High Court: Legal costs for ‘entirely successful party’ reduced to 60 per cent due to ‘unreasonable’ submissions
The High Court has ruled that the Revenue Commissioners were not entitled to full legal costs despite being “entirely successful” in case stated proceedings. The court held that 20 per cent of the hearing was taken up by submissions which had no probability of success and therefore only granted 60 per cent of the costs to the Revenue.
In reaching this conclusion, the court held that the new legal costs regime under Part 11 of the Legal Services Regulation Act 2015 required a court to consider whether a winning litigant acted reasonably in raising all issues in proceedings. The court claimed that a more disciplined approach by the Revenue to issues raised would have saved court time.
The main proceedings related to an appeal by way of case stated from the applicant, Fergus Byrne, regarding the fraudulent evasion of VAT. Three questions were raised in the case stated and each was answered in favour of the Revenue’s position. Accordingly, the Revenue was entirely successful in the case stated.
The Revenue raised four points in the appeal. The primary point, which took up most of the court’s time, was whether any reasonable Tax Appeal Commissioner could have concluded that Mr Byrne should have known of the VAT fraud.
The three other issues were described as “secondary issues”. These were 1) whether there was sufficient evidence to support the Commissioner’s finding that there was VAT fraud in the first place; 2) that the court did not have jurisdiction to hear the case stated because there was no error on a point of law by the Commissioner; and 3) that the court was not entitled to have regard to the transcript of the hearing before the Commissioner on a Case Stated.
The court noted that these secondary issues each took up about 10 per cent of the hearing time, totalling 30 per cent. Although the court held that the first of the secondary issues was valid, the other two points were dismissed by the court. Consequently, the court held that this should have a bearing on the overall costs of the proceedings.
Delivering judgment in the case, Mr Justice Michael Twomey began by stating that section 169 of the LSRA 2015 required a court to consider whether a winning litigant acted reasonably in raising every issue in the proceedings. This was to be applied in all cases, irrespective of the complexity (Chubb European Group SE v. The Health Insurance Authority  IECA 183 applied). If a party did not act reasonably in raising issues before the court, “then the court must consider whether to withhold some of the winning litigant’s costs or whether to award certain costs to the losing litigant”.
The court stated that this new approach to costs meant that there was a very clear financial incentive for litigants “only to pursue issues which have a reasonable chance of success”. Losing litigants should be awarded the costs of fighting and dealing with unreasonably raised legal points, the court said. Further, it was held that a court had to consider whether reasonable points were raised at the inception of litigation, rather than just at the hearing.
The court guessed that the intention of the Oireachtas for this new approach was to focus litigation to only a few core points, as this would increase the chance of settlement, reduce hearing times and legal costs generally.
The court cited Re Independent News and Media plc  IEHC 232 and Ryanair v. An Taoiseach  IEHC 673, which outlined that a court could make a modified costs order if a party caused costs to be incurred unnecessarily.
The court also cited Re Mark Fay (A Debtor)  IEHC 207 as authority for the proposition that legal costs could be withheld if a party failed to produce proper evidence in a case. Again, the court held that this the sort of issue increases legal costs and uses up court time.
The court also considered that time spent on legal arguments which were not justifiable on the basis of the applicable law could also lead to a reduction in costs (Re Forde Egan  IEHC 102).
Mr Justice Twomey held that a litigant no longer had a “one-way bet” in litigation, whereby they could “throw the kitchen sink” at a case and get all their legal costs by being successful on one point. The court thought that this could lead to cases becoming “more focused” which would lead to lower costs. It was also noted that the State might alter the way it conducted litigation if it was liable for costs for unreasonable legal arguments.
The court used the example of a plaintiff in a non-complex case raising ten grounds of claim and being successful on only one ground to justify the orders sought. A court would be required to consider whether it was reasonable for that plaintiff to rely on the nine other grounds of challenge. If they were unreasonable, a court might award 25 per cent of costs to the plaintiff, with 30 per cent of costs being awarded to the defendant who was successful on nine points. The winning litigant would therefore pay five per cent of the defendant’s costs, despite getting the desired order.
The court acknowledged that it no role in determining the level of legal costs beyond a pure percentage figure. This was a matter for a legal costs adjudicator. However, the court held that the Oireachtas had sought to “indirectly reduce hearing time (and the number of issues raised on paper) by obliging courts, in their costs determinations, to consider whether a litigant ‘unreasonably pursued an issue’”.
Mr Justice Twomey said that the courts “have a defined and clear role in ensuring the litigation is conducted in as disciplined a fashion as reasonably possible and in this respect the courts have a role in determining the ‘quantum’ or the amount of time which it was reasonable to spend seeking the court orders in question”.
Applying these principles to the case, the court held that a more disciplined approach to the litigation would have meant that two issues before the court would not have been raised at all. The court held that these issues were highly unlikely to succeed and would have saved 20 per cent of court time if not raised. Further, the court stated that the other two points were strongly in the Revenue’s favour.
The court held that, even allowing for general latitude in litigation and the clarity of hindsight, it was unreasonable to raise the two of the points in the appeal.
Applying Sony Music Entertainment Ltd v. UPC Communications (Ireland) Ltd  IECA 96, the court held that 20 per cent of court time had been taken up by unnecessary argument. Accordingly, Revenue was entitled to only 80 per cent of costs, with a further 20 per cent reduction for the cost of the applicant’s legal team. The court therefore made an order for 60 per cent of Revenue’s costs.
© Irish Legal News Ltd 2021