Through this article we would like to draw attention to a problem of major interest in the practice of the courts, namely: the issue of the reduction of lawyers’ fees claimed separately by the winning party. For a better understanding we will treat this issue through the perspective of a case handled by our firm together with two other lawyers.
Next, we will make a brief presentation of the legal issue positively decided both on the merits and at the appeal stage, followed by a detailed explanation of the first instance’s decision with regard to the plaintiff’s claim for costs incurred in the two procedural cycles.
In the light of the court’s considerations, we shall attempt to show that in most cases, as in this case, the reduction of costs in respect of lawyers’ fees is excessive, unjustified and, moreover, unsubstantiated. We believe that this approach is useful both from the perspective of the party who has won the case and is entitled to full compensation and from the perspective of the lawyer, who is minimised for all the effort and work involved in managing a case.
1. Brief presentation of the litigation framework
The current discussion involves a Romanian legal entity – a limited liability company, represented by our firm in collaboration with two other lawyers, which was subject to an anti-fraud control for a period of approximately 3 months and subsequently sanctioned by the Regional Anti-Fraud Directorate for committing the offence provided for in Article 26 para. (1) letter a) of GEO no. 202/2008 with a fine of 30,000 RON.
In addition, the company was ordered to forfeit the assets intended for and used in the contravention, i.e. the sum of RON 7,331,284.07. In fact, the stake of the dispute was over 7 million RON, involving other elements of foreignness.
The company submitted an administrative complaint against the administrative offence report. There were two procedural cycles over two years, at the end of the dispute the infringement complaint was upheld in its entirety with the consequence that the fine and the complementary measure of confiscation were annulled.
With regard to the costs incurred until these solutions were obtained, we point out that two expert opinions were requested which were absolutely necessary to clarify the facts. One of these was carried out by a foreign company and required the involvement of renowned specialists, given the complexity of the dispute. The total cost of these steps was 41,423.81 RON.
Also, both in the anti-fraud control phase and in the two procedural stages, the company was assisted and represented by two lawyers with vast experience in the field, and in the appeal phase, after the formation of a panel, given the complexity of the issue, another lawyer was hired. The total amount of fees paid during the trial to the three lawyers was 100,815.31 lei. In addition, some of the lawyers in the case also received a further fee after the end of the trial, determined on a percentage basis in relation to the subject matter of the dispute.
Further, the company that we represent claimed separately on the basis of tort liability for its own act, given the procedural fault of the Regional Anti-Fraud Directorate, the legal costs incurred in the dispute.
In the following we will present the solution and at the same time the position of the court on the nature of the costs, the qualification of these costs, which basically represent the damage caused to the company by the commission of a wrongful act, damage that has not been fully repaired.
2. Judgment of the court. The legal issue
From the reasoning of the judgment which we submit to your attention, five major practical problems can be extracted which require further attention and which justify the present action in order to prevent the creation of an erroneous practice in relation to the abusive reduction of the costs of lawyers’ fees or the explicit refusal to consider certain amounts as costs.
As has been held in the doctrine, the legal basis for awarding costs is the culpable procedural attitude of the party who has been unsuccessful in the proceedings, the act of which meets the conditions of civil liability in tort and obliges him to repair the damage caused, i.e. to reimburse the sums which the successful party has had to pay.
Both the doctrine and judicial practice recognise the possibility of recovering costs in a separate action. Under the Civil Procedure Code of 1865 and under the current Code, the specialised literature and case law have been unanimous in accepting the possibility for the person who wins the case – and who, for various reasons, either does not claim the costs incurred in the course of the proceedings or, even if he does claim them, the court fails to rule on them – to recover them by means of a separate and independent action in relation to the dispute which gave rise to them, which may be brought within the general prescription period of three years from the final settlement of the case.
The doctrine has emphasised the autonomous nature of such an action, noting that in all cases where costs are claimed in a separate action, it is presented as a principal claim and the basis of the action is the procedural fault arising from the loss of the trial.
In the case referred to in this article, the Court also held that, in relation to the subject matter of the claim, its legal basis is tort liability, which is why the provisions of Article 1348 para. (1) and (2) of the Civil Code and Art. 1357 para. (1) and (2) of the Civil Code. It stated that all the conditions for civil liability in tort had been satisfied, but nevertheless did not order full compensation for the damage caused to the applicant.
According to Article 1531 of the Civil Code, which enshrines the principle of full compensation for damage, the damage consisting of the costs incurred by the successful party in order to prove its innocence with regard to the matters wrongly and culpably established by the Regional Anti-Fraud Directorate, the court was obliged to award the applicant company all the costs incurred in that action, without unduly censuring a large part of them.
Moreover, once it has been established that there was culpable conduct on the part of the defendant and that there was a causal link, that cannot be limited solely to the contentious phase, but to the entire conduct and context which gave rise to the damage.
On the other hand, the court, even if it upholds tort liability, restricts the company’s right to be able to make full compensation for the damage caused by limiting the concept of fault – a condition of tort liability – to procedural fault.
In the light of that distinction, the court held that the concept of procedural fault cannot be assessed outside of a contentious procedure. That would mean, first, that no person would be able to make full reparation for his damage in accordance with the principle laid down in Article 1531 of the Civil Code and, second, that any action taken prior to a contentious procedure, that is to say, any expense associated with the legal advice which a normal, diligent and prudent person incurs when he has a legal problem caused by the negligence of another person, could not be made fully reparable through a claim for an action for an order for payment of the costs incurred in that action.
Consequently, there is no legal basis on the ground of which the court could make the award of costs conditional only by reference to a point in time subsequent to the issuing of the administrative offence report and only in the event that a complaint is made against it. This is an unjustified restriction which only limits the possibility for the injured party to obtain full compensation for the damage suffered.
In support of this point of view, we should consider the hypothetical example of a case in which the outcome of the control would not have resulted in an official report establishing the infringement and imposing penalties. In such a situation, the costs incurred during the control stage were clearly the responsibility of the anti-fraud body – the damage caused to the company being recoverable under civil liability in tort, all the conditions for liability being met, namely: the unlawful act, the damage, the causal link and the guilt of the body responsible.
However, we do not see why, in a situation with more serious consequences, namely the issuing of a report of a finding and sanctioning of the offence with the related sanctions and the steps taken in the two procedural stages, should give the guilty party a benefit. For this reason, the solution of reducing these costs is deeply flawed in relation to the principles governing the institution of civil liability in tort.
Next, the court qualified part of the lawyers’ fees as success fees only by reference to the fact that they were paid after the final settlement of the case. However, the practice of the courts is different, in that not every invoice or payment made after the end of the trial constitutes a success fee.
Moreover, whatever the qualification of the fee, it must always relate to the reality, necessity and reasonableness of the amount. The limitation which the court makes, in the sense of qualifying these fees as win fees and then automatically classifying these expenses in the category of voluptuous expenses, is, in our opinion, erroneous.
Both in the Statute of the legal profession – Art. 123 para. (3), and in the case law of the High Court of Cassation and Justice , does not make the qualification of the nature of the fee conditional on the time at which the invoices are issued or the fee is received, but on the reality, necessity, reasonableness of these expenses, the time and volume of work, the nature of the complexity of the case, the reputation, titles, seniority, experience, renown and specialisation of the lawyer, the advantages and results obtained for the client’s benefit, the time constraints to which the lawyer is bound by the circumstances of the case.
Thus, regardless of whether it is a contravention complaint, we cannot equate the expenses incurred by a dispute with a low complexity having the same subject matter with a dispute that involved an in-depth specialist study, that had a stake of over 7 million RON and that required the presence and work of three notorious lawyers.
Moreover, the court downplayed the involvement of the third lawyer, who, as it noted in the grounds of appeal, “appeared at the last appeal hearing and repeated in his submissions matters of fact and law which had already been presented to the court in the applications, notes and submissions of the lawyers originally engaged“. However, it is absurd to hold that the defence made by a lawyer was practically useless, and, moreover, to criticise that defence and reduce its contribution to zero, considering that it was not necessary for the proper conduct of the trial.
Thus, going beyond any trace of reasonableness, the substance of the applicant’s guaranteed right to a chosen lawyer, which is not a voluptuous expense, as was wrongly held, but one which is absolutely necessary for the proper conduct of the trial and its finality, was affected. It is also the exclusive choice of the party by reference to the circumstances of the case, circumstances which could not have been known to the court except through the lawyers and experts engaged in the case.
It was also not at any point argued what the disproportion of the fee requested was in relation to the complexity of the dispute and the subject-matter of the case, but merely stated that it existed. However, it is clear from all the elements that there is proportionality in relation to the value criterion – the stakes of the dispute and the complexity of the case.
Under no circumstances can we refer to the recommended minimum fee when there is a combination of elements justifying the amount of the fee already established and which is assessed globally, in relation to all legal, doctrinal and jurisprudential criteria. Consequently, we consider this abusive and intrusive nature of the court’s decision to be regrettable, in contravention of all the principles governing the legal profession and the rights of the injured party to full compensation.
Further reasoning, the court held that the expert opinions offered in the case for the accuracy of the understanding of the legal issues and the state of facts and for the proper conduct of the trial cannot be qualified as court costs, but as “steps taken by lawyers in preparation of the defence” which should “be reflected in the amount of the lawyer’s fee claimed and not separately from it“.
Basically, the court is arguing that the expert opinions were sought for the preparation of the defence and everything related to this activity, without having any direct/real influence on the two trial cycles and the control stage, but only on the defence carried out by the lawyers.
It follows from this view that whenever a lawyer requests an expert opinion in the case in order to gain a better understanding of the facts of the case and uses the conclusions of the expert report in support of his defence, he should bear, out of his own fee, the expense of doing so.
We consider that such erroneous reasoning cannot be accepted at any time because the costs generated by the two expert opinions represent genuine legal costs such as those determined by an expert report. Moreover, regardless of the name we give to these proceedings, as long as their purpose and nature are similar to those of an expert’s report – a genuine legal expense expressly provided for in Article 451(1) of the Code of Civil Procedure, which formed the basis of the reasoning of the two judgments in both procedural cycles, it is imperative to qualify them as steps absolutely necessary for the proper conduct of the trial.
To sum up, as regards the courts’ approach to the costs of the proceedings generated by the lawyers’ fees, with the consequence of their abusive reduction, and in the light of the arguments reiterated above, we consider that it is necessary to take a stand against this practice of the courts, which is becoming increasingly common in disputes concerning the reimbursement of costs on a separate basis.
This article was prepared for the Costaș, Negru & Asociații Blog by lawyer Nicoleta Dreglea from Cluj Bar Association.
Costaș, Negru & Asociații is a lawyers’ civil partnership with offices in Cluj-Napoca, Bucharest and Arad, providing legal assistance, representation and consultancy in a number of practice areas with a team composed of 17 lawyers and consultants. Details regarding legal services and the members of the team can be found on the website https://www.costas-negru.ro. All rights for the materials published on the company’s website and on social media belong to Costaș, Negru & Asociații, their reproduction being allowed only for information purposes and with the correct and complete disclosure of the source.