Commercial Litigation - Obligation that all legal costs must be proportionate
COMMERCIAL LITIGATION – OBLIGATION
THAT ALL LEGAL COSTS MUST BE PROPORTIONATE
One of the changes brought by the Victorian Civil Procedure Act 2010 (Vic.) is the obligation on law practices to ensure that legal costs incurred in connection with civil proceedings are reasonable and proportionate to the complexity or importance of the issues in dispute and to the amount in dispute. Victorian lawyers have this obligation as part of their requirement to comply with the overarching obligations of the Civil Procedure Act. These overarching obligations apply to their clients involved in the civil proceedings as well.
This section is very much in its infancy. There are few decided cases in Victoria. Similar provisions exist in other Australian states.
However, similar provisions also exist in the United Kingdom. There have been a number of decisions on how the so-called costs proportionality rule operate in practice. One such decision was by a master of the English High Court (like an Associate-Justice in Victoria) in BNM v.MGN Limited  EWHC B13 decided in June 2016.
In that case, the claimant was a primary school teacher who had a relationship with an English Premier League soccer player. She lost her mobile phone which was given by an anonymous source to a newspaper. When the newspaper journalist approached the claimant about her relationship, she complained to the newspaper who returned the mobile phone to her.
In 2013, the claimant instructed lawyers under a conditional fee agreement to claim an injunction restraining the newspaper from using or publishing confidential information taken from her mobile phone as well as damages and an order for delivery up of any confidential information. As well as her solicitors acting on a conditional fee basis, her barristers were also prepared to act on a similar basis. The claimant’s lawyers sought legal insurance to protect her for costs orders from the newspaper if her legal action was unsuccessful.
In 2014, the claimant’s case was settled upon the basis that the newspaper agreed to pay damages of £20,000.00 plus costs plus an undertaking not to use or disclose the confidential information from the mobile phone. The claimant claimed costs of £242,000.00 including a 60% uplift fee for her lawyers and barristers. She also claimed her costs insurance premium of £58,000.00.
At a subsequent costs assessment, the newspaper claimed that the costs incurred by the claimant were disproportionate having regard to her claim. On an overall assessment on an attendance-by-attendance basis, the claimant’s costs were reduced from £242,000.00 to £167,000.00 – a reduction of approximately 33%. The English High Court Costs Master then examined whether or not the remaining costs were proportionate within the meaning of the English provision which is substantially similar to the Victorian enactment set out above. The Costs Master concluded that the case was not particularly complex where little additional work had been generated by the defendant newspaper’s conduct and there were no wider factors involved such as public importance. Furthermore, the claim was settled at a relatively early stage. Accordingly, the Costs Master reduced the overall costs for the claimant’s solicitors and barristers by 50% as well as reducing the costs insurance premium by a further 50%.
This precedent serves as a warning to litigants and their lawyers in commercial litigation to ensure that costs budgets are carefully planned in advance and are also proportionate in relation to the type, complexity and potential quantum of litigation. Litigants should seek competent advice prior to engaging on commercial litigation.
This article is intended only to provide a summary of the subject matter covered. It does not purport to be comprehensive or to render legal advice. No reader should act on the basis of any matter contained in this article without first obtaining specific professional advice.