Allocation of Litigation Costs: American and English rules

Abstract

The costs of initiating legal claims and defending against them may be allocated in numerous ways. In most settings, these costs are allocated between the adversaries by one of two rules. In the United States, disputes are typically adjudicated under the ‘American rule’, whereby each party is responsible for his or her legal expenses. Within the United States, the most important exceptions to the rule are statutory in nature, and specify only that defendants pay the legal costs of successful plaintiffs. Examples of such exceptions are found in private antitrust and civil rights cases. In other countries with legal systems grounded in English common law, the ‘English rule’ requires the losing party at trial to compensate the winner for at least part of his or her costs. Such fee-shifting is subject to two constraints. The amount of fees shifted must be reasonable. In addition, fees are not shifted to losing parties who are indigent.