Sequential Trials and the English Rule

Abstract

The allocation of trial costs and the way a trial progresses are two important issues in civil procedure. The combination of these two elements has received relatively little attention in the law and economics literature. The prior literature has only compared unitary litigation (e.g. liability and damage issues are litigated, after which the court decides on both issues) under the American rule with sequential litigation (e.g. the parties first litigate the liability issue after which the court makes a decision, and then if still necessary the parties litigate the damages issue) under the American rule. In this article, I examine the influence of sequential litigation when the loser at trial pays all the litigation costs and compare the results with (a) the situation in which litigation is unitary and the loser pays all the litigation costs and (b) the situation in which litigation is sequential and each party bears her own costs. I focus on the incentive to sue, the incentive to settle (or to litigate) and on the settlement amount. Some interesting differences with the previous literature are discussed in detail.

Keywords: Fee shifting, rules of cost allocation, English rule, American rule, unitary trials, sequential trials, bifurcated trials

JEL Classification: K13, K41