Do Contracts trump Court’s discretion for legal costs recovery?

This article considers recent Jersey case law about how much of your legal costs the courts will award following successful legal action. Litigation is costly and parties are keen to recover their costs. The Royal Court has delivered strong views on what level of fees are appropriate in a recent ruling.

Legal costs

Businesses reasonably seek to recover their legal costs on winning a dispute.  Many contracts for the supply of services contain clauses aiming to ensure that, if their invoices are not paid, the supplier recovers reasonable legal costs of taking action through the courts.  In legal terms, this means the supplier expects to recover costs on the higher basis known as the indemnity basis.  However legal costs can be awarded on a standard basis, which leads to a significantly reduced recovery.   While legal costs awarded are within the discretion of the court, the clauses in contracts pre-existing a dispute are intended to bind the court, to ensure that costs are awarded on the higher basis.

Balfour Investments Case

In the recent case of Forward Group Limited v Balfour Investments Limited and Ors 29-Dec-2023  [2023] JRC258 the Royal Court made clear that it considers such “reasonable costs” clauses to be only a starting point and that the discretion of the court will not be fettered.  The case was heard by Sir William Bailhache, Commissioner and is therefore highly likely to be followed in future cases.

On the facts of the case the court was concerned that legal costs of the supplier exceeded the costs of the invoices in dispute and raised concerns as to whether the charge out rates of the legal advisers were appropriate considering the nature and value of the claim.  The court emphasised that the overriding objective in the Royal Court Rules 2004 sought to ensure that the “parties are on an equal footing “(Royal Court Rules 2004 1/6 (2)(a)).  The court identified the risk to this objective if the court was obliged to follow the contractual provisions.

The court also had to consider issues regarding various offers made in the litigation (called Calderbank offers) and the conduct of the parties before and during the litigation in order to determine what was appropriate.

Key learnings

Whilst the judgment makes clear that the court had strong views on the costs incurred in the legal action, it is not unusual for legal costs to exceed the value of claims for a number of reasons, including document heavy cases, an attritional approach by either party, the choice of legal advisor, multiple court hearings and a number of other reasons.   In the light of this judgment, it is clear that legal advisers and their client will need to keep very clear records to substantiate a claim for high costs v claims value where they feel such costs are merited. 

 For suppliers, this case should prompt a review of any equivalent provisions in their own terms and conditions to determine whether they need revision to strengthen the weight that the court will give to them.  It will also give grounds for suppliers to challenge high fees charged by their legal advisers.

This briefing is not legal advice and should not be relied upon as such.  If you need advice in relation to prospective litigation, or on any of the matters raised in this briefing, please contact James Mews, Managing Partner, Amati Law.

For more information, contact us via info@amatilaw.com