Saturday, 25 June 2011

ARTICLE: Legal Costs



Shipping law is one of the most niche areas of the legal system. Whilst there is a huge body of law, which is for the most part very complex, there are very few shipping law cases that result in legal proceedings. There are therefore relatively few firms (especially outside the big cities) who can concentrate their entire practice on an area of shipping law or even shipping law as a whole. For this and other reasons the costs of shipping law disputes tend to be towards the higher end of the spectrum.

Indeed, when a case involving shipping law does go to trial it is often found that there has not been a clarification of the law for some time - in the recent case of Global Process Systems v Syarikat Takaful Malaysia Berhad a question arose as to what constituted 'inherent vice' under a marine insurance policy and it was surprising how many different views appeared on what was one of the fundamental elements of marine insurance. This case was unusual in that the parties had particularly 'deep pockets' and were willing to hold their ground on the legal points. The claim therefore went from first instance decision to Court of Appeal and all the way to the Supreme Court (Judgment link). This is highly unusual for a shipping law case in England and the legal costs for the losing party must have been significant.


ALLOCATION OF COSTS - THE COMPETING REGIMES


THE 'ENGLISH RULE' (the successful party can recover costs from unsuccessful party)

In most parts of the common law world costs are based on what is known as the 'English Rule'; that costs 'follow the event'. In other words the case is concluded and then the legal costs are divided as appropriate, usually meaning that the losing party pays their own costs and the costs for the other side. The logic is that in every dispute one side is at least theoretically wrong and had they amended their position the need for legal proceedings would have been avoided altogether.

This is a general rule and there are many nuances and exceptions to it. For instance in small claims track cases (low value disputes) the winning party normally will either not be able to recover any costs from the other side or only fixed amounts of costs. This is to stop parties with large amounts of funds available spending disproportionate amounts on legal fees in small disputes to 'scare off' the other side. For instance if you did not pay £ 150 on your phone bill because you were billed that amount by mistake. If the company did not listen and took you to court threatening that you would have to agree to pay it or be left owing them approx. £ 35,000 in legal costs.

The costs system in England, and the level of costs generally, is often cited as the main reason for there being relatively little use of the civil courts and a general reluctance to take disputes to legal proceedings in England. Lord Justice Jackson recently conducted a wholesale review of the system which is available here.

THE AMERICAN WAY (the successful party cannot recover costs from unsuccessful party) 

The USA is the best example of the alternative system. In the USA a successful party in litigation generally cannot recover their legal costs from the other side in the dispute. Like small claims in England this gives those people and companies of limited means the ability to use the court system freely, without the threat of incurring enormous unbudgeted defendant's costs. The flip-side of this is that people perhaps lose a natural inhibition to litigate small or needless disputes that exists in England and the level of litigation is quite high.

AN ALTERNATIVE (the successful party can recover a fixed amount of costs from the unsuccessful party)

Lord Justice Jackson, who has conducted a wholesale review of the English costs system (linked to above) has been known to admire the German courts system for attribution of costs. This system is a blend of the English and American systems, where successful parties can recover reasonable costs but only up to a fixed amount.

"NO WIN - NO FEE"

Sometimes referred to in a maritime context as 'no cure, no pay', this is an agreement that the lawyer will only charge legal fees where they are successful in your legal case. This normally means that they obtain compensation from the other side for you (either in court or before going to court). This does not mean no win, no charge. Even where the lawyer is not successful they only waiver their legal fees and they may still charge you disbursements (telephone and travel costs, photocopying expenses, court fees, barrister's fees etc.).

Because lawyers taking on these cases are risking being essentially unpaid for some of the work they do they will normally wish to charge more for the cases that they do win. For this reason in the USA it is common for such lawyers to note that is successful they are entitled to legal fees and / or a share of the compensation. This is known as a 'contingent or contingency fee' and is normally not allowed for family or criminal cases.

Whilst it can seem unfair, if you have a civil claim but no ability to pay for legal representation to enforce it, the  contingency fee option is a real boon. In English law such fees are only allowed in very specific instances, where costs are not generally recoverable from the other side. Normally English solicitors may only use a 'conditional fee' which is a percentage increase on their fees (or a 'success fee') that they get where they are successful. This is normally between 10  and 100 % and is recoverable from the other side in the dispute as long as they are properly informed about its existence.

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