In a recent High Court decision John Ayton -v- RSM Bentley Jennison & Ors [2018] EWHC 2851 (QB) the issue of commencing court proceedings to include a claim for pre-action costs was examined.

Background

The claimant (Mr Ayton) received investment advice from the defendants (RSM), a reputable firm of accountants, and advanced the sum of £150,000 for a Russian oil investment. It is fair to say that Mr Ayton received no return on his investment and also lost the principal sum. Mr Ayton did eventually receive £50,000 in stages from a third party, but the sum of £100,000 was unrecovered in respect of his investment.

Mr Ayton served a letter before action on RSM pursuant to the professional negligence pre-action protocol claiming £100,025 for damages, plus interest and his legal costs.

RSM responded by sending a cheque in the sum of £100,025 plus interest to Mr Ayton, but refused to pay any of his legal costs. RSM’s position was that it had no obligation to pay Mr Ayton’s legal costs under the professional negligence pre-action protocol and there was no mechanism for Mr Ayton to seek payment of those costs where RSM had tendered the full amount of his claim.

Mr Ayton returned RSM’s cheque and issued proceedings claiming £100,000 for damages, plus some £1,500 for consequential loss and expense, £30,000 in relation to a car upgrade and his legal costs. RSM responded to the proceedings by filing a defence pleading tender before claim and paid £103,576.57 into court. RSM continued to defend the remainder of the claim and pleaded that it had no obligation to pay any of Mr Ayton’s pre-action costs.

The matter proceeded to trial and judgment was awarded in Mr Ayton’s favour in the sum of £119,578.22 (including interest), but dismissed his car upgrade claim. In respect of costs, Mr Ayton was awarded 70% of his costs up to the date of the Case Management Conference, but was ordered to pay 80% of RSM’s costs thereafter up to and including the trial date.

Interestingly, RSM had ignored a number of Mr Ayton’s Part 36 offers prior to trial, but it was held that it would have been unjust to apply the normal costs consequences following RSM’s failure to beat Mr Ayton’s offers, and considered that Mr Ayton in pursuing his claim for a car upgrade to trial at a disproportionate expense was an abuse of process.

The appeal

Mr Ayton appealed against the costs order. On appeal, the High Court held that Mr Ayton was justified in issuing and pursuing a claim to recover his pre-action costs in circumstances where RSM had acted unfairly in refusing to pay and refused several of the claimant’s Part 36 offers.

Mrs Justice May in the High Court emphasised that the professional negligence pre-action protocol ensured that the onus to avoid the commencement of proceedings was on both parties. She considered that it must have been obvious to RSM from the outset that an investigation into serious allegations against a reputable professional firm would incur significant costs and that RSM had acted unfairly in refusing to pay any of Mr Ayton’s pre-action costs.

Mrs Justice May concluded that the only option left for a claimant where a pre-action offer is made to pay damages by a defendant, but there is a persistent refusal to reimburse legal costs is to commence proceedings. She expressed the view that any concerns RSM may have had about the uplift under the relevant conditional fee agreement, the rates applied, the amount of hours claimed and any failure to engage with the professional negligence pre-action protocol could have all been challenged following a detailed assessment and were not proper reasons for RSM refusing to remit payment.

She ordered an interim payment of £430,000 to the claimant in respect of his costs, based on assessment at 60% of the total bill (excluding the success fee and ATE premium elements, to which 40% only had been applied), which would allow for the prospect of a significant reduction on taxation.

The impact

The High Court’s decision emphasises the potential significant costs implications of the parties’ failure to co-operate with the spirit of the pre-action protocols and refusal to accept Part 36 offers prior to the commencement of proceedings.

Importantly, the High Court’s decision provides reassurance to claimant parties that they can issue a claim solely in pursuit of their pre-action costs despite the fact that the defendant has offered full payment of their damages. The decision is crucial for claimants in circumstances where they are put to considerable time and expenses in complying with relevant pre-action protocols and investigating the viability of their claims. The ruling ensures that claimants should not be left out of pocket in relation to their pre-action costs where a defendant has effectively conceded the claim.