Many disputes clauses have a statement to the effect that, in the event of a lawsuit or arbitration, the “prevailing party” will recover its attorney’s fees and costs. You might think it is a great idea to have that in your contract. Not only do you think you can win your case, but then the losing party pays for your attorney. Who would object to that result?
The term “prevailing party” does not necessarily mean what you think it means.
The drafters of these clauses no doubt intended that the party who won the case would be compensated for the costs incurred to achieve that success. But construction claims often have items that are difficult to calculate precisely, such as lost productivity, or that turn on resolution of ambiguous language, or have to do with the sufficiency of “written notice.”
Do you win if you claim 50% loss of productivity but only get 25%? Or have you won when you ask for 100 days of time extension and extended overhead and you get only 30 days? In these examples, you “won” but not 100%. “Winning” can be a vague concept. So the use of the term “prevail” rather than “win” may have been intended to mean something like “won for the most part” or, at least, did not lose.
Judges and arbitrators who confront this prevailing party language struggle to come up with a reasonable definition, sometimes with surprising results. The somewhat archaic word itself does not help: the definition of “prevailing” includes “triumph,” “carry the day,” “be prevalent,” “persuade” and “sway.” What does it mean in the quote: “It’s difficult for logic to prevail over emotion.”
As an example, the Pennsylvania Contractor and Subcontractor Payment Act states that “the substantially prevailing party in any proceeding to recover any payment under the act shall be awarded a reasonable attorney fee.” In one case that applied this provision, the court found that one party’s defeat of 99% of the other party’s claim did not mean that it prevailed.
The California Civil Code Section 1717 has a somewhat better defined concept. Under that law, an award of attorney’s fees is authorized “in any action on a contract… [to] the party prevailing” and that means “the party who recovered a greater relief in the action.” Recognize, however, that even here a certain amount of clarity is still needed. Why? Because the language speaks in terms of “relief,” which can be something other than money. If a contractor lost a delay claim, but defeated the other side’s claim for liquidated damages, that’s relief, but there is no monetary transfer.
The federal government uses a different approach in the Equal Access to Justice Act, 5 U.S.C. Section 504, that applies only to small contractors. There, an award of attorney’s fees to the prevailing party must be given to the contractor unless the government’s denial (defense) of the claims is “substantially justified.” Under this act, “plaintiffs may be considered ‘prevailing parties’ … if they succeed on any significant issue in litigation which achieves some of the benefit the [plaintiffs] sought in bringing suit.” Again, money recovery is not mentioned. The focus of the act is not on the quantity of recovery. Even a small win, but on a “significant issue,” can mean that a party prevailed. In one case, that small win amounted to 2% of the claims.
No cases could be found from any courts where the judgment was that neither party prevailed, although such cases must surely exist. On the other hand, there is one case where an arbitrator decided that both parties had prevailed and allocated attorney’s fees based on the amounts by which they prevailed. That decision was reversed by a court.
You can see that there is only general guidance on deciding what it is to prevail. There is even less guidance when it comes to deciding what should be reasonable attorney’s fees for prevailing.
When a contract has prevailing party language, you might think that if you win the case all your attorney’s fees will be reimbursed by the other party. However, a judge or arbitrator has discretion on this part of an award. There are no statutes, and I have seen no disputes clauses, that tie in the amount of fees to the amount of recovery on the claim. However, attorney’s fees may be reduced in light of the amount of the judgment. Obtaining half of what you asked for, for example, may entitle you to less than all the fees it cost you to get there.
Prevailing party clauses can hinder settlement. If one party thinks highly of its chances of success at trial or arbitration, it may be reluctant to settle because it expects that its attorney’s fees will be fully paid by the other side.