be sued themselves. Mediation can assist as the clients are involved in making the decision as to the settlement terms and can reach a commercial deal which cannot be obtained through the Court system.