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High Court backs claimant who issued just to recover costs

Hayman: Welcome reassurance

A claimant was entitled to issue his claim solely in pursuit of costs where the defendant “acted unfairly” by trying to settle pre-action but refusing to pay any costs, the High Court has ruled.

Mrs Justice May said that while the defendants in the case before her were entitled to run the technical argument they did, “where costs must necessarily have been incurred in complying with the PAP, the defendants must have realised that the risk in adopting this course was that interest and costs would mount whilst they maintained that denial”.

She made an interim costs award of £430,000 in favour of the claimant; he had put his base costs at £113,000 in the allocation questionnaire.

Ayton v RMS Bentley Jennison & Ors [1] [2018] EWHC 2851 (QB) was a professional negligence claim against accountants over their advice in a £100,000 investment by the claimant that was eventually lost.

A claim for £100,000 was made under the pre-action protocol (PAP) for professional negligence – which, unlike some other PAPs, does not make any provision for costs associated with the investigation and preparation of such a letter.

The defendants sent a cheque for the sum plus interest without responding to that initial letter, and said they would not pay any costs as there was no obligation on them to do so.

The ruling records that the partner at Clyde & Co, acting for the defendants, “asserted that there was no mechanism under which the claimant could obtain his costs, on the basis that the defendants had offered the full amount of the claim.

“The partner informed BBK [Bolt Burdon Kemp, for the claimant] that they were taking this stance on leading counsel’s advice.”

The claimant issued proceedings and Senior Master Fontaine awarded him just under £120,000 (including interest) at trial, beating his part 36 offer. A secondary claim for £30,000 – for loss allegedly suffered through the claimant upgrading his Mercedes car in reliance on an expectation of profit from the investment – failed.

However, the master decided that it would be unjust to apply the normal consequences of part 36, mainly because she considered the car claim an abuse of process.

May J decided that this decision to disapply the part 36 regime could not stand.

She explained: “There was no proper basis for [the master’s] finding that the defendants had surmounted the ‘formidable obstacle’ of establishing that it would be unjust for the consequences of part 36 to apply, founded as it was upon her apparent acceptance of [the defendants’ counsel’s] submissions that the claimant had not been justified in issuing proceedings to obtain his pre-action costs in circumstances where an offer of the full amount of the claim had been made.”

That left the judge to apply the part 36 discretion afresh.

“In my view, this whole unfortunate train of events was unnecessary from the outset,” she said. “The defendants acted unfairly in adopting the position of refusing to pay the claimant any of his pre-action costs.

“It must have been obvious to the defendants that a proper investigation would have been required before allegations of fraud and negligence were to be advanced against a reputable, professional firm and that such an investigation would incur significant costs.

“The claimant was a private individual, wealthy but not, in [his counsel’s] words, super-abundantly so. Why should he, or his solicitors, depending on the terms of the CFA, be left out of pocket when the defendants had effectively conceded the claim?

“It was open to the defendants, of course, to choose to run the technical, tactical course that they did, seeking to rely upon the wording of the CPR in relation to a tender before claim [which was eventually dismissed by the Court of Appeal], but in the circumstances which I have set out, where costs must necessarily have been incurred in complying with the PAP, the defendants must have realised that the risk in adopting this course was that interest and costs would mount whilst they maintained that denial.”

The judge noted that the Court of Appeal emphasised in the 2016 case of Webb v Liverpool Women’s NHST that the possibility of unsuccessful defendants avoiding the costs of the trial if they had accepted the claimant’s part 36 offer was a relevant factor in exercising the court’s discretion.

“The defendants may be right to have had misgivings about the extent of the uplift under the CFA, and the steep upward spiral of costs to an apparently unreasonable level totally out of kilter with the modest amount of the remaining car claim, but the position could have been crystallised and their concerns addressed at any time simply by accepting the part 36 offer or making one of their own.

“But doing so would have involved submitting to a costs order against them which they were determined, it seems, not to countenance.

“Concerns about the extent of the uplift, the rates charged, the amount of hours claimed, and the failure to engage with the PAP, could all have been challenged or dealt with on assessment and were not a proper reason for holding back.

“I conclude that it would not be unjust, in general, for the consequences set out under part 36.17 to apply.

Sam Hayman, head of costs at BBK, said: “This judgment displaces the widely held misconception that a party may not issue a claim solely in pursuit of costs.

“It comes as welcome reassurance where claimants are put to considerable costs complying with relevant pre-action protocols and investigating the viability of claims. It is unconscionable that those reasonable costs should not be recovered purely because formal proceedings had not been instigated…

“Where one party has wronged another, it is only right and proper that they bear the costs for the ensuing legal advice which was required to rectify their wrongs.”