As we all know, the court has discretion on the question of costs. Section 51 of the Senior Courts Act 1981 provides that “the costs of and incidental to all proceedings in … the High Court … are in the discretion of the court” and CPR 7.2(1) provides that “proceedings are started when the court issues a claim form”.

The application of these rules was recently considered by Deputy Master Nurse in Webb Resolutions Ltd v Countrywide Surveyors Ltd, a professional negligence claim against the defendant surveyor. The question for the deputy master was whether the claimant, who had issued but not served the claim form, was liable for the defendant’s costs and, if so, whether those costs should include the pre-action costs.

Background to proceedings being issued (but not served)

The claimant alleged that the defendant had overvalued a property by £24,500 and claimed £31,148.04, which included the cost and expense of repossessing and selling the property, plus interest. The claimant sent the defendant a letter of claim in May 2011 in accordance with the Professional Negligence Pre-Action Protocol. Extensive correspondence then passed between the parties’ solicitors, but the defendant did not admit liability. The claim was issued in August 2013, before the limitation period expired on 7 August 2013, but was not served on the defendant. Correspondence continued between the parties’ solicitors, but still the claim form was not served. In September 2014, the defendant, having obtained a copy of the claim form from the court, alleged that there had been a discontinuance by the claimant and made an application for its costs.

Costs liability is triggered by issue of the claim form

Deputy Master Nurse ordered the claimant to pay the defendant’s costs of and incidental to the claim, to be subject to detailed assessment on the standard basis. He also commented that all the expense that followed as a direct consequence of the letter of claim dated 20 May 2011 would be incidental to the claim that was eventually issued. It is clear from the judgment that it is the issue of a claim form that triggers the costs liability and that, once that costs liability has been triggered, it can include the pre-action costs.

In exercising his discretion, the deputy master took into consideration the level of the claimant’s own costs (in excess of £60,000), the expense the defendant had had to incur in dealing with the claim and the fact that the claimant had been aware of the disproportionate level of costs being incurred.

Impact of the decision

The pre-action protocols encourage parties to exchange information in the hope that litigation and the costs involved in that can be avoided. As a result of this, significant costs can be incurred by the parties pre-action, while they investigate the claim, comply with pre-action protocols and consider whether it is possible to reach an agreement without the need to issue proceedings. Mr Justice Tugendhat said in Citation plc v Ellis Whittam Ltd that parties should be encouraged to try to settle their dispute on the basis that they are not incurring liability to pay the other party’s costs if no action was commenced. However, Deputy Master Nurse has now said that the issue of the claim form fundamentally changes this position.

A claimant will often threaten to issue proceedings if the pre-action negotiations stall or use it as a way of putting pressure on the defendant to increase an offer. However, a claimant who is not confident in its claim should now think twice about issuing a claim, as it could be at risk on costs, including pre-action costs, from the moment the claim is issued. Even if the claimant does not tell the defendant that a claim has been issued, the defendant can find out from the court directly.

This will also be something to consider where a claimant is facing a limitation deadline while still investigating the strength of its claim. If it does not issue in time, it loses the ability to bring the claim at all, but if it issues and then discovers it has a weak claim, it will face a cost liability.

One final point to mention is that, although Deputy Master Nurse commented that all the expense that followed as a direct consequence of the letter of claim dated 20 May 2011 would be incidental to the claim that was eventually issued, this was subject to detailed assessment and it would be a matter of argument before the costs judge as to how much of the defendant’s expenditure could be said to be “costs of and incidental to” the claim.

This article was first published on the Practical Law Dispute Resolution blog on 14 June 2016.