He Who Dares…Does Not Always Win: Cost Recovery and The American Rule

By Freelance Attorney Contributor, California, USA

The prospect of litigating in the United States has always been a daunting prospect for the most hardened of foreign litigators. With its two-tier federal and state systems, seemingly disparate legal systems, cumbersome jury trials and local, seemingly alien-unfriendly judges sitting in courts of the like of some long forgotten vestige of Harper Lee’s Alabama, the prospect of understanding how this colossal system works, let alone being successful in it, seems beyond comprehension.

And that is if you are the one suing! To the rest of the world, US courts have appeared nothing less than exorbitant in their reach over unsuspecting defendants who have never previously set foot on US soil, but have happened, unsuspectingly, to have allowed their products to enter its stream of commerce. Say nothing of punitive damages!

This rather bleak introduction to US litigation doesn’t bode well for your foreign litigant. For the foreign litigator, whether in England, Australia or South Africa, the US legal system seems as far away from the norm as one could possibly imagine.

Yet with the integration of world markets and, particularly, the ability to virtually access foreign buyers and sellers, it is very often that reading the small print, you may have elected a US District Court in, say Illinois or New York to (exclusively) decide your dispute. And sometimes, it is not only the small-print that provides for this: often US sellers or buyers will insist on a choice of law which is more familiar to them, and often they hold the cards to have their way.

So is the ‘US system’ really so different? The answer is yes and no. No because the underlying reasoning of most developed Western systems of law apply in the US. Courts function in pretty much the same way and the attorney-client relationship is on similar terms as found elsewhere, to mention just two reasons. And yes, because it does have its quirks. One of those not-so-obvious quirks is that if you come here to litigate, you must not expect a win to carry your costs.

This rule, the so-called ‘American Rule’ of cost (non) recovery, is enshrined virtually across the 50 States. A plaintiff can sue without, in most circumstances, worrying about being burdened with a costs bill if he or she loses. Conversely, and negatively, defendants, particularly deep pocketed ones, have no choice but to incur costs when sued, even if the claim is without merit. Often, defendant naming is a strategy to force a settlement from a deep pocket: a commercial decision has to be made sometime; fight a case and incur costs or settle now and pay something, even if you resent the prospect!

Costs are awarded in certain circumstances, for example, in Michigan where a claim is frivolous, or in Texas where a supplier sues on a lien for supply of materials to a construction project. However, the most usual course is where costs have been contractually agreed upfront. Here the courts may award costs, the good news being that certain courts are inclined to apply the ‘lodestar’ method in calculating attorney’s costs. This entails multiplying the reasonable hours spent working on the case by the attorney’s reasonable rate. This is a better cash out for the successful party than what he or she would receive, for instance, on the set party-party or attorney-client scale of fees in South Africa. Some states allow recovery of in-house counsel fees, as well.

So when next contemplating a contractual relationship made subject to US law and a US court, ensure that the contract expressly provides for the successful party to win costs. If not, you may be facing more than you bargained for in chasing your debtor in the United States!

Mommy Changed Her Will, He Cried!!

By Winston Miller Attorneys, Johannesburg, South Africa

It is a well known principle of South African law that a pactum successorium, being an agreement by a testator not to revoke a will, is invalid.

Any provision in an agreement in terms of which a person purports to regulate how his or her assets would be dealt with after death will not be binding. The principle is simply that a person should be entitled to determine how or to whom property should be left on death, and to revoke a will or other testamentary document at any time.

One important exception to this principle is the execution of a binding notarially executed ante-nuptial contract (or for those not familiar with the term, a ‘prenup’). It is common in South Africa for couples contemplating marriage to sign  a prenup to avoid their assets being  in community of property (the default regime in South African matrimonial law) . By concluding a properly executed ante-nuptial contract before the marriage, the marriage would be regarded, in South African terminology, as being “out of community”.

In the ante-nuptial contract, the spouses to be may provide for the devolution of property on the death of one or both of the spouses. And this would be binding. An ante-nuptial contract is not a testamentary act (a will). It need not follow the formalities prescribed by the South African Wills Act for valid wills. With a will, as noted above, the maker of the will retains the right to revoke the will by written act at any time. However if spouses to be include in the ante-nuptial contract provisions relating the devolution of a property on death the pactum successorium may only be revoked by the mutual consent of the parties

The moral of the story: ensure your spouse’s property is buttoned down in the pre-nup!!

If you have any questions or wish to consult on a matter of family law or estate planning, please feel free to contact Winston Miller Attorneys.