Lloyd's Maritime and Commercial Law Quarterly
LAWYERS’ ETHICS, SETTLEMENT NEGOTIATIONS AND THE MAINTAINER’S LIABILITY FOR COSTS: CASES IN SEARCH OF A PRINCIPLE
D. R. F. O’Dair *
Settlement through private negotiation or, as it is sometimes called, bargaining in the shadow of the law
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is an enormously important dispute resolution mechanism, the continued legitimacy of which requires that it be perceived as fair. When it is not, the blame will often be laid at the door of the parties’ legal advisers.
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While the professional ethics of the lawyers involved are vital to ensuring fairness, the problem also has structural features, making pertinent the warning issued by a leading United States ethics expert against “the common human tendency to explain ethical misconduct in terms of individual deviance rather than institutional constraints”.
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This short article will illustrate the point by reference to the impact upon the settlement process of the rules and principles governing liability for costs.
At the heart of this article is a review of five recent cases in which the courts have had to consider whether those who fund litigation brought by others should be made liable for the costs of the opposing party should the assisted party be unsuccessful.4 Following the decision of the House of Lords in Aiden Shipping Co. Ltd v. Interbulk Ltd,5 jurisdiction to make such an order for the payment of costs undoubtedly exists pursuant to the Supreme Court Act 1981, s. 51(1) and (3). In the cases to be considered the question has been as to the exercise of that discretion. While the question of who should pay costs is largely within the discretion of the trial judge,6 it is clearly desirable that cases be decided consistently on the basis of defensible principles. Our examination of these recent cases will show that the courts have as yet failed to recognize, though they have sometimes
* Lecturer in Laws, University College London. This article was written when the writer was Visiting Research Fellow at the Keck Center for the Study of Legal Ethics and the Legal Profession at the Stanford Law School during the academic year 1995–1996. The writer would like to acknowledge the help provided by Professor Rhode, the Director of the Keck Center and the generous financial support provided by the Alexander Maxwell Law Scholarship Trust.
1. See Robert H. Mnookin & Lewis Kornhauser, “Bargaining in the Shadow of the Law: The Case of Divorce” (1979) 88 Yale L.J. 950.
2. This suggestion clearly underlies the Government’s concern in its recent White Paper Striking the Balance—The Future of Legal Aid in England and Wales (Cmn. 3305, Lord Chancellor’s Department, HMSO, June 1986) with the difficulties faced by unassisted parties in settlement negotiations with assisted parties: “Legally aided parties have little incentive to keep costs down and may drive up their costs unnecessarily. Faced with this, unassisted parties are often under pressure to settle cases in their opponents’ favour”: ibid., para. 1.9.
3. Deborah L. Rhode, “Institutionalizing Ethics” (1994) 44 Case W.L.Rev. 665, 686.
4. See generally, I. R. Scott, “Towards Understanding the Maintainer’s Liability for Costs” (1995) 14 C.J.Q. 271.
5. [1986] A.C. 965.
6. “There is only one immutable rule in relation to costs, and that is that there are no immutable rules”: Taylor v. Pace Developments Ltd [1996] B.C.C. 406, 408, per Lloyd, L.J.
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