The recent decision in Webb Resolutions Limited v Countrywide Surveyors Limited highlights the costs liability that a claimant faces where a claim form has been issued, but not served on a defendant.
The case in hand concerned Countrywide Surveyors Limited’s provision of a mortgage valuation of a property in Nottingham. Webb Resolutions Limited, who purchased the mortgage from the original lender, alleged that Countrywide overvalued the property.
In May 2011, Webb issued a Letter of Claim in accordance with the Professional Negligence Pre-Action Protocol. The sum claimed was £31,148. Countrywide refused to admit liability, and Protocol correspondence ensued between the parties’ solicitors. In July 2013, Webb’s solicitors wrote to Countrywide’s solicitors putting them on notice that, as primary limitation was expiring in a few days’ time, they expected instructions from their client to issue proceedings.
A claim form was then issued in August 2013 but was never served on Countrywide. There was further correspondence between the solicitors and in April 2014, Countrywide’s solicitors wrote to Webb’s solicitors asking if a claim form had been issued. Owing to the lack of reply, Countrywide’s solicitors then obtained a copy of the claim form from the Court. Countrywide then wrote to Webb’s solicitors seeking costs owing to the failure to serve the claim form. Webb disputed this entitlement.
The Court considered that such cases (that never really ‘got off the ground’) could be divided into 3 distinct phases:
Phase 1 – potential claimant decides not to issue a claim form, but costs are incurred which would have been recoverable as pre-action costs had the claim form been issued; Phase 2 – where a claim form is issued but not served; and
Phase 3 – where a claim form is issued and served, but the claimant takes no further steps.
In Phase 1, costs would not be recoverable subject to some limited exceptions. However in Phases 2 and 3, relevant provisions of the CPR and the Senior Courts Act 1981 would apply. These grant the Court a discretion in awarding pre-action costs ‘of and incidental to’ the claim.
Countrywide argued that Webb should be required to pay its costs as if the claim had gone to trial and Countrywide was successful. Webb however argued that, at the most, the only costs payable would be those incurred after the issue of the claim form. The main issue at stake for the Court was whether it could exercise its discretion and award Countrywide’s pre-action costs.
Webb argued that the decision to not serve the claim form on Countrywide was a commercial one, owing to the low value of the claim. It was submitted that Webb should not to be penalised for this rationale. The Court took a sceptical view about this; it concluded that Webb had issued to encourage Countrywide to settle, as Webb continued to pursue Countrywide for its costs and made a Part 36 offer.
Webb also argued that the pre-action costs incurred could not be considered ‘incidental to the claim’ as when the claim did become the subject of litigation it might not have included all the issues covered pre-action. The Court rejected this argument on the basis it could not find any issue which would have not formed part of an issued claim.
In its finding the Court took into consideration the decision in Clydesdale Bank v Kinleigh Folkard & Hayward (2014). In that instance, the Court found that the trigger for the purposes of the recovery of costs was the issue of the claim form and not its service. Accordingly, the Court had no hesitation in ordering that Webb be held liable for Countrywide’s costs. The Court felt that, in exercising its discretion, it would be wrong for it to ignore the considerable expense incurred by Countrywide, as well as Webb’s awareness of the disproportionate expense (given the low value of the claim) of the course it was pursuing.
This decision is a welcome one for defendants in reinforcing the position that a claimant cannot, without consequence, simply gamble on using the issue of a claim as a weapon with which to force a defendant to settle. Once a claimant issues it places itself with a potential costs liability, including for those pre-action costs already incurred. Indeed, this reflects our recent experience in a number of successful costs recoveries in similar circumstances when acting for defendant surveyors. Accordingly, whether a claimant issues will be a tactical consideration for defendants when faced with the proposition of a standstill agreement or a claimant who fails to properly set out its case during the Pre-Action Protocol process.
Webb Resolutions Limited v Countrywide Surveyors Limited HC-2013-000573, 4 May 2016