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Costs in party and party

27 Feb 2023 / Courts Print

The party line

The penalty in costs on failing to beat a lodgement or tender in party-and-party adjudication can be significant and, sometimes, unjust. Denis O’Sullivan blows out the candles.

The provisions in relation to lodgement or tender in satisfaction of costs are found in order 99, rules 57-61 of the Rules of the Superior Courts (RSC) as amended, with the relevant forms being found in part V of appendix W.

The lodgement must be made within 21 days of receipt of the bill by the person against whom the costs order is directed, although this can be extended by a legal costs adjudicator (rule 57). A tender in satisfaction of costs may likewise be made and has the same effect, and is subject to the same rules as a lodgement made in satisfaction of costs (rule 61).

The concept of lodgement or tender in the adjudication-of-costs process was introduced by section 3 of the Courts Act 2019, which amended section 154(10) of the Legal Services Regulation Act 2015 to empower the making of rules of court providing for lodgement or tender in the adjudication of costs process.

Order 99, rule 60 provides that if the claimant fails to beat the lodgement or tender made, then the claimant is “entitled to the costs of the adjudication up to the time when such payment into court was made”, while the opponent is “entitled to the costs of the adjudication from the time such payment into court was made.” 

Unlike order 22, rule 6 (which deals with lodgement or tender in an action), where a discretion is recognised on the part of the trial judge as to the allocation of costs of the action on failure to beat the lodgement, “then, unless the judge at the trial shall for special cause shown and mentioned in the order otherwise directs” [order 99, rule 60] clearly allows no such discretion to the legal costs adjudicator.

The extent to which rule 60 penalises a party who fails to beat a lodgement in respect of costs depends upon what constitutes ‘the costs of the adjudication’.

The main item of work involved in the adjudication process is often the preparation of the detailed bill (‘drawing the bill of costs’), which will typically take several days at least in any complex case and, also, the statutory required discussions between the parties with a view to agreeing the bill.

Nevertheless, one can visualise how such costs (being costs incurred in relation to the adjudication process before acceptance of lodgement) may be substantially exceeded by the costs involved in the post-lodgement part of the adjudication process.

It is true that the party opposing the bill of costs cannot recover a solicitor’s or legal costs accountant’s charges, either for preparation or attendance at the hearing to oppose the costs at the adjudication of costs.

Nevertheless, if the “costs of the adjudication” are deemed to include the stamp duty – payable at 8% – on the amount allowed by the legal costs adjudicator, this may readily exceed the costs of the adjudication incurred pre-lodgement by the solicitor for the costs, and leave his client burdened with a substantial sum in respect of the ‘costs of adjudication’.

Indiscriminate penalty

This levy – no matter by whom payable – is nothing less than an indiscriminate and arbitrary penalty for engaging in the adjudication process. This is because its amount bears no relation to any actual expense assessed as having been incurred in the adjudication process – it applies even in respect of witness expenses – and its amount is related exclusively to the sum certified by the legal costs adjudicator.

As such, it is a penal tax on the administration of justice, with defendants sometimes heretofore being compelled to pay more in settlement than they feel they ought because of the comparatively ruinous expense of discharging the stamp duty involved if they should allow the matter to proceed to final adjudication.

If the incidence of this levy is shifted to the party pursuing the adjudication when she fails to beat a lodgement in satisfaction of costs, the result would be that an indiscriminate and arbitrary penalty would be imposed instead on that party, who is merely pursuing her right to have an adjudication of the costs to which she is entitled on foot of an order of the court directing such adjudication.

Fortunately, in party-and-party costs adjudication, the penalty imposed by rule 60 on the person who has been vindicated before the court seems to end there, because order 99, rule 29(1) provides, as previously noted, that the legal costs adjudicator has no jurisdiction to award the preparation and attendance charges for opposing the costs on the adjudication of party-and-party costs.

‘Split’ lodgements/tenders

The lodgement process itself is not straightforward because order 99, rule 57(2) requires the party lodging to allocate the lodgement between solicitor, senior counsel, junior counsel, and other disbursements.

Thus, appendix W, form 5 (‘notice of lodgement in satisfaction of costs’) provides for the identification of the payments made under these four categories. Under rule 57(3), the individuals in respect of whose fees an allocation has been made in the notice of lodgement in satisfaction of costs must be informed of same by service on him or her of a copy of the notice of lodgement:

“A party obliged to pay costs or, as the case may be, a legal practitioner, upon whom a notice of lodgement in satisfaction of costs is served, shall serve a copy of the notice of lodgement in satisfaction of costs on each legal practitioner for whose firm or for whom an amount of costs is specified in the notice of lodgement in satisfaction of costs.”

The implication is that, once a specific amount has been identified as being allocated to an individual lawyer, it would seem to be impressed with a trust for her use, to the exclusion of others, if the lodgement is accepted. Likewise, individuals to whom sums have been allocated under the notice of lodgement have the right to accept or refuse the individual allocation made to such individuals.

Form 6, appendix W is in terms consistent with this. It provides: “Take notice that the [plaintiff, defendant, legal practitioner, or as the case may be] accepts the sum of €__ paid by you into court in satisfaction of the claim to costs in respect of which it is paid in.”

The words ‘in satisfaction of the claim to costs in respect of which it is paid in’ clearly contemplate that there may be an acceptance of the lodgement made in respect of one lawyer’s fees, and a rejection of the lodgement made in respect of another’s fees.

Underlying this procedure of lodgement against individual fees marked by the lawyers involved in the litigation is a complete conflict with the basic principle of civil litigation in this jurisdiction – namely, that the litigation is that of the client and that its costs are her responsibility, with a claim on the part of her lawyers against her for their agreed fees and not directly against the defendant.

The requirement to lodge in satisfaction of the fees of the lawyers who represented the successful party in the litigation is, indeed, a radical change that affects substantive law. Yet it seems that this is the only interpretation that can be adopted in this context that is consistent with order 99, rule 57(2) and the specified forms relating to notice of lodgement and notice of acceptance of lodgement.

Yet a further issue relates to the situation where the party presenting the bill fails to beat the lodgement in respect of one or more of the heads in respect of which the resisting party is required to lodge, but succeeds in relation to another, or others.

For example, suppose that the party presenting the bill beats the amounts allocated in the lodgement under three heads, and fails in relation to one head only (say, the solicitor’s instruction fee) and, in consequence, fails to be awarded less than the total amount lodged?

In the context of the allocations required to be made under several heads, it would be highly illogical to insist that that party’s success under three heads should be ignored because of the failure to succeed under the final head, leading to a failure to beat the total sum lodged.

This situation raises in acute form the problem that results from the failure to provide a discretion to the legal costs adjudicator to mitigate what may, depending on the circumstances, amount to a wholly disproportionate and unjust penalty in costs being imposed on the party presenting the bill.

The arbitrary nature of the provision made by order 99, rule 60, is the inevitable consequence of its having been stripped in its drafting of the discretionary component designed to mitigate the harshness of order 22, rule 6, in the context of damages. It is unfortunate that the potentially draconian consequences of failing to beat the lodgement in satisfaction of costs under rule 60 may be imposed upon an injured party who has already been recognised as a victim of the other party in the litigation that is the subject of the adjudication.

Read and print a PDF of this article here.

Denis O’Sullivan
Denis O’Sullivan is principal of Denis O’Sullivan & Co, Solicitors, 6 Lapp’s Quay, Cork.