In times when money and resources are ever constrained, legal costs are certainly to the forefront of clients' minds. This note aims to highlight some ways in which parties to construction and engineering contracts can reduce their potential costs' exposure in circumstances where a dispute has arisen and dispute resolution proceedings are inevitable or unavoidable.
The costs of a dispute can be quite significant and include a party's legal costs (solicitors' and barristers' fees), experts' fees, costs of other third party advisers, stenographers' fees, internal management costs including the time and resources of key personnel within the organisation. This list can be multiplied by two if a paying party is on the receiving end of an adverse costs order meaning that it is not only responsible for its own costs but also for the winning party's costs.
The degree to which each party to a dispute may ultimately be responsible for the costs of that dispute essentially depends on two factors: (i) the forum in which the parties choose or are contractually bound to resolve their dispute and (ii) the level of costs protection put in place by the parties.
Choosing your dispute resolution forum
In court and arbitration proceedings, the 'normal rule' is that costs follow the event, which means that that the winning party is generally entitled to recover its costs from the losing party (unless the parties have agreed otherwise). A judge or arbitrator has, however, discretion to depart from the 'normal rule' if he or she considers that there are 'special circumstances' warranting such a departure. For example, where there are distinct heads of claim on which the claimant has failed to succeed, the judge or arbitrator may decide that a proportionate costs order representing the relative degree of success in respect of the overall claim may be more appropriate in the circumstances.
Costs in alternative dispute resolution forums, including, mediation, conciliation and adjudication are generally dealt with quite differently to the costs of arbitration or litigation. The normal rule in ADR is that each party to the dispute bears its own costs, irrespective of whether it wins or loses.
Methods of Costs Protection
A responding party to arbitration or court proceedings would be well advised to consider all potential means by which it may avail of protection against being faced with a bill - both for its own costs and also for the claimant's costs. Such costs...