Litigation Costs Awards in the Cayman Islands

Next to “what will it cost?” the question, “will I get my costs?”, is probably one of the most common questions that litigation lawyers deal with when advising clients contemplating legal proceedings. Typically most clients are left a little confused by the answer, wondering why if they succeed in their claim or in their defence, they might still be out of pocket in legal fees. The answer to the client’s question is not an easy one and merits some explanation.

The legal system in the Cayman Islands like that in the UK and most Commonwealth countries (but unlike that in the United States for example) is a “loser pay” system, in which in the usual course the loser in litigation pays the winner’s costs. This principle is encapsulated in the legal phrase, “the costs follow the event” – the party who substantially succeeds at trial or on an application should receive his reasonable costs incurred in conducting the action or the application in an economic, expeditious and proportional manner.

Discretion of the court

While guided by this principle, the Cayman Grand Court in common with courts in most other common law jurisdictions has discretion to depart from the strict application of this rule where the circumstances or the equities of the situation require. Accordingly, while the usual rule is that the winner will be awarded his costs payable by the loser; the court may take into consideration a number of factors including:

• was there a split result – was the party only partly successful?
• the conduct of the parties and their counsel – were costs improperly, unnecessarily or unreasonably incurred?
• the existence of an offer to settle or payment into court – did the party achieve a better result at trial than if that party had accepted the offer to settle or payment into court?
• was an entirely novel or untested point of law in issue?

The decisive factor in most cases will be whether the party was substantially successful. Where there has been a split result or where the successful party won on one issue, but lost on another, the court may award costs to reflect that result, including awarding a percentage of the party’s costs, awarding costs with respect only to certain issues or aspects of the action or trial or with reference to a particular date, e.g. the date of an offer to settle or payment into court, which the court considers should have been accepted.

Depending on the circumstances, including the conduct of the parties or their counsel, the court may make a wide range of costs orders, both on applications made during the course of the action, and ultimately at trial or on conclusion of the matter, including:

• “costs on the standard basis” – the usual order as to costs;
• “no order as to costs” – each party bears their own costs;
• an order for “costs thrown away” – where proceedings have been rendered ineffective or have been set aside through no fault of that party’s;
• an order for “costs on the indemnity basis” payable by a party who the court determines conducted proceedings improperly, unreasonably or negligently; and
• a “wasted costs order” – in exceptional circumstances requiring an attorney whose actions or omissions unreasonably, improperly or negligently caused costs to be wasted to personally pay his client’s costs and or those of other parties.

Costs of interlocutory applications

There are a number of occasions where costs may be awarded during the course of legal proceedings prior to trial. Typically before trial there may be a number of applications to the court by either party to have preliminary procedural matters addressed or to obtain the directions of the court. These interlocutory applications will be subject to costs orders, on the same principles applicable at trial, i.e. fundamentally the successful party on the interlocutory application should be awarded his costs of the application.

Frequently the nature of the interlocutory dispute may be such that the court is unable to determine the merits of the interlocutory application or the necessity for the application until a further hearing or the later trial. Accordingly, in regard to interlocutory applications, the court may grant a variety of costs orders in an effort to ensure that the costs awards on the interlocutory applications are reasonable and appropriate in the circumstances. Typical costs orders on an interlocutory application include the following:

• “costs reserved” – the court is reserving to itself the issue of costs, to be decided at a later hearing;
• “costs in the cause” – the party who is ultimately successful in obtaining a costs award on the final determination of the action, will be entitled to his costs of the interlocutory application;
• “plaintiff’s/defendant’s costs in the cause” – if the party in whose favour the costs order is made on the interlocutory application, is ultimately successful in obtaining a costs award on the final determination of the action, he will be entitled to his costs of the interlocutory application;
• “costs in any event” – the party in whose favour the costs order is made on the interlocutory application, is entitled to those costs regardless of the final determination of the action.

Scale of costs and assessment of costs

The fact that a successful party has been awarded their costs payable by the loser, does not mean that they will be paid by the losing party dollar for dollar what they have paid their own attorney in legal fees and disbursements, nor will they be completely indemnified in respect of their legal costs.

The intention of a costs award is to give effect to the principle that the successful party is entitled to recover their reasonable costs incurred in conducting the proceeding in an economical, expeditious and proper manner. Unless costs on an “indemnity basis” are exceptionally awarded, costs are assessed or allowed by the court on what is termed the “standard basis” – formerly referred to as “party and party costs”. Costs on the standard basis are only those costs reasonably incurred and of a reasonable amount and proportionate to the matters in issue. Where there is any doubt as to their reasonableness the party will be disallowed those costs considered unreasonable.

There are a number of common law rules established as to what aspects of costs are legitimately recoverable on an assessment of costs, driven by the principle that only those charges reasonably necessary and proportionate to the action or the application are recoverable.

The successful party’s “Bill of Costs” must itemize the professional fees claimed by that party on account of legal costs broken down into either 15 minute (¼ hour) or 6 minute (1/10 hour) increments, with the activities specifically identified. Under Guidelines established by the Grand Court for the assessment of legal costs, the taxing officer responsible for assessing costs is guided in the exercise of his or her discretion by a sliding scale of hourly rates based on the number of years of post-qualification experience of the successful party’s attorney, and depending on whether the matter in question proceeded in the Civil and Family Division of the Grand Court, or in the Financial Services and Admiralty Division. The hourly rates recoverable by the successful party range for example from a maximum of US$900.00 hour for a Financial Services/Admiralty Division matter in which an attorney of more than twenty years experience appeared, to a maximum of US$280.00 per hour for a Civil/Family Division matter in which an attorney of less than five years experience appeared. Accordingly while a party may have retained his attorney and agreed for example that his fees would be paid at a rate of US$500.00 per hour for a Civil/Family Division matter, if that attorney had less than 10 years post-qualification experience, the maximum award by the taxing officer for that attorney’s professional time, would be US$375.00 per hour under the applicable Guidelines.

Similarly the disbursements and expenses incurred by the successful party are limited by the Guidelines, and may be subject to disallowance by the taxing officer in whole or in part as being unreasonable or unnecessary.

The result is that upon an assessment of costs the successful party seeking to recover or “tax” his costs before a taxing officer of the Grand Court on the “standard basis” may typically be awarded something in the range of 60-75% of his actual incurred legal costs, varying considerably depending on the nature of the proceedings.

The court has a discretion in exceptional circumstances to order that costs be assessed and paid by the other party on an indemnity basis where satisfied that the paying party conducted proceedings improperly, unreasonably or negligently. It must be stressed that these circumstances are exceptional, in that there must be some aspect of conduct on the part of the paying party which the court regards as justifying such an order. Even where costs are awarded on an indemnity basis, these costs will not represent a complete indemnity in terms of the party’s actual legal expenses, but merely allows the taxing officer greater discretion in allowing costs where the reasonableness of those costs might otherwise be in doubt.

Summary

The foregoing represents a very general explanation of the principles and approach of the Cayman Grand Court in awarding costs in civil proceedings. There are a number of exceptions to these general principles and rules which apply to specific types of applications and circumstances, which are beyond the scope of this discussion.

The nature and basis of an award of costs is very much in the discretion of the court and driven by the circumstances of the individual case and the parties involved. In every case professional legal advice should be sought as to the significance of a favourable costs award if successful, and the potential liability and exposure to a negative costs award if unsuccessful.