The percentage game

Do you remember me telling you (13 April 2007) how Ian McGlinn made a fortune out of investing in the Body Shop? And I told you about how he decided to build a luxury pad in Jersey. And I told you about his dispute. And about the trial taking seven weeks, seven barristers, seven solicitors and 10 experts. And I said: “Heaven only knows what the legal costs were.”

Well, heaven has now told me. Mr McGlinn sued his builder, his architect, his engineer, and his QS-cum-project manager. He wanted a total of £3.65m plus legal costs for having to knock down his brand new maison which he said was brim-full of defects.

He got nothing from his builder because that firm had gone bust. He got £438,000 in defects money from the architect; he got £134,000 from the engineer; he got nothing from the QS.

Then, last week, came the question of what legal costs Mr McGlinn could recover from his “win”. Mr McGlinn estimates his legal costs to be £2.2m. The architect’s legal costs are £1.2m. The QS’ legal costs are £880,000, and the engineer’s costs await another trial. Phew! So by my calculations the damage is somewhere to the north of £4m; more than the claim itself.

Credit: Simone Lia

“Over here mister… we need to dig deep into this mans pockets.”

When it comes to deciding who pays for legal action, the lawyers have been weaned on the phrase “costs follow the event”. Until recently, that meant that having won “some” money, Mr McGlinn would be awarded pretty well all his costs. I remember once getting a flea in my ear from a judge when I argued for an “issue”-based award. In other words, I pay your costs on the issues you won; you pay mine on the issues I won. Absurd, said the judge. Why? said I. Because I say so and I am the judge, said the judge.

Anyway, nowadays the unsuccessful party will be ordered to pay the costs of the successful party. Except, except, except... the court now asks which bits were successful and which unsuccessful.

This was the case with the action against the architect, whom Mr McGlinn claimed caused 77 items of loss. Mr McGlinn got home on 22 of them. Of those, many were modest.

The judge could not bring himself to declare Mr McGlinn or the architect the overall successful party

The judge, His Honour Peter Coulson, explained that the rules nowadays “encourage the court to consider making orders, which reflect a more detailed analysis of success and failure and, in particular, to make costs orders by reference to certain issues or by way of percentages”.

Hooray! The “follow the event” principle still plays a significant role, but it is only a starting point, from which a court can readily depart.

The judge could not bring himself to declare Mr McGlinn or the architect the overall successful party. True, Mr McGlinn can demonstrate success through money coming from the architect. But it is only 14% of what he claimed. He lost on many more items than he won. Worse still, it has cost a massive amount in lawyers’ fees to recover a comparatively small sum of money.

There is, then, in the judgment a significant analysis of the time spent pre-trial and at trial on the many issues and types of issues in the case, and of behaviour. Percentage awards then begin to be formulated. In the end, the judge decided that the architect should pay Mr McGlinn 45% of his costs. And Mr McGlinn should pay 25% of the architect’s costs. In the ordinary course of things, the tribunal then “nets off” the result and makes a one-way order for costs.

This case is a little more complicated in that there were several parties. There has to be careful scrutiny of what costs are actually attributable to Mr McGlinn’s pursuing the architect as distinct from the others. But that’s a matter of detail. As for the QS’ legal costs, you will recall that no liability was attached to that party at all. Mr McGlinn will be obliged to pay all of its £880,000.

Cases such as this are rare. I dare say that even multi-millionaires such as Mr McGlinn do not willy-nilly hurl money into such disputes. Nor do the opponents happily fork out such fees.

No one won anything, did they? Meanwhile, the site in Jersey begs for the rubble to be cleared and a new home designed and built – dispute-free, I suppose. Anyone fancy the job?