Commercial litigation can be an extremely expensive process and the scope for recovering litigation costs should be an important consideration at each stage of the process. This briefing note considers issues relevant to the recovery of legal costs in the context of Guernsey litigation.
THE GENERAL RULE
Proceedings to recover debts or damages with a value of more than £10,000 are heard before Guernsey's Royal Court. The Royal Court has a wide discretion to make any order as to the costs of legal proceedings (including any interlocutory stage or application) that it thinks just. The general rule adopted by the Royal Court is that "costs follow the event". This means, whilst the successful party has no automatic right to recover its legal costs from the losing party, the Court will commonly make such an order. An order for costs will, absent special circumstances that would justify an order for indemnity costs (see below), be an order for costs on the 'recoverable' or 'standard' basis. Standard costs must be incurred reasonably and any doubts over either requirement should be resolved in the paying party's favour. Indemnity costs may be awarded on a full or partial basis where the Royal Court considers there to be special circumstances that would justify such an order or where any party has pleaded or otherwise maintained an action unreasonably, scandalously, frivolously or vexatiously or has otherwise abused the process of the Court. Once ordered, indemnity costs will be allowed provided they are reasonable and any doubt as to their reasonableness will be resolved in the receiving party's favour.
As an international finance centre, Guernsey relies upon a well-qualified, trained and experienced body of Advocates capable of handling complex legal proceedings. Foreign lawyers do not have rights of audience to conduct cases before the Royal Court and cannot acquire them without first passing the rigorous Guernsey Bar exams and completing a residence requirement. The expectation is, therefore, that the use of external lawyers will be unnecessary in the great majority of cases coming before the Royal Court and that foreign lawyers' costs will not be allowed on taxation. That does not, though, mean that there is a bar upon the recovery of foreign lawyers' costs. As with Advocates' fees, the Royal Court has the discretion to make an order as it sees fit. Case law informs that the Royal Court's discretion to make an order as to foreign lawyers' costs should be exercised in appropriate and exceptional cases. Before doing so the Court will invariably scrutinise the particular role played by the non-Guernsey lawyers within the context of the particular case.
Maximum rates are set by statute for the recoverability of Advocates' fees. Generally speaking, these are below the commercial rates charged by Advocates and a party with the benefit of a costs order should still expect a shortfall between the costs incurred and those recovered.
COSTS OF ALTERNATIVE DISPUTE RESOLUTION
Parties cannot be compelled by the Royal Court to enter into alternative dispute resolution (ADR). It is, though, common for the Royal Court to recommend and encourage efforts at ADR. Outside of the context of an arbitral award, parties are able to reach an agreement on the costs of ADR. Where a party unreasonably refuses to participate in ADR, this may be a factor that the Royal Court takes into account on the issue of any costs award.
Neither conditional or contingency fee arrangements are permitted in Guernsey. Third party funding is increasing in popularity in Guernsey and is permitted unless it conflicts with the principles of champerty or unlawful maintenance. Costs orders may be made against third party funders. After the Event insurance is available in Guernsey but the premium is not ordinarily recoverable from a party that is subject to a costs order.
SECURITY FOR COSTS
The Royal Court has the ability to order security for costs against any party in such amount, on such terms and in such manner as it thinks just. Any order may provide that the proceedings are stayed until security is given and that the proceedings be dismissed if security is not given by a specified time.