Pre Action Costs

The recoverability of the costs of pre-action work is in the discretion of the court or tribunal if the work done or expenses incurred are proven to have been of use and purpose in the relevant proceedings and are, therefore, costs of or incidental to the proceedings.

In any event, such costs must be reasonable in amount and, on an assessment on the standard basis, be proportionate to the claim. In that regard, the court or tribunal may take an adverse view of any pre-action costs that have been incurred over a substantial period and long before proceedings are commenced. Should the costs relate to a pre-action mediation or were incurred for the purpose of a separate proceeding, the court or tribunal is unlikely (unless there are special circumstances) to consider those costs to be incidental to the relevant proceedings.

Section 51 Supreme Court Act 1981

(1) Subject to the provisions of this or any other enactment and to rules of court, the costs of and incidental to all proceedings in: (a) the civil division of the Court of Appeal; (b) the High Court; and (c) any county court, shall be in the discretion of the court.

(2) Without prejudice to any general power to make rules of court, such rules may make provision for regulating matters relating to the costs of those proceedings including, in particular, prescribing scales of costs to be paid to legal or other representatives [or for securing that the amount awarded to a party in respect of the costs to be paid by him to such representatives is not limited to what would have been payable by him to them if he had not been awarded costs].

(3) The court shall have full power to determine by whom and to what extent the costs are to be paid.

CPR 44.2 – Court’s discretion as to costs.

(6) The orders which the court may make under this rule include an order that a party must pay –
(a) a proportion of another party’s costs;
(b) a stated amount in respect of another party’s costs;
(c) costs from or until a certain date only;
(d) costs incurred before proceedings have begun;
(e) costs relating to particular steps taken in the proceedings;
(f) costs relating only to a distinct part of the proceedings; and
(g) interest on costs from or until a certain date, including a date before judgment.

Decisions:

Bright’s Trustee v Sellar [1904] 1 Ch 369 – Swinfen Eady J: “the expense proved useful in the action, and have been incurred at a time when it was right and proper that the outlay should be made in order to safeguard the position of the intending litigant”.

Societe Anonyme Pecheries Ostendaises -v- Merchants Marine Insurance Company Limited [1928] 1 K.B. 750 C.A – Relying on Swinfen Eady J. in ‘Brights Trustee -v- Sellar, Lord Hanworth M.R. held that the Taxing Master has discretion to allow costs in relation to materials that ultimately prove to be of use and service in the action: “It appears to me…that there is power in the Master to allow costs incurred before action brought, and that if the costs are in respect of materials ultimately proving of use and service in the action, the Master has a discretion to allow these costs, which he probably will exercise in favour of the party incurring them, because they have been made use of during the course of the action.”

Frankenburg -v- Famous Lasky Film Service Ltd [1931] 1 Ch. 428 C.A – Lord Hanworth M.R. followed his earlier decision in the Societe Anonyme Pecheries case but sought to qualify the phrase “materials that ultimately prove to be of use and service” by adding “where necessary or proper for the attainment of justice”.

Wright -v- Bennett & Anor [1948] 1 KB 601; [1948] 1 All E.R. 411 C.A – The court at first instance had disallowed the costs of copying documents for counsel who had a noting brief. On appeal, the documents were used again but the Court of Appeal decided that the copying costs could not be recovered as costs incidental to the appeal. It was held that once documentation was produced for the purpose of the first instance trial, it could not be claimed as part of the costs of the appeal even though it may have been of use and service in the appeal [NB: In the later case of Stewart & Howard -v- Medway NHS Trust (see below) the court was more concerned with establishing the intentions of the party at the time the costs were incurred].

Re Nossen Letter Patent [1969] Ch.d (28.10.1968) – Claimant used in-house experts to carry out experiments prior to and during the proceedings and for the use and purposes of those proceedings. Those costs were allowed save for an element of overhead expense of the Claimant company.

Department of Health and Social Security v Envoy Farmers Limited [1976] 1 WLR 1018Separate proceedings – The Department of Health claimed NI contributions from the company in respect of certain individuals the Department said were ’employees’. The company denied liability on the ground that the individuals were self-employed persons. There was a referral to the Secretary of State who conducted an inquiry. It was later held that, although the costs of the referral to the Secretary of State were recoverable as costs incidental to the court proceedings, the costs of the inquiry itself could not be recovered in the court proceedings because the inquiry was a separate proceeding.

Re Gibson’s Settlement Trusts: Mellors & Anor -v- Gibson & Others [1981] 1 Ch 179, Megarry V-C – Costs incurred before proceedings commenced would not be disallowed solely on that account. An order for the costs “of and incidental to” the proceedings extended rather than reduced the ambit of the Order.

Aiden Shipping Company Limited v Interbulk Limited [1986] AC 965, (CA) [1985] 1 WLR 1222 – Sir John Donaldson MRSeparate proceedings – Shipowners made a claim against Charterers, who in turn made a claimed the Sub-charterers. Shipowners failed in their claim and Shipowners had to pay Charterers’ costs. Charterers consequently failed against Sub-charterers and Charterers had to pay Sub-charterers’ costs. Charterers sought to recover from Shipowners, the costs they had to pay to Sub-charterers. The Court of Appeal held that the charterers could not do that, despite the fact that this costs liability was the inevitable and direct consequence of Shipowners claim against Charterers. Donaldson MR said that although the Charterers’ liability for Sub-charterers’ costs was ‘consequential upon’ the Shipowners’ claim these costs were not ‘incidental to’ that claim. NB: The costs between Charterers and Sub-Charterers were ‘separate’ proceedings which had not been consolidated. Shipowners were not a party to those separate proceedings and so could not be expected to pay those costs.

Rentall Limited (2) Field Properties Ltd -v- (1) D S Willcock Ltd & Others [1989] QBD Mr Justice Kay (& assessors)I have no doubt there is in a sense a ‘purpose’ test”. This case considered all the decisions on pre-action costs. The decision acknowledges that it is not simply a case that costs are proven to be (or will be) of use and service in the action but that the purpose for which the costs were incurred must also be considered. This follows the decision in Brights Trustee -v- Sellar that the costs are seen to be incurred “in order to safeguard the position of the intending litigant”. The question of ‘purpose’ is considered further in later decisions.

The Bowbelle [1997] 2 Lloyd’s Rep 196 – Re: Costs of attending a coroner’s inquest. Clarke J – Held: The costs of attending the inquest which were ‘potentially relevant’ to the anticipated civil claims could in principle be recovered in those claims.

[Scottish case] Michael Johnston -v- W H Brown Construction (Dundee) Ltd [2000] 1H (1 Div) Court of Session (Inner House) decision / Court of Session (Outer House) decision – Re: use of external experts. Lord Rodger, Lord Sutherland, Lady Cosgrove – The cost of employing a third party to prepare a schedule of defects pursuant to clause 16(2) Standard Form of Building Contract with Contractor’s Design (1981 Edition) was not recoverable as true consequential loss. That was a cost consequential to the terms of the contract (and not costs of the proceedings) and would have been incurred in any event.

Contractreal Limited v Davies [2001] EWCA Civ 928 – Arden LJ, Wright J Separate Proceedings – The appellant landlord had launched forfeiture proceedings but the amount of any outstanding service charge had to be agreed or determined before forfeiture could be executed. The amount was in fact agreed in the course of proceedings. One of the landlord’s arguments was that all the costs of the forfeiture proceedings were incidental to future proceedings for the recovery of rent (which would mean the landlord could recover the costs on the indemnity basis under the terms of the lease). Arden LJ said that one answer to this submission was that this would be ‘a case of the tail wagging the dog’.

Callery v Gray [2001] EWCA Civ 1117 – Where costs are incurred under a pre-action protocol, Lord Woolf CJ has explained that this is a factor which goes to those costs being recoverable in principle. “Where an action is commenced and a costs order is then obtained, the costs awarded will include costs reasonably incurred before the action started, such as costs incurred in complying with the pre-action protocol”.

Admiral Management Services Limited -v- Para-Protect Europe Limited and Others [2002] EWHC 233 (Ch) – Use of employed in-house computer specialists. Pre-action costs are recoverable in principal even though the intended solicitors had not yet been instructed. Such costs can be recoverable under the principal of Nossen’s patent.

Jacqueline King -v- Milton Keynes General NHS Trust 2004 – Attending inquest – The court when assessing the costs of civil proceedings did have jurisdiction to award the costs of attendance at an inquest if a material purpose of that attendance was to obtain information or evidence for use in the civil proceedings.

(1) Stewart (2) Howard -v- Medway NHS Trust [2004] SCCO 06.04.04 Master O’Hare – The costs of attending a coroner’s inquest for the purposes of subsequent litigation were allowed. In deciding costs, the purpose of the party incurring the costs should be examined, not the purpose of the action in which the costs were incurred, Wright -v- Bennett [1948] 1 KB 601 distinguished.

Ian McGlinn -v- (1) Waltham Contractors Ltd (2) Huw Thomas Associates (3) D J Hartigan & Associates Ltd [2005] EWHC 1419 (TCC), [2005] 3 All E.R. 1126Defendant’s Pre-Action Costs – The case concerns the recovery of costs incurred at the pre-action protocol stage. A mediation took place in relation to a number of issues, some of which were dropped when proceedings ensued. It was held that the costs incurred by the Defendant at the pre-action protocol stage in successfully persuading a claimant to abandon a claim could not be considered as costs ‘incidental to’ any subsequent proceedings, save in exceptional circumstances which give rise to some sort of unreasonable conduct. Accordingly such costs were not recoverable under the Supreme Court Act 1981, s51.

Charles Church Developments Ltd -v- (1) Stent Foundations Ltd (2) Peter Dann Ltd (2007) EWHC 855 (TCC) QBD (TCC) (Ramsay J) 23.03.07 – The courts should generally deal at an early stage with the cost consequences of a failure to comply with a pre-action protocol.

Lee v Birmingham City Council [2008] EWCA Civ 891 – Hughes LJ – Even if part of the claim (damages or otherwise) was agreed prior to issue of the proceedings, the costs of the issues agreed and which do not form part of the claim eventually issued can still be recoverable as part of the pre-action costs (as being incidental to the proceedings). Taking into account the repairs that had been effected before the claim was issued, Hughes J said: “the effect of the claim is to get the work done, then providing that the landlord was liable for the disrepair the tenant ought to recover the reasonable costs of achieving that result”. This is different to the scenario in McGlinn v Waltham Contractors Ltd, where the Defendant seeks the costs of issues abandoned before issuing proceedings.

Susan Elizabeth Cuthbert v Stephen Ronald Gair & Wendy Isabell Gair (t/a Bowes Manor Equestrian Centre) (2008) Sup Ct Costs Office – Master Haworth 03.09.2008 – The costs of Loss Adjusters incurred pre-action are not recoverable because it is work that would otherwise have been done by a solicitor – see Agassi v Robinson (Inspector of Taxes) (Costs) (2005) EWCA Civ 1507 7 (2006) 1 WLR 2126. Also the fees of loss adjusters incurred after the instruction of solicitors would not be recoverable as a disbursement since there is usually no formal agency agreement between the eventual solicitors and the loss adjusters.

Lobster Group Ltd v Heidelberg Graphic Equipment Ltd & Anor [2008] EWHC 413 (TCC); [2008] 2; All E.R. 1173; [2008] 1 B.C.L.C. 722Re security for costs – This matter involved an application for security for costs where the costs to be secured included costs incurred pre-proceedings (including mediation costs). The length of time prior to proceedings, the amount of pre-action costs and whether the pre-action costs were included in previous estimates served by the applicant are all factors that can be taken into account in exercising discretion to award security for pre-action costs.

The Honourable Mr Justice Coulson – “It seems to me, therefore, that as a matter of principle, pre-action costs can be the subject of an application for security. That said, I consider that a court should be slow to exercise its discretion in favour of the applicant in such circumstances, because of the risk that, if the pre-action period was lengthy, the costs might be extensive, and any subsequent attempt to obtain security in respect of such costs might become penal in nature. Moreover, it must be right that, the greater the distance in time between the incurring of the costs and the commencement of proceedings, the greater will be the likelihood that the losing party will have good grounds to dispute its liability to reimburse such costs in any event, and/or will have a stronger argument to the effect that the court should not exercise its discretion under CPR 25 and order security in respect of such historic costs”.

“I note that, in the present case, in their first CMC questionnaire, the 1st Defendant’s solicitors estimated their costs of the action as a whole as £100,000. That is, of course, far less than the costs that they now maintain they will incur in these proceedings. The only explanation for this considerable discrepancy with which I have been provided is that the £100,000 excluded all the pre-action costs. It seems to me, therefore, that the fact that the 1st Defendant’s solicitors did not consider that such costs were relevant for the purposes of the questionnaire is an indication that they did not instinctively think that such costs would be recoverable in these proceedings”.

“It seems to me that delay is also relevant to the pre-action costs. I repeat the point made above, that the longer the delay between the incurring of the pre-action cost and the application for security based on that item of cost, the more reluctant the court will be to make such an order. The pre-action period was very prolonged, covering a period from mediation to proceedings of nearly 2.5 years. I would be very reluctant to decide that, after all this time, the Claimant should provide security to the 1st Defendant for the costs incurred during this period. That seems to me to be unnecessarily draconian”.

Roundstone Nurseries Ltd v Stephenson Holdings Ltd [2009] EWHC 1431 (TCC), per Coulson J. on June 10, 2009 – Costs of mediation during the pre-action protocol stage are recoverable as ‘costs of or incidental to the litigation’ since the TCC Order at the start of each case requires the parties to consider ADR and, therefore, a mediation during the protocol period is a means of complying with the protocol requirements. At the relevant time, the pre-action protocol for construction and engineering disputes was the only protocol that required the parties to have a WP meeting and it was not uncommon for the parties to do this by way of mediation. There was no other proposal for a WP meeting in this case other than the mediation. There was no agreement that the costs of the mediation should be borne by each party. Therefore, the costs were recoverable as costs of or incidental to the proceedings.

Roach v Home Office -and- Matthews v Home Office [2009] EWHC 312 (QB) – Costs of attending a coroner’s inquest – The Senior Costs Judge in Roach allowed 50% as being costs of the inquest and 50% as being costs of the civil proceedings. The Deputy Master in Matthews allowed all the costs as being costs of and incidental to the civil proceedings.

Upon the Home Office’s appeal, the Honourable Mr Justice Davis, upon reviewing Sir Robert Megarry V-C’s decision in Re Gibson Settlements Trust, said: “His review of the authorities led him to conclude that there were at least three “strands of reasoning” to be applied. That of proving of use and service in the action; that of relevance to an issue; and that of attributability to the [paying parties’] conduct…”

The Home Office argued that there was a rule that the costs of one set of proceedings were never recoverable as costs of or incidental to another set of proceedings. Davis J rejected this, finding that it was not possible to extract such a ‘rule’ either from the wide wording of section 51 (although of course the costs must be ‘of’ or ‘incidental to’ the proceedings in which they were claimed), or from the authorities. Further, that such a rule would give rise to difficulties; for example, it would be illogical if a party could recover the costs of proofing witnesses (a cost the Home Office accepted) but not of attending the inquest and noting their evidence. Furthermore, the proposition that the purpose of an inquest might be different from the purpose of civil proceedings did not reveal anything conclusive about the purpose (or relevance) of attending the inquest to subsequent civil proceedings; the purpose of an inquest was not be equated with the purpose (or relevance) of a party’s attendance at an inquest.

Davis J concluded: “Costs of attendance at an inquest are not incapable of being recoverable as costs of and incidental to subsequent civil proceedings. Nor does this give rise to any unprincipled approach – because the relevant principles, as conveniently set out in Gibson, are available to be applied by Costs Judges in a way appropriate to the circumstances of each case”.

However, Davis J rejected the Senior Costs Judge’s ‘dual purpose approach’ in Roach i.e. dividing the costs between the purpose of the inquest and the purpose of the subsequent civil proceedings. Davis J said that whilst purpose was a consideration, it ought not to be decisive. He said there were good reasons why it should not be decisive and gave examples of families who, at the time, had different reasons for attending the inquests. He said it was essential, however, to have regard to considerations of relevance.

Davis J also warned about applying the principle of proportionality: “There may well be cases…where the costs of antecedent proceedings claimed as incidental costs are so large by reference to the amount of damages at stake and/or the subsequent civil proceedings, if taken entirely on their own, that a Costs Judge will wish to consider very carefully the issue of proportionality. …If an assessment of disproportionality is made then the costs will only be allowed if they were necessarily incurred and reasonable in amount”.

However, the Davis J declined the Home Office’s invitation to provide guidelines as to e.g. the extent to which the costs of participating in, as opposed to merely attending an inquest, should be allowed. The Judge said “I think that this would be unhelpful…It seems to me that the discretionary regime available to Costs Judges in this context, and the application of section 51 and Rule 44, will not be advantaged by further guidelines (so called): each case should properly be decided by reference to its own circumstances. I am fortified in this view by the suggestion, as to which I express no opinion, that what is decided in these cases (which relate solely to inquests preceding a subsequent resolution of civil proceedings) may also be relevant in other contexts: for example, attendance prior to civil proceedings at a criminal trial involving death by dangerous driving or a criminal trial involving Health and Safety issues. Better, I think, to leave it to Costs Judges to decide each case on its own facts by reference to section 51 and the subordinate rules and having regard to the principles indicated in Gibson”.

Davis J judgment does, however, provide some assistance on certain issues: As to the argument that costs incurred in a prior proceeding cannot be recovered in a subsequent proceeding (Wright v Bennett) Davis J said: “I can well see that in one set of proceedings a court having power to order costs in terms declines to do so then such order cannot necessarily be trumped by seeking the self-same costs in subsequent proceedings as, purportedly, costs ‘of and incidental to’ the subsequent proceedings”.

As to the argument that the costs of one proceeding was not incidental to another (Aiden Shipping) David J made very clear that the claims in Aiden Shipping were ‘separate’ proceedings which had not been consolidated.

As to the findings in the Contractreal and DHSS v Envoy Farmers (re. the inclusion of costs of separate proceedings) Davis J referred to Arden LJ’s “a case of the tail wagging the dog” and said that the inquiry in the Envoy Farmers case was ‘the dominant proceeding’ and so could not be treated as being incidental to the court proceedings.

Sandra Solomon v Cromwell Group Plc : Donna Oliver v Sandra Doughty [2011] EWCA Civ 1584 (19.12.11) – The Court of Appeal confirmed that ‘costs of proceedings’ in r.36.10 includes the claimant’s costs where an offer is accepted before proceedings are issued, but there will be no deemed order for costs under rule 44.12 (pursuant to which parties who cannot agree the costs can ask the court to assess the costs payable). Parties who cannot agree the costs, in such circumstances, would need to bring costs-only proceedings under r.44.12A).

Thompson & Thompson v Bruce [2011] QBD. (28.06.11) Deputy High Court Judge John Leighton Williams QC. (Citation: KT and others (minors) v Bruce [2011] EWHC B14) – Pre-Action Costs and Part 36 Offers – meaning of “Proceedings” – Held that the meaning of ‘proceedings’ under Part 36.10 is different to the meaning of ‘proceedings’ under CPR 36.3 as the latter refers to ‘issued court proceedings’. CPR 36.10 was intended to include pre-proceedings work in order to encourage parties to settle.

Citation plc v Ellis Whittam Ltd [2012] EWHC 764 (QB) (28.03.12) – The Honourable Mr Justice Tugendhat – Defendant’s costs of pre-action work in a defamation claim – The claim had been struck out on the ground that it was an abuse of process because, by the time it had served its claim form, the Claimant had already achieved all it could by way of vindicating its reputation.

Tugendhat J held that the circumstances of this case did not fall within CPR r.44.12A because the parties had not reached any agreement and the Claimant could not say that it had been offered all it was entitled to by way of substantive relief. The Civil Procedure Rules did not expressly address the situation where, although there were good grounds for bringing a claim and no agreement had been reached between the parties, the factual basis for bringing the claim no longer existed. If no claim form was issued, then there was no litigation and so no costs of litigation – whatever costs may have been incurred in complying with a pre-action protocol. However, if a claim form had been issued, the costs incurred in complying with a pre-action protocol would be recoverable as costs incidental to any subsequent proceedings (McGlinn v Waltham Contractors Ltd).

The Claimant was ordered to pay the Defendant’s costs, but only those incurred from the date of service of the claim form: Tugendhat J said: “As to the costs up to the service of the claim form, I make no order. If the Claimant had not commenced the proceedings (and I have held that it ought not to have commenced the proceedings) then the Defendant could not have sought an order for its costs for that period to be paid by the Claimant. The fact that the Claimant did commence proceedings in this case ought not to lead to the result that it becomes liable to pay to the Defendant’s costs which it would not have been liable to pay if it had not commenced proceedings.”

Clydesdale Bank v Kinleigh Folkard & Hayward (Chancery Div – Master Bragge – 06/02/2014) – This decision followed Citiation PLc v Ellis Whittam Ltd above. The court found that, where the defendant had engaged in correspondence with the claimant after the issue of a claim form but before it had been served, it could not be said to be “pre-action correspondence” of the type referred to in pre-action protocols. As the claimant had failed to serve the claim form in time, the defendant was entitled to an order for costs. The Senior Courts Act 1981 s.51 gave the court power to order a party to pay another party’s costs of and incidental to proceedings. As the Claimant had issued proceedings, it could not argue that there were no proceedings of which the Defendant’s costs could be said to be incidental. Although the correspondence was in the style of pre-action correspondence, it was fundamental that the majority of it took place after the proceedings were issued. It was, therefore, not pre-action correspondence of the type referred to in the pre-action protocol. The trigger was the issue of the claim form, not the service of it. The correspondence proceeded on the basis that there would be cost consequences if there was not a settlement. That all pointed to the fact that the issue of costs was going to be a live issue. The Defendant had incurred some costs in dealing with the various matters that were put forward after the issue of the claim. The Defendant, therefore, was awarded its costs (NB: see paras 11-13 of the judgment).

Webb Resolutions Ltd v Countrywide Surveyors Ltd [2016] Ch Div – Defendant’s pre-action costs – The Claimant notified the Defendant of a potential claim under the Pre-Action Protocol for Professional Negligence.  Failing any settlement, proceedings were issued before the expiry of the limitation period and after significant costs had been incurred. The claim was then abandoned before service. In contrast to the Citation Plc case above, the Deputy High Court Master allowed the Defendant its costs which could, potentially, include all of the pre-proceedings costs that followed the direct consequence of the Pre-Action Letter of Claim.

Costs of seeking security for the claim – The Court’s and Tribunal’s discretion

There have been a number of cases where parties have sought to recover the costs of arresting a vessel as security for the claim (whether those costs were incurred before or during the course of the substantive proceedings). The Court has generally exercised its discretion in favour of the receiving parties.

See para 86 of the Judgment in Ene Kos v Petroleo Brasileiro SA (Petrobas) (2009) for references to the unreported cases below.

Alsabah Maritime Services Co Ltd v Philippine International Shipping Corp, (29 March 1984), Neill J (unreported). Neill J referred to the requirement of RSC Ord 62 r.28, and concluded that legal and other costs incurred in connection with an arrest in Amsterdam fell “within the category of costs which are necessary or proper for the attainment of justice”, and so that the costs of the action included the costs of the arrest carried out “as a preliminary to the present proceedings”.

The Standard SS P & I Assn (Bermuda) Ltd v Elpis Maritime Co Ltd, (The “Maria D”), (29 October 1993) Colman J’ (unreported). Colman J referred to the decision of Neill J and observed that the wording of the rules had changed. RSC Ord 62 r.12 then provided that “On a taxation of costs on the standard basis there shall be allowed a reasonable amount in respect of all costs reasonably incurred…”. Colman J said of the Alsabah Maritime case: “There must be many similar cases coming before the Commercial or Admiralty Courts. Here a vessel has been arrested in a foreign port and, pursuant to an agreement made either before or after the arrest, proceedings are subsequently brought before those Courts. It would be highly unsatisfactory if the costs incurred in arresting a vessel to secure a Plaintiff’s claim, even if the arrest took place abroad, could not be recovered as reasonable costs in the English courts now that the wording of the Rules has changed and a more general form of words is used in the current Rule, being Order 62, Rule 12” – Accordingly he decided that the change in the rules did not alter the position, and concluded that reasonable costs of an arrest in the United States were recoverable as costs in the Commercial Court proceedings.

Although an Arbitrator’s discretion to allow pre-action costs is restricted to the ‘costs of arbitration’ i.e. the procedure itself – some arbitrators have clearly been and may still be prepared to interpret ‘costs of arbitration’ as being sufficiently wide enough to encompass the costs of securing the claim.