WHAT IS THE POSITION WHEN LEGAL COSTS ARE CLAIMED AS A HEAD OF DAMAGES?
The case of Rentokil Initial -v- Goodman Derrick LLP  EWHC 2994 (Ch) was looked at in the previous post in relation to evidence. However it also raised an interesting issue as to the approach a court should take when a party is claiming legal costs, paid to resolve a transaction, as part of the claim for damages.
Readers of this post will also benefit from reading Costs claimed as Damages 2: The case law in detail
THE CLAIM: £600,000 IN COSTS
As part of a claim against its former solicitors the claimant was claiming £600,000 in legal costs relating to an arbitration that had settled. The defendant argued that these costs should be subject to assessment.
THE JUDGE’S CONCLUSION: COSTS CLAIMED AS DAMAGES CANNOT BE ASSESSED
The judge found against the claimant on liability. However he observed:-
145. In addition the claimant claims the cost which it spent in relation to the arbitration and expert determination in the sum of £602,997. Mr Brown also gave evidence of a second relevant bill in the order of £5,000. I accept those figures. If the claimant were to succeed on this head then it would be entitled to damages in the sum of £607,997. The defendant argues that if the claimant succeeds on this head of loss then the costs, which are claimed as damages, should be the subject of detailed assessment. I disagree. If, contrary to my findings above, I had held that these costs had been incurred as a result of the negligence of the defendant then it seems to me that it is a head of expenditure which is wholly attributable to the acts of the defendants and should be treated just like any other head of expenditure loss. The claimant would be entitled to recover the sum which is equal to the liability which it has incurred as a result of the default of the defendant without abatement. In my judgment there is no reason in principle why the damages should be further reduced by a detailed assessment which would not reduce the amount of the claimant’s liability for those costs but only the extent of the defendant’s obligation to pay compensation in respect of them.
WHERE DOES THIS PUT A PARTY WHO WANTS TO ARGUE THAT THE CLAIMANT’S COSTS CLAIMED AS DAMAGES ARE EXCESSIVE?
If the reasonableness of the costs are in issue then it would be prudent to plead this as a specific issue in the defence. However there would be a high burden in establishing that the costs were unreasonable. A defendant would still have to establish what a reasonable sum was. A whole new market for costs lawyers as expert witnesses?