The defendant and the plaintiff will chip in to court – Newspaper Kommersant No. 231 (7432) dated 12/13/2022

The Supreme Court of the Russian Federation (SC) ruled in the case on the recovery of court costs from the plaintiff in favor of the defendant with partial satisfaction of the claim. The Economic Collegium recognized that the amount of expenses should not exceed the amount of the judgment. Lawyers believe that the decision will be guided in other disputes over legal costs, but note that loopholes for abuse remain.

The Supreme Court clarified what amount can be recovered as the defendant’s legal expenses from the plaintiff who partially lost the dispute. The decision published on December 10 was made as part of a dispute between FKU Uralupravtodor and Permstroysintez LLC.

In November 2019, the FKU sued the LLC for 1.97 million rubles. losses under the state contract, but the higher courts reduced the amount to 719.13 thousand rubles. (36.5% of requirements). Since the plaintiff won the case partially, according to the law, in this case, the defendant can recover from him a part of the court costs (including for lawyers), which Permstroysintez did. The courts of three instances awarded the defendant 63.5% of his expenses for legal services (in proportion to the share of refusal in the claim), namely 968 thousand rubles. (see Kommersant of November 3).

Uralupravtodor did not agree with this, appealing the penalty to the Supreme Court. The plaintiff stated that the claim for the recovery of damages is connected with long-term and gross violations in the field of road safety, the defendant himself is to blame for dragging out the dispute, moreover, the violator of rights receives from the plaintiff an amount greater than the cost of the damage caused. The case was referred to the Economic Collegium of the Armed Forces, which canceled the judicial acts.

The Board referred to the position of the Constitutional Court of the Russian Federation (CC), according to which the legal meaning of the recovery of court costs is to establish a “balance of rights” of the parties and prevent “an unreasonable increase in the amount of payment for the services of a representative.” The Constitutional Court also asked to take into account that “the losing party, which bears the burden of reimbursement of court costs, was not a party to the legal services agreement and could not influence the amount of remuneration of the representative of the other party in any way.”

If the cost of legal services does not meet the “criteria of reasonableness and fairness”, and its “excess is obvious”, the court, when attributing such costs to the losing party, “is obliged to establish their reasonable limits” and has the right to reduce the amount of costs, the Supreme Court noted. But the courts did not give an assessment to the FKU’s arguments that Permstroysintez’s expenses for lawyers “are obviously overstated.”

Moreover, the recovered legal costs exceeded the amount awarded to the plaintiff as a result of the dispute. This situation does not meet “the requirements of fairness, equality and balance of rights and legitimate interests of the parties,” the board emphasized. The dispute was ultimately remanded for retrial.

Elena Gladysheva, Managing Partner at RI-Consulting, notes that cases when, when distributing court costs, courts arbitrarily determine their size and do not take into account the actual circumstances of the case, “often occur in practice.”

The new decision of the Supreme Court continues its position of February 26, 2020, but then it was only about the costs of disputes on the recovery of compensation for violation of exclusive rights, explains Victoria Olkhova, senior lawyer at the law firm Kosenkov and Suvorov. The Supreme Court “calls on the courts not to formally and literally apply the rules of law, but to take into account the economics of the process,” adds Alexandra Alfimova, Senior Associate at Savina Legal’s Bankruptcy and Restructuring practice.

The institution of court costs has a compensatory function, that is, it is aimed at reimbursing the subject for the costs incurred by him during the trial, and “cannot be a means of enriching one side at the expense of the other,” emphasizes Ms. Gladysheva.

ProLegals partner Elena Kravtsova explains that when resolving the issue of court costs, a party needs to confirm the significance of the dispute, which may explain the high costs of representatives: “If such evidence is not provided, the court may recognize the costs as excessive and unreasonable.”

However, according to Ms. Olkhova, a significant reduction in legal costs for the defendant’s lawyers may also contribute to the fact that claims for the recovery of damages will begin to be filed “in clearly unreasonable amounts”: the plaintiff will not be afraid of recovering from him an amount more than won. Ms. Alfimova even admits that the defendant, recognized as unfair, if the claim against him is partially satisfied, now “risks of losing the right to reimbursement of court costs.”

Ekaterina Volkova, Anna Zanina