A princely sum: the impact of costs on litigation strategies

The claims failed at trial.  Following his trial judgment, Mr Justice Nicklin was required to determine whether the claimants should pay Associated’s costs on the standard or indemnity basis.

The judgment provides a useful illustration of how costs work in civil proceedings and why they should be a central consideration in any litigation strategy.  Most businesses will never face litigation on this scale.  However, most businesses do face a dispute at one stage or another.  The underlying question that directors, shareholders and business owners regularly face is simple: can I afford to lose?
A word about costs in proceedings

In English civil proceedings, the general rule is that the unsuccessful party pays the successful party’s costs. However, the reality is more nuanced.

Full recovery of costs is rare. Costs are usually assessed on the “standard basis”, where the receiving party recovers only costs that were reasonably incurred, reasonable in amount and proportionate to the matters in issue.  If there is doubt about reasonableness or proportionality, the doubt is resolved in favour of the paying party.

However, the court may order costs on the “indemnity basis”.  On this basis, proportionality does not limit recovery and doubts are resolved in favour of the receiving party. Indemnity costs are relatively uncommon and typically require conduct that takes the case outside the norm.

Winning does not mean recovering everything

Many parties assume that if they win a case, they will recover all their legal costs.  That’s unlikely.

In this case, Associated’s costs totalled approximately £34.5 million. The judge described this as “exceptionally high” and “unprecedented in the Media & Communications List”.  This was significantly higher than the costs originally budgeted.  Associated’s approved costs budget had been approximately £5.2 million.

Costs budgets are submitted to the Court. At the end of the litigation, the recoverable costs of the winning party are typically assessed in accordance with the approved budget.

The court ordered indemnity costs, meaning the claimants lost the protection that the Defendants’ approved costs budget would otherwise have provided on standard basis assessment. A payment on account of £9,544,355 was ordered, with the balance to be determined by detailed assessment.

Why did the court order indemnity costs?

Mr Justice Nicklin concluded that the claimants’ conduct was “unreasonable to a high degree” and that the cumulative effect of their conduct took the case “well outside the norm”.  He emphasised that this was not simply a case where serious allegations were made but not proven.  Rather, the claims, and the manner in which they were brought, pleaded, pursued, maintained and publicly advanced, involved a combination of circumstances that took the litigation outside the ordinary conduct of civil proceedings.

Costs as part of litigation strategy

Litigation is not simply a legal exercise. It is also a commercial decision. Alongside the legal merits, businesses should consider the likely costs, management time, reputational impacts, the effect on commercial relationships, and how these factors fit with the wider objectives of the business.

A claim may be legally strong but commercially unattractive. Equally, defending proceedings robustly can sometimes be the right commercial decision. Understanding these dynamics from the outset is essential.

Key considerations include:

• Costs can exceed budget estimates. Approved costs budgets provide important protection on standard basis assessment, but that protection is lost if indemnity costs are ordered.

• Cases evolve. Claims and defences should be regularly reviewed as disclosure and evidence emerges. What looks strong at the outset may require adjustment as the litigation develops.

• Publicity matters. How claims are presented publicly can be relevant to costs decisions. This is worth considering at the outset, particularly in high-profile disputes.

• Define success. What does a good outcome look like for the business? Once the objective is clear, it becomes easier to assess whether litigation is the right approach and whether the likely costs are proportionate.

Early advice matters

One of the biggest concerns businesses have at the start of a dispute is uncertainty. How much will this cost? What is the likely exposure if I lose? How long will it take?

Whilst there are rarely definitive answers on day one, we always look to provide a realistic assessment of likely scenarios, costs, exposure and strategic options.  Understanding the potential consequences of litigation, including adverse costs orders, is essential to making informed commercial decisions.

That’s one of the factors that we think sets us apart.