ADVISING YOUR CLIENT ON LITIGATION RISKS 5: IF YOU DON’T PAY COSTS BEFORE ISSUE IT COULD BE VERY EXPENSIVE AFTERWARDS

I am grateful to Sam Hayman from Bolt Burdon Kemp for sending me a copy of the High Court decision in Ayton -v- RSM Bentley Bennison & Ors [2018] EWHC 2851 (QB). It is one of those cases that illustrate the risks of litigation.  Prior to the issue of proceedings the defendant elected to run the argument that it would not pay the legal costs of a claim for damages.  The defendant ignored Part 36 offers.  After many interlocutory hearings, a trial and an appeal the defendant ended up being ordered to pay costs of £460,000 (on an interim basis). The final bill could end up being considerably higher.  This was a very dangerous strategy to take…

“In my view, this whole unfortunate train of events was unnecessary from the outset. The defendants acted unfairly in adopting the position of refusing to pay the claimant any of his pre-action costs.

THE CASE

The claimant instructed solicitors to recover £100,000 owed by the defendants.  A letter of claim was sent. The Defendant failed to respond fully and comply with the Pre-Action Protocol. However the defendant sent a cheque for £100,000 plus 1%. The defendant refused to pay costs.

A copy of the case is available here. Ayton v Jennison Approved Judgement

PROCEEDINGS

The claimant returned the cheque and issued proceedings.  The defendant defended the action, amongst other things it pleaded that it had no liability to pay costs.  Eventually (after much interlocutory wrangling) there was a trial and the claimant was awarded £119,578.22.

THE COSTS AWARD BY THE MASTER

However the Master who gave judgment did not award the claimant all his costs. Rather she awarded the claimant 70% of his costs up the date of a CMCC and ordered that the claimant pay 80% of the defendant’s costs thereafter.  The defendant had not accepted a number of Part 36 offers from the claimant.  However the Master held that it would be unjust to apply the normal consequences of the defendant’s failure to beat the claimant’s offers.

THE CLAIMANT’S SUCCESSFUL APPEAL

The judge allowed the claimant’s appeal.  The defendant had ignored a number of Part 36 offers.
“This was an extraordinary situation, Mr Croxford submitted. In my view, it was extraordinary, but for a rather different reason. Most parties who capitulate will bow to the inevitable and offer to pay the other side’s reasonable costs. There was no such offer in this case, nor any encouragement to negotiate. The attendance note of 27 April 2012 made it quite plain that the defendants, on leading counsel’s advice, were refusing to pay costs at all. The response to the claim, when it came, was a defence rejecting any liability for costs accompanied by an application to strikeout. It was only after that, and well after the first Part 36 offer made by the claimant, that the defendants made any concession on costs, and then in a fixed sum of £15,000, rather than any agreement to pay the claimant’s reasonable costs on a standard basis
The PAP makes it clear that the onus is not just on a claimant to avoid proceedings. Once the process has started, by the issuing of a letter of claim, it is for both parties to seek to resolve their disagreements. What the defendants did at the pre-action phase in this case was to offer an ex gratia payment, with no admission of liability, of the full amount of the damages claimed plus interest at 1 per cent. There was no offer to pay costs, and when the claimant enquired about costs, it was clear that the defendants were adopting a position (of refusing to pay) which they intended to maintain and to fight, as they did, all the way to the Court of Appeal.
48 The only option left to a claimant in circumstances where a pre-action offer is made to pay damages but there is a persistent refusal to cover legal costs is to issue proceedings. In practice, the first Part 36 offer in this case came very early on in the process. As Mr Williams pointed out, even if there had been some costs attributable to the inclusion of the car claim at that stage, such costs would have been very low indeed compared to the cost of investigating and preparing the letter of claim in respect of the allegations of fraud/negligence.
53. In my view, this whole unfortunate train of events was unnecessary from the outset. The defendants acted unfairly in adopting the position of refusing to pay the claimant any of his pre-action costs. It must have been obvious to the defendants that a proper investigation would have been required before allegations of fraud and negligence were to be advanced against a reputable, professional firm and that such an investigation would incur significant costs.
54. The claimant was a private individual, wealthy but not, in Mr Williams’ words, superabundantly so. Why should he, or his solicitors, depending on the terms of the CFA, be left out of pocket when the defendants had effectively conceded the claim? It was open to the defendants, of course, to choose to run the technical, tactical course that they did, seeking to rely upon the wording of the CPR in relation to a tender before claim, but in the circumstances which I have set out, where costs must necessarily have been incurred in complying with the PAP, the defendants must have realised that the risk in adopting this course was that interest and costs would mount whilst they maintained that denial.”