Can I Recover My Costs in Litigation Brought Against Other Directors/Shareholders in My Company?

Commercial litigation involving shareholders is often very complex. It’s also expensive, so it’s imperative at the outset to weigh the benefits of court action against the likely legal bill.

It’s easy to make assumptions about costs. The loser pays the winner’s fees, and you might assume you can use company funds to cover costs. But are these two premises true?

We’ll look at what happens in practice, how to protect yourself against an adverse costs award, and how a court decides on a costs award in shareholder disputes.

Understanding the Court’s Discretion on Costs

Typically, in commercial cases, the court will order the losing party to pay the successful party’s legal costs and expenses. However, this is not a right nor should it be an assumption. The court has discretion and the last word if there’s no prior agreement. The key is to esure you’re always acting reasonably and proportionately.

The court will use its discretion on costs based on the facts of an individual case. However, it is open to the parties to agree provisions on this themselves to avoid the court having to make an award.

It’s always best to think of the principle of the loser paying the winner’s costs as a starting point rather than a foregone conclusion. Certainly, it’s unwise to head into litigation with this assumption. The court could make a different decision.

Even if you win in court and your opponent must pay your costs, you’re unlikely to recover everything even in a successful claim; there are always irrecoverable costs. Navigating the subtlety of costs recovery, conduct and process, is why it is so important to ensure you obtain specialist legal advice if you’re involved in a shareholder dispute. 

The court looks at two ‘heads’ for costs recovery: that the claimant has acted reasonably and the costs are proportionate to the dispute, and whether they have complied with the overriding objective. This is called ‘the standard basis’ costs recovery.

What You Must Prove to Recover Legal Costs

Reasonableness and Proportionality

The costs claimed must be reasonable and proportionate to the issues in the case, which, in plain speak, means they must be justifiable regarding the work completed. 

Even if an award is made in favour of a successful claimant, the court can adjust the recoverable amount if some aspects of the costs are unnecessary or excessive. 

Compliance with the Overriding Objective

The overriding objective is a concept contained in the Civil Procedure Rules (CPR), covering many litigation aspects and conduct.

Where costs are concerned, the overriding objective is to manage cases proportionately, which involves considering how much money each party is spending and their relative financial positions.

Every case should be handled as efficiently and fairly as possible with an eye to reducing expense, notwithstanding the complexity of the issues. 

On a broader note, the court will also consider whether the parties have acted reasonably before and during the proceedings. 

A party that behaves in a manner not in line with the overriding objective may succeed but can be penalised via a costs order. This could involve dragging out the process unnecessarily or incurring unnecessary expenses.

Why Cost-Benefit Analysis Is Critical from the Outset

It doesn’t matter whether you’re in the right; when it comes to litigation, there’s no point in suing if the process will be financially ruinous. We look at this and advise on this transparently- as if your problem is our own.

A cost-benefit analysis (CBA) in litigation involves accurately analysing the potential costs and weighing them against the likely outcome to determine whether the proceeding is financially justifiable.

A CBA should be completed at the very outset. We discuss this with you before you even instruct us and before expenses mount up. Costs include court fees, legal fees, specialist opinions from a barrister, and other outlays called disbursements, like expert reports. 

Court fees and fees for legal counsel have to be paid up front.

It’s also important to understand that victory may be achievable and merited relative to cost, but it will be hollow if you can’t implement it. Broad evaluation is all part of a strategic approach.

Helix’s Approach to Maximising Cost Recovery and Settlement

Our approach is to grasp the nettle of cost-benefit at the outset with a fair and accurate claim assessment, a likely timescale, and outcome weighed against the potential expenses.

We routinely do this at Helix Law because it protects our clients’ positions and fits our strategy of always putting the opposing side under maximum pressure. It’s a two-pronged approach.

The idea is to push hard for an early settlement whilst also protecting you and ensuring recovery of as much of your legal costs as possible if litigation cannot be avoided. Costs can be onerous and exert their own leverage on the other party.

Costs are also a movable feast. It’s vital to undertake regular reviews to ensure that the end justifies the means. Rising expenses or an unexpected development may mean a once financially viable case is rapidly heading in the other direction.

Cases that take longer to resolve than anticipated can also incur spiralling costs. Litigation can involve many twists and turns, which are not always apparent or quantifiable at the outset.

Our commercial litigation team are experienced in these types of disputes and always seek to position you on the front foot wherever possible.

Frequently Asked Questions

Who Usually Pays Legal Costs in Shareholder or Director Disputes?

The presumption is that the losing party bears the costs, but this is the beginning of the costs process, not the end. In reality, a successful claimant is unlikely to receive all their costs, just a proportion- typically the winner will recover c.65% of their costs. Parties can agree on the cost burden before litigation if they cannot settle. 

Can Shareholders Use Company Funds to Cover Legal Fees?

Shareholders with a costs order against them cannot use company resources to pay these expenses. The court has already ruled on this, and well-established case law confirms that this behaviour amounts to unfair prejudice and is not allowed.

How Does the Court Decide if Costs Are Proportionate?

A court assessment of a claim’s costs involves two stages. First, the court will consider the step-by-step process at each stage of litigation to determine whether the costs incurred were reasonable or disproportionate. Second, where the unsuccessful party must pay the successful party’s costs, the court can limit these to what is proportionate and reasonable.

Litigation Costs Shape Legal Strategy and Financial Outcomes

The cost of legal representation in a claim, whether in Alternative Dispute Resolution or litigation, should always be one of the first factors considered. The strongest case in the world may still be unviable if the costs are too onerous or are disproportionate to the likely best case outcome.

Helix Law will evaluate your claim or defence and craft a strategy with you that robustly protects your position on costs from the outset, whilst pushing for an early and effective settlement. We perform a regular cost-benefit analysis and use costs tactically to exert leverage.

If you’re in the thick of a company, boardroom or shareholder dispute, get in touch with Helix Law now for professional and targeted advice to help you navigate the litigation process.