Supreme Court Confirms Limited Liability of Counsel for Costs - International Law Office

In what circumstances can counsel be held liable for the other side's legal costs? The Finnish Supreme Court recently ruled on this issue in its Decision 2003:46. The decision confirms that the conditions in which counsel is liable for the other side's trial costs, as laid down in the Finnish Procedural Code and an earlier Supreme Court decision (2001:65), also apply to appeal proceedings.

Applicable Law

Under the Finnish Procedural Code, liability for costs generally remains with the parties. The losing party is usually ordered to pay the winning party's legal costs to a reasonable extent, although there are some exceptions.

Parties' counsel will generally not be liable for any costs. However, in certain cases the courts can order counsel to be jointly and severally liable with the client for the other side's costs. Under the code, the condition for this is that counsel has wilfully or negligently caused the other side to incur unnecessary legal costs. Actions through which counsel may incur liability for costs include:

• failing to appear in court or to observe orders issued by the court;
  
  
• making statements that counsel knows or should know to be untrue;
  
  
• acting against the client's instructions;
  
  
• presenting irrelevant evidence; and
  
  
• unnecessarily prolonging the trial in other ways.

However, according to the preparatory works to the code, the provisions on counsel's liability should be applied cautiously. The preparatory works explicitly state that counsel is entitled to trust information received from the client.

Background

In the case at hand, proceedings were initiated in the district court by a landlord against his former tenants because the tenants had failed to pay a couple of months' rent. The defendants brought a counterclaim against the landlord claiming that, due to the poor condition of the residence, all rents paid by the tenants during a period of 25 months should be returned. Both the district court and the Finnish Court of Appeal dismissed the counterclaim and ordered the defendants to pay the outstanding rent with interest as well as the landlord's costs.

The Court of Appeal also ordered counsel for the defendants to be jointly and severally liable for the costs the landlord had incurred in being brought to the Court of Appeal. The defendants' counsel appealed to the Supreme Court claiming that he should have no liability for the costs. The issues considered by the Supreme Court were whether counsel should be responsible for the defendants' decision to appeal to the Court of Appeal, a decision that had prolonged the trial, and whether counsel should be jointly liable for the costs incurred by the appeal.

The former tenants were in financial difficulties and had been admitted to a debt arrangement programme. The Court of Appeal had ruled that there was no basis for the appeal, and that counsel should have taken account of the fact that his clients had been admitted to a debt arrangement programme and would not be able to compensate the other side for his legal costs should they lose the case.

Decision

However, the Supreme Court did not accept the argument put forward by the Court of Appeal. It ruled that everyone should have the right to the same level of legal protection, including the right to appeal, regardless of financial status. That it may be difficult or even impossible for a party to recover costs from the other side due to the the opposition's lack of funds should not prevent counsel from acting in the best interests of the client. The threshold for counsel's liability for costs should be set high, as otherwise lawyers would be likely to refuse to act for clients whose cases appear to be weak or who have already lost the case in the first instance.

The Supreme Court had ruled in Decision 2001:65 that counsel's assessment of the merits of the client's case would have to be manifestly erroneous in order for counsel to be liable for the costs incurred by the other party. In Decision 2003:46 the Supreme Court applied the same test. The court ruled that even though the appellants had failed to establish a basis for their counterclaim in the Court of Appeal, there was no evidence that counsel's assessment of the case had been manifestly erroneous.

Comment

The Supreme Court's Decision 2003:46 supports the interpretation of the Finnish Procedural Code that counsel is liable for costs only in exceptional circumstances. The decision means that lawyers should not be deterred from representing clients in court out of fear of incurring liability for costs.

For further information on this topic please contact Bernt Juthström or Päivi Lindström at Roschier Holmberg Attorneys Ltd by telephone (+358 20 506 6000) or by fax (+358 20 506 6100) or by email (bernt.juthstrom@roschier.com or paivi.lindstrom@roschier.com).