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Deciding whether it is worth paying the price of litigation

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legal matters

The cost of litigation is said to be its greatest drawback. Although it may deter potential litigants from embarking on the thorny path, it seems that once they have taken the plunge they pay scant regard to money from then on.

Litigation is unusual so far as multi-party processes go. It can be started by only one claimant against any number of defendants.

Once started, however, it can only be stopped with the consent of all concerned.

Surprisingly, the prospects of consensual settlement increase exponentially with the number of defendants. Whereas a solitary defendant may adopt an intransigent position, a number of defendants are more likely to pass the hat around to achieve a settlement. The more defendants there are, the more costly the action is anyway.

A recent piece of construction litigation involved 38 defendants. It was difficult to find a courtroom large enough to accommodate them all.

The hearing of all pre-trial matters took at least a day and the written submissions exchanged beforehand filled a lever-arch file.

Rather than burden the parties with copies of each other's documents, the judge ordered that a website be set up and all documentation be posted on it for ease of access.

Needless to say, some defendants were prepared to pay good money to extricate themselves from the action, irrespective of the merits of the claim against them.

A good illustration of how the cost of litigation assumes a secondary importance is to be found with the legal expenses insurance included with many household policies. Legal expenses insurance provides cover for any claim that the insured may wish to bring. This enables householders to embark upon litigious claims that previously they would have steered clear of.

Policies typically have a limit of about £50,000. Despite knowing from the outset that funds are limited, costs are cheerfully incurred until, usually around the eve of trial, the awful truth dawns that the kitty is empty. The claimant has then either to face the costs of the trial unassisted or attempt a hasty settlement.

This example also illustrates the pointlessness of trying to cap recoverable costs at a pre-determined arbitrary limit. Common sense may dictate that the costs of an action, where only £100,000 is at stake, should be limited to 10-25 per cent. Experience shows that the sums at stake have little connection with the complexity of the issues and any global limit is cheerfully ignored by the parties until it is, for all practical purposes, too late. In fact, the smaller the sums at stake the more likely it is for the costs of the action to exceed them, making it harder for an acceptable compromise to be reached.

A halfway house adopted by some parties who want to get out of what has proved to be an expensive action, who want to avoid a trial but cannot agree on costs, is to ask the court to decide for them. In BCT Software Solutions v C Brewer & Sons (11.7.03), BCT's software licensing claim was settled for £10,000 on the second day of trial, by which time each side's costs were more than £300,000.

They asked the judge who had read the papers and heard opening submissions but had yet to hear the evidence, to make a costs order. He assumed the four main issues in the action were each responsible for 25 per cent of the costs. As BCT had won on only one of those issues it was entitled to recover 25 per cent of its costs and was obliged to pay the defendants 75 per cent of theirs. Furthermore, as BCT had recovered such a small sum when compared with the size of its claim and the costs of the proceedings, its 25 per cent recovery should be halved to 12.5 per cent, with the result that, despite recovering some money, the firm had to pay most of the costs.

When BCT challenged this, the Court of Appeal pointed out there were real difficulties in asking a judge who had not tried the action to decide costs. Nevertheless, it had asked him to do so and the result should stand.

There is a moral here. Probably it is this: 'If you can't afford to lose, you shouldn't play the game.'

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