Briefing Note: The devil is in the detail: a reminder on Courts’ varying approaches to legal costs

Before any prospective litigant embarks on litigation, or before they devote resources to defending litigation, it is crucial that they consider the potential costs associated with the litigation.

It is common knowledge that litigation can be costly. It is an equally common misconception that a successful litigant will recover all of their costs. The reason why that is a misconception is because it is generally correct to say “costs follow the event”, however the reality is far more nuanced than that.

What are the Court’s powers to award costs?

The Royal Court of Guernsey’s power to award costs at any stage of the proceedings is discretionary. That discretion is broad and unfettered, except that it must be exercised judicially. Practically, this means that the Court will allow the parties to make representations before such an award is made.

The usual starting point in determining liability for costs is the application of the rule that “costs follow the event” i.e. the party who was successful will be awarded its costs.

However, this is no longer a conclusive rule. It is open to the Court, noting its broad discretionary power, to depart from the rule if it considers it is in the interests of justice to do so.

What are the types of costs awards?

The Court can award costs on two basis. The first is on what is known as an order for costs on the recoverable or standard basis. Often a costs award on this basis is considered the “usual award”. The recoverable basis means that the hourly rate allowed to be claimed by a successful party for their advocates is prescribed by the Court’s costs rules, which for 2021 is £280 per hour. Practically speaking, this means that even if a party is being charged £500 per hour by its advocate, it may only recover £280 for that hour from its unsuccessful opponent. When costs under such an order are awarded, the burden is on the party in whose favour the order was made to satisfy the Court when deciding the quantum of such costs (known as taxation) that the incurrence of such costs was reasonable and proportionate.

The second basis upon which costs can be awarded is on the more punitive, indemnity basis. Here the burden is on the party who must pay the costs to show that any item of cost claimed is unreasonable. Crucially, in the event of an indemnity award, there is no cap on the hourly rate of the successful party’s advocate. Indemnity costs orders are therefore more likely to reflect the actual legal costs expended. Indemnity costs are more of a punitive nature given that the Court will only order such if there is a requisite degree of unreasonable conduct on behalf of a party in conducting itself with respect to any case before the Court such that would take the costs of that case “out of the norm”.

Which party can apply for a costs award?

Rule 83 of the Royal Court Civil Rules 2007 makes provision for an order for costs on a full or partial indemnity basis where either, in the special circumstances of the case, it is the opinion of the Court that costs should be ordered otherwise than on the recoverable basis or “where any party has pleaded or otherwise pursued or defended an action, claim or counterclaim unreasonably, scandalously, frivolously or vexatiously, or has otherwise abused the process of the Court“. Given this Rule, either party may make an application for a costs award.

Can a costs award be appealed?

A costs award, made by either a trial judge or costs judge, can be appealed. In the recent English Court of Appeal case of Global Energy Horizons Corporation v Gray [2021] EWCA Civ 123, the Court overturned a decision by the costs judge that neither party in the proceedings could be considered as the successful party and as such made no order for costs.

Generally, an appellate court should not interfere with the first instance judge’s exercise of discretion simply because they would have exercised that discretion differently. However an appellate court can interfere in limited circumstances.

In the Global Energy decision, the English Court of Appeal found that the costs judge had made an error in principle and as such it was appropriate for them to intervene and consider afresh an order as to costs. The Court of Appeal did not agree that the issue of costs should be approached on the basis that neither party was successful and, in circumstances where Global Energy had been awarded a substantial amount of money, held that it was the clear winner. This position is not changed by the fact that the amount awarded to Global Energy was significantly less that the amount originally claimed by it. In this way, Global Energy is a timely reminder that, while the old adage of “costs follow the event” still remains accurate in most cases, it is not a conclusive rule and, as ever, the devil is in the detail.

In our view this recent Court of Appeal case could provide useful guidance in Guernsey in future cases.

How can Babbé help you?

Our Dispute Resolution team at Babbé are experienced in advising on all manner of contentious legal issues. Please contact a member of the team to discuss how we might be of assistance.

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