It's on issue, not service, that potential costs liability to your opponent arises
The High Court has recently held that a defendant, in a case where a claim was issued but then abandoned before service, was entitled to its costs of and incidental to the proceedings.
In May 2011, the claimant mortgage company brought a claim against the defendant surveyor alleging that a property had been overvalued.
On receipt of the letter of claim, the defendant instructed solicitors who responded to the allegation, denying liability. The Claim Form was issued on 7 August 2013, but was never served. Despite this, correspondence continued. In September 2013 the claimant made a Part 36 offer. It was not accepted.
In 2014, the defendant's solicitors became aware that the Claim Form had been issued and wrote to the claimant's solicitors alleging that there had been a discontinuance by the claimant and seeking costs. The defendant sought not only costs incurred since the Claim Form was issued, but also its "pre-action" costs. The parties disagreed about how the court's discretion as to costs (under section 51 Senior Courts Act and CPR 44) should be exercised and whether the discretion covered pre-action costs, as well as costs post issue.
The court ordered the claimant to pay the defendant's "costs of and incidental to the claim", including pre-action costs, to be assessed on standard basis if not agreed. The Master observed that section 51 gave the court power to order a party to pay another party's costs of and incidental to "proceedings" and that CPR 7.2(1) provides that proceedings start when the court issues a claim form. In his view, all the expense that followed as a direct consequence of the pre-action letter of claim would be incidental to the claim eventually issued.
Clydesdale Bank plc v Kinleigh Folkard & Hayward  (unreported), 6 February 2014, (Chancery Division) was a similar decision: the claim form was issued but not served; there was considerable pre-action correspondence and ultimately the claimant made a decision not to proceed. The defendant sought its costs. The bulk of the claimant's costs in that case had been incurred after the claim form was issued, so the pre action costs point was not argued.
Issuing a claim form fundamentally changes the position with regard to an opponent's costs. The fact that the claim form was not served is, however, a factor to be taken into account when the section 51 discretion is exercised.
For claimants with limitation difficulties it is clearly preferable to attempt to agree a standstill agreement, rather than issue protective proceedings.
Webb Resolutions v Countrywide Surveyors Ltd  Ch Div (4 May 2016)