I'm going to court and have to fork out monies to pay lawyers. If I win later, can I claim back all these legal fees?

This is a common query received from clients. Understandably, if you have to go to court to get what’s rightfully yours, after someone has wronged you, you’d want to be compensated for all the expenses you incurred when you win. But, does the law allow you to?

Costs – what is it?

The court has the power to reimburse the winning party with a sum at the end of the matter. This ‘reimbursement’ is called costs, and it could include fees. However, often, the costs would not completely cover the legal fees. Especially when high fees are involved, the costs awarded by the court can only cover a fraction of what has been paid. This is because these costs are discretionary, but of course, such discretion is still subject to the cost-awarding regime under the Rules of Court 2012.

Special damages – an alternative?

Many litigants often combat this by including legal fees paid under ‘special damages.’ Special damages are losses that you actually incurred because of someone’s action (or inaction) against you, which led to the suit. Damages, special or otherwise, must be proven. So, the logic behind doing this is: if I can show that I indeed paid the legal fees, I ought to be entitled to be reimbursed in its entirety. In a way, it circumvents the discretionary approach to costs.

What does the law say?

The apex court of Malaysia examined this issue in the recent case of Golden Star & 3 Others v Ling Peek Hoe & Another [Criminal Appeal No. 02(f)-60-10-2023(A) heard together with Civil Appeal No. 02(f)-61-10/2023(A)]. In this case:

• This matter concerns the issue of fraud over properties.
• The decision of the High Court was brought on appeal to the appellate court, which was then set aside. Afterwards, the Federal Court reinstated the High Court’s decision.
• This was a bifurcated matter. So, it then went back to the High Court for assessment of damages.
• The High Court awarded damages of RM4,135,951.76 (in favour of the respondents in this case here). A substantial portion of the damages, totaling to RM2,604,000.00 were on legal fees alone:

i) The respondent’s prayer in the High Court: RM2,918,000.00.

ii) What was proven: RM2,748,000.00 (“X”).

iii) Costs awarded: RM144,000.00 (“Y”).

iv) So: X – Y = RM2,604,000.00.

• The legal fees here included costs that were incurred at the appellate stage and the apex court stage as well. This was beyond the powers of the High Court, which is limited to proceedings in the High Court alone. Hence, this appeal.

The following important questions were addressed:

1. Are costs distinct from damages?
2. Are costs recoverable as special damages in the same action, between the parties?
3. Are legal fees a type of special damages, and claimable on top of costs?

Costs vs damages? Which do legal fees belong to? And, are both claimable together?

As the root of the matter originated at the High Court, the Federal Court still referred to the Rules of Court 2012 (which governs matters in the lower courts but do not apply to the Court of Appeal and the Federal Court). Primary reference was made to Order 59 rule 1, which defines ‘costs’ to include “fees, charges, disbursements, expenses and remuneration”. Thus, the Federal Court observed that legal fees would fall under the cost heading and therefore cannot be extended to damages.

The FC said this at paragraph 33:

”Damages are compensatory in nature awarded to compensate for loss sustained as a result of a civil wrong committed in breach of a duty of care. Whether such damages are recoverable or not

is a matter of proof dependent on the evidence adduced at trial. As mentioned earlier, in the event there is lack of proof, the award should be nil or nominal. Costs of litigation on the other hand are discretionary. Costs are “a sum of money which the Court orders one party to pay to another party in respect of the expense of litigation incurred…Costs are distinct from damages.”

Answer to question 1: yes, they are distinct.

Answer to questions 2 & 3: no, legal fees are ‘costs’, they cannot be claimable as special damages. And, they cannot be claimed in the same proceedings between the same parties.

Conclusion

• Damages: losses that you suffered because of a wrong committed against you. You must prove all your losses, before your claim can succeed. Even if you fail to prove, the court can at least discretionarily order nominal damages, if the court sees fit.
• Costs: compensation given by the court for the expenses you incurred due to litigation. This is a judicial discretion.
• Damages materialize due to a cause of action that arose. Costs that were incurred to initiate a claim is not in itself due to a cause of action. So, legal fees cannot be a basis for damages.
• Therefore, A, who succeeded in his claim, cannot recover the costs of the proceedings from B, as damages, even though B is the whole reason for these costs being incurred.
• The court’s view is this: these legal fees are costs necessary to litigation, and any party seeking recourse through the legal system must accept this as a “necessary incidence of using the litigation process.”