In Graham v Farrell 2017 SC EDIN 7 Sheriff McGowan sets out clear guidance on Simple Procedure costs. Although costs are limited to £300 in Simple Procedure claims; it is often argued that this limit should not apply where matters settle without a trial but after defences are lodged.

In Graham, the Claimant raised an action for payment in January 2017 and written defences were lodged. The action settled when the claimant accepted a tender (part 36 offer) for £3,000 in September 2017. The claimant argued that the limit should not apply because the respondent had lodged a defence and had not proceeded with that.

Sheriff McGowan accepted the claimant’s submissions that the limit on costs was subject to the exception in S81(5)(ii) of the Court Reform Scotland Act; that is that the defender “having stated a defence has not proceeded with it”. The Sheriff was not persuaded by the respondent’s argument that the tender was made on a without prejudice basis and that the respondent would have proceeded with his defence had the tender not been accepted.

In reaching his decision, Sheriff McGowan considered that the Sheriff Principal’s decision in Tallo v Clark, 2015 SLT (Sh Ct) was of the “utmost persuasiveness” despite relating to the now redundant statutory framework for summary cause cases. He rejected the contention that a distinction could be drawn between claims which settle by tender and those which settle by extra-judicial agreement. It was his view that the meaning of the phrase, “having stated a defence has not proceeded with it” was “definitively determined in Tallo” and concluded that it would apply in any case where there had not been a hearing on evidence and where the court had not issued its judgement or decision.

The clear message is that a decision should be made about whether or not settlement is to be sought before defences are lodged. Although the new procedure offers a longer period before defences are due, it is possible that matters will change after the defences are lodged or that practical difficulties prevent settlement before they are due. For that reason, the burden on respondents when choosing whether or not to lodge a defence is an onerous one. However Sheriff McGowan’s confirmation that the “sum discerned for” is not the sum sued for, but rather the sum at which the claim is resolved will be helpful. Although this point ought to have been unambiguous; it has been an area of dispute in the past.

This decision has significant implications for respondents; if a tender is accepted after defences are lodged; it will not be possible to avoid costs which are greater than the sum sought. However it always remains possible to seek a negotiated agreement in relation to costs and it should be remembered that success at trial for the claimant is pyrrhic for his solicitors as they cannot recover the cost of their representation from the other side.