LAW FIRM DIRECTORY

Dispute Resolution

SERGII SHKLIAR,
partner-founder of Arzinger Law Firm, attorney, PhD in Law

ALEKSEI PRUDKIY,
senior lawyer at Arzinger Law Firm, attorney

Taming expenditure

Despite the existence of judicial practice of reimbursement of legal fees, even now it’s hard to determine the ideal formula that would guarantee their full reimbursement. Experience shows that participants of the process still face similar problems

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Finding a solution to the issue of reimbursement for legal fees was one of the most anticipated innovations of the new procedural legislation, which came into force at the end of 2017. And more than a year later, the country’s courts have already managed to generate court practice regarding reimbursement of legal fees. Consequently, all the players on the legal market began to adapt their documents and arrange legal relations with clients in accordance with the new rules of the game.

 

Reasons for refusal

The most common reasons for refusal to reimburse legal fees are as follows: 1) violation of the procedure for applying for reimbursement of legal fees; 2) failure to provide preliminary (approximate) calculation of court fees; 3) submission of inadequate/unacceptable evidence to confirm incurred/expected expenditures (unjustified expenditures); 4) inadequacy of expenditures claimed for reimbursement.

While the first two grounds do not in the main cause problems for practitioners, there are still certain difficulties in applying the criteria of adequacy and proportionality of legal fees.

 

Justifiability of expenditure

With regard to the justifiability of expenditures, the majority of refusals by the courts to provide reimbursement for relevant expenditures are related to the parties providing inadequate or inadmissible evidence to confirm incurred or expected expenditure on legal support.

Judicial practice shows that, in particular, the agreement on the provision of legal support, hourly rates of attorneys (if not specified in the agreement), a report (certificate) of services rendered, a detailed description (specification) of services rendered, evidence of payment of legal fees (bills, payment orders, receipts, etc.) may be appropriate and admissible evidence of the justifiability of expenditures for legal support.

Subject to the proper execution of the above-mentioned documents courts do, in the main, satisfy applications for the reimbursement of legal fees. For example, in the ruling dated October 22, 2018 in case No. 922/1583/18, the Commercial Court of Kharkiv Region satisfied the plaintiff’s application and charged the defendant with legal fees in the amount of about UAH 230,000.

Inadequate execution of relevant evidence may result in refusal to reimburse legal fees or a reduction in the amount. For example, the Sixth Administrative Court of Appeal, in its ruling dated November 1, 2018 in case No. 825/820/17, refused to recover the legal fees due to the party’s failure to provide a detailed description of works performed (services rendered) by an attorney and the resulting costs incurred by it. The Kyiv Commercial Court of Appeal refused to recover part of the stated amount of expenditure due to the inadequacy  of  a bank statement’s contents (absence of details), as indicated in the ruling dated September 10, 2018 in case No. 911/3533/17.

 

Adequacy vs proportionality

The formation of a unified judicial practice regarding reimbursement of legal fees is hampered by the application of the criteria of adequacy and proportionality of such expenditure.

When deciding on the allocation of court fees (including legal assistance), the court takes into account whether the sum of such fees is adequate and proportionate to the subject of the dispute, taking into account the sum of the claim, value of the case for the parties, and finds out whether the result of a dispute could affect the reputation of the party, whether the case attracted public attention.

The complexity of the case and the works performed (services rendered) by the attorney are among the criteria of adequacy to which the declared amount of legal fees shall correspond; time spent by an attorney on performance of works (rendering services); the scope of services rendered by an attorney and works performed; price of the claim; importance of the case for the party, including influence of the solution of the case on the party’s reputation or public attention to the case.

Thus, the price of the claim and the value of the case for the party, as well as its influence on the party’s reputation or public attention to the case, are both criteria of adequacy and proportionality.

At the same time, it is the very non-compliance with the criteria of adequacy that is the basis for reducing the sum of legal fees (as per the request of the other party).

Procedural legislation places the burden of proof of the inadequacy of the sum of legal on the party that filed a petition to reduce such expenditures.

Judicial practice related to the application of the criterion of adequacy is still ambiguous.

Thus, the Supreme Court, in additional rulings dated October 17, 2018 in case No. 907/616/17 and dated October 03, 2018 in case No. 910/23017/17 concluded that in the absence of a petition to reduce the amount of legal fees grounds do exist for satisfying the claim for recovery of legal fees in full.

For example, in the ruling dated June 7, 2018 in case No. 910/16953/16, the Supreme Court supported findings made by the court of appeal to recover legal fees in full, taking into account the lack of a reasonable petition to reduce the amount spent. Similar findings on the satisfaction of application for recovery of legal fees in full were made by the Supreme Court in its ruling dated March 22, 2018 in case No. 910/9111/17.

However, in the additional ruling dated June 22, 2018 in case No. 910/16953/16, the Supreme Court recognized the amount of time spent on familiarization with case materials and on the preparation of the procedural document as excessive, based only on the arguments of the petition on reducing legal fees and not supported by any evidence.

In the ruling dated August 7, 2018 in case No. 916/1283/17 the Supreme Court arrived at contradictory findings on the application of adequacy. On the one hand, the Court of Cassation indicated that the Court of Appeal correctly rejected the petition on reduction of legal fees, referring to its inadequacy due to the failure to provide evidence and substantiate the inconsistency of the amount of expenditures with the criteria of adequacy. On the other hand, the Court of Cassation recognized the findings of the Court of Appeal on the reduction of the sum of legal fees as correct in connection with the application of the principle of proportionality (as a principle of the commercial process).

 

Findings

New procedural legislation and judicial practice encourage attorneys to thoroughly prepare for proving that their arguments are persuasive with regard to the amount of legal fees claimed.

Thus, we can express the following basic recommendations for the successful reimbursement for legal fees:

— it is necessary to form an evidential basis for further collection of expenditures before submission of the first application on merits;

— legal assistance should be provided only by attorneys or paralegal assistants;

— it is necessary to properly provide full and proper evidence that confirms the sums of expenditure spent;

— it is necessary to adequately explain to a court the adequacy and proportionality of expenditures;

— objections presented by opponents regarding the inadequacy of legal fees must be supported by evidence.