Straker v Tudor Rose – pre-action duty to negotiate

[2007] EWCA Civ 368

The claimant (and appellant), Mr Straker, had entered into purchase contracts for two "off plan" properties, conditional on obtaining mortgage finance by a particular date. He did not obtain the finance by that date and the contracts were later rescinded by the developer. The defendant firm had acted for both the developer and the appellant in this transaction. They accepted that they had acted in breach of their duty to obtain an extension of time and in failing to take the claimant’s instructions. However, the defendant argued that the claimant had suffered no loss because he would not have been able to raise the finance to purchase either property.

During the pre-protocol period, the claimant persisted with his argument that he would have been able to raise the finance to buy both properties, despite the defendant’s insurers’ (Zurich Professional Ltd) strong argument that at most he would have been able to buy one property. The defendant made a pre-action payment into court of £9,000.

At trial, the claimant succeeded on the one property argument and recovered £11,688, beating the payment into court. The judge awarded the claimant his costs up until a date some months prior to the commencement of the proceedings and no costs thereafter on the basis that he had failed to engage with the pre-action negotiations on a one property basis.

The Court of Appeal allowed the appeal. To reduce the recovery of costs to nil from the date of the payment into court for failure to comply with the protocol was wrong. The correct order was to award the claimant 60% of his costs from that date.

Comment: although the appeal was successful, this case is nonetheless encouraging for insurers attempting unsuccessfully to persuade claimants to compromise their claims pre-action. It wholeheartedly endorses the principle that claimants who fail to engage with their pre-action duties under the protocol will be penalised in costs – here a 40% reduction from the costs the claimant could have expected to recover having beaten the payment into court. There has been little previous guidance about penalising parties for failing to comply with protocols despite the costs and interests sanctions available for this purpose in the Protocols Practice Direction. The practice direction provides that the court should exercise its powers with the object of placing the innocent party in no worse a position than he would have been in if the protocol had been complied with.

In Re Aegis, although the Inland Revenue was in principle entitled to the costs of the claimants’ discontinued judicial review application, the amount recoverable was reduced by 15% to reflect the fact that the Revenue had failed to comply with the terms, or even the spirit, of the judicial review pre-action protocol which the claimants had attempted to put into operation. Against this background, the reduction in the present case of 40% offers a real encouragement to claimants to negotiate.