The judgment of Deputy Master Nurse in Stubbins Marketing Ltd & Ors v Rayner Essex LLP & Anor [2023] EWHC 515 (Ch) contains an important lesson for anyone drafting a letter of claim. The judge ordered that the claimants pay the costs of assertions made in a letter of claim that were later abandoned by deleting them from the claim form prior to service.   The costs were payable  on an indemnity basis.

“I am entirely satisfied that, even if the amendment of the unserved Claim Form was not strictly speaking a formal ‘Discontinuance’ within CPR 38, it should be treated as if it was. Furthermore, in so far as it is a matter for my discretion to be exercised pursuant to Section 51 of the 1981 Act, I have no doubt that I should exercise my discretion to produce the same consequences as if there had been a formal Notice of Discontinuance.”


The claimants bring an action against the defendants. Prior to proceedings a detailed letter of claim had been sent which made various allegations, including assertions of dishonesty against the first defendant.  Those allegations were set out in the draft claim form, but deleted prior to service.


The  first defendant made an application that the claimant pay the costs of the allegations made in the letter of claim, but removed from teh claim form.  The application was:-

“That the Claimants do pay the First Defendant’s costs of responding to a letter of claim dated 30 June 2021 on the indemnity basis because the allegations made in that letter of claim were baseless and abandoned when challenged. Further or alternatively the First Defendant seeks its costs as identified by and under CPR r.38.6(1) and (2), the Claimant having discontinued various claims advanced against it, and seeks an order under r.28.6(2)(b) that those costs be assessed forthwith; and there be a payment on account of those costs in such amount as this court thinks fit. Further the First Defendant seeks its costs on the indemnity basis.”


The Master held that the removal of the allegations prior to service amounted to discontinuance.  There is a detailed review of the relevant law and principles.  The deletion of the causes of action amounted to discontinuance and the claimants could be held responsible for the costs that had been incurred prior to issue.

  1.  The passage from Mr Justice Miles’ Judgment is the passage referred to in the notes in the White Book, quoted above. The statement of primary importance in the Judgment is, in my view, “the deletion of a particular cause of action within a claim was capable of falling within Part 38”. I am willing to accept that it is possible that there may be cases where the deletion of a particular cause of action might not be treated as a discontinuance, and indeed, even if described as a ‘discontinuance’, not have all the costs consequences of a ‘formal’ discontinuance as contemplated in CPR 38.3.  And, of course, even the specific costs consequences set out in CPR 38.6 are subject to the proviso: “Unless the Court orders otherwise”.  Further, and in any event, however the removal from a Claim of a separate cause of action is described, the Court retains the discretion, under Section 51, to decide on the incidence of costs.
  2. It is clear that an award of costs includes pre-action costs, provided they are ‘incidental’ to the proceedings as issued (I was referred to Citation plc v Ellis Whittam Ltd [2012] EWHC 764 (QB) at para 16 and McGlinn v Waltham Contractors [2006] 1 Costs LR 27 at paras 5 to16).
  3. In addition Mr Roe argued that the fact that the original Claim Form had not been served either precluded the ‘amendment’ of the Claim Form being treated as a discontinuance or, in any event, that it should result in the discretion under Section 51 not being exercised in favour of Rayner Essex. Mr Grant submitted that, as soon as the Claim Form was issued bearing the claims that were subsequently deleted from the Claim Form, proceedings in respect of those claims had been commenced and the Court’s costs jurisdiction was engaged whether or not the Claim Form was served.  Mr Justice Waksman stated in GREP London Portfolio II Trustee 3 Limited v BLFB Limited [2021] EWHC 1850 (TCC) at para 20:
Once proceedings have been issued, for whatever reason and for whatever justification, then the court’s costs jurisdiction is engaged”.
  1. It is clear that once a claim form has been issued, the proceedings have commenced. A party to those proceedings immediately becomes potentially liable to pay costs of another party to those proceedings, whether or not the proceedings are actually served. The issue of a claim form may often be crucial in preserving the rights of a claimant, such as when a relevant Limitation period is about to expire – but a consequence of issuing the claim form is the potential for liability to pay such costs as are usually recoverable as pre-action costs.
  2. On the facts of the present case, I am entirely satisfied that, even if the amendment of the unserved Claim Form was not strictly speaking a formal ‘Discontinuance’ within CPR 38, it should be treated as if it was. Furthermore, in so far as it is a matter for my discretion to be exercised pursuant to Section 51 of the 1981 Act, I have no doubt that I should exercise my discretion to produce the same consequences as if there had been a formal Notice of Discontinuance.
  3. As for what those consequences should be, I was referred to Brookes v HSBC Bank plc [2012] 3 Costs LO 285, where Lord Justice Moore-Bick set out 6 principles on the application of CPR r.38.6, at para 6:
“(1) when a claimant discontinues the proceedings, there is a presumption by reason of CPR38.6 that the defendant should recover his costs; the burden is on the claimant to show a good reason for departing from that position.
(2) the fact that the claimant would or might well have succeeded at trial is not itself a sufficient reason for doing so.
(3) however, if it is plain that the claim would have failed, that is an additional factor in favour of applying the presumption.
(4) the mere fact that the claimant’s decision to discontinue may have been motivated by practical, pragmatic or financial reasons as opposed to lack of confidence in the merits of case will not suffice to displace the presumption.
(5) if the claimant is to succeed in displacing the presumption he will usually need to show a change of circumstances to which he has not himself contributed.
(6) however, no change in circumstances is likely to suffice unless it has been brought about by some form of unreasonable conduct on the part of the defendant which in all the circumstances provides a good reason for departing from the rule.”
Mr Grant submitted that there were no facts or circumstances in the present case that could justify the ‘presumption’ being displaced.
  1. This is a convenient point in this Judgment to expand on my reasons for not adjourning this Application to the Trial Judge. It is, as I understand it, suggested that the Trial Judge would be better able (and indeed willing) to explore not only whether there was a change in circumstances that warranted the decision by the Claimants to abandon the allegations of dishonesty originally in the Claim Form but, as expressly submitted by Mr Roe, the Trial Judge would be able to decide whether or not it was reasonable to have alleged initially that Mr Heyes had acted dishonestly.
  2. I accept that, in a general way, possible dishonesty could be within the factual matrix which, as at present set out in the Particulars of Claim, could also be considered as a breach of a duty of care. However, allegations of ‘dishonesty’ and ‘fraud’ should not be made lightly. For such allegations to be made, a satisfactory threshold of ‘prima facie’ evidence must be available to the party making the allegation. I cannot see that a Trial Judge should, and indeed could, properly deal with an issue such as “Was it reasonable to allege dishonesty six months before the Claim Form was issued” as part of a Trial where dishonesty was not an issue. Indeed, questions could well arise about the scope of evidence, and indeed Disclosure which would otherwise be limited to the ‘Key’ issues within the Statements of Case, and therefore would clearly not include the issue whether Mr Heyes had at any time been dishonest or it was reasonable to think that he had been.
  3. My view is that the reasons given on behalf of the Claimants as to why this Application should be adjourned to the Trial Judge, rather than being persuasive for such an adjournment, reinforce my preliminary view that dealing with this case justly demands that the Application should be dealt with now. There should not be held over Mr Heyes unparticularised allegations which he might have to answer in an attempt on behalf of the Claimants to justify their initial unfounded allegations of dishonesty. However that does not mean that much of the work carried out by RPC to investigate the facts would not have had to have been carried out even if the Letter of Claim had been confined to allegations of professional negligence. Assessment of the costs is a separate matter.
  4. Accordingly, to put it shortly, Rayner Essex should have its costs of and occasioned by the discontinued claims. I do not accept any of Mr Roe’s first three submissions summarised above.


There were issues about the terms of the order, the question of indemnity costs was re-opened after the initial judgment was circulated.

  1. Mr Grant produced submissions about the form of Order he was seeking under three heads:
(1)   The basis of assessment:
(2)   Whether there should be a payment on account, and, if so, how much;
(3)   The timing of the assessment.
There was not time at the hearing before me to hear full argument about head (2). This must await the handing down of this Judgment, unless the parties reach agreement following consideration of this Judgment.
  1. As for head (1), the issue is whether the costs should be assessed on the ‘indemnity’ basis. Mr Grant submitted that the general approach taken by the Courts is that where claims based in fraud are the subject of a discontinuance, costs ought to be assessed on the indemnity basis. He referred to Clutterbuck v HSBC Plc [2016] 1 Costs LR 13The Headnote is:
“Where a claimant had discontinued his claim in fraud under
CPR Part 38, it was appropriate to order costs on the
indemnity basis. Whilst the court retained a complete
discretion whether to award costs on the standard or
indemnity basis, the general approach in cases in which
allegations of fraud were made and the case had failed was
that the claimant would be ordered to pay indemnity basis
costs. It followed that as the claimant had abandoned his
case instead of taking it to trial, an order that he should pay
the defendant’s costs on the indemnity basis was appropriate.”
The following passage from Mr Justice David Richards’ Judgment at para 16 shows the policy reasons for his conclusion:
“………………………………………………………………..  The general provision in relation to cases in which allegations of fraud are made is that, if they
proceed to trial and if the case fails, then in the ordinary course of
events the claimants will be ordered to pay costs on an indemnity
basis. Of course the court retains a complete discretion in the matter
and there may well be factors which indicate that notwithstanding the
failure of the claim in fraud indemnity costs are not appropriate, but
the general approach of the court is to adopt the course that I have
17. The underlying rationale of that approach is that the seriousness
of allegations of fraud are such that where they fail they should be
marked with an order for indemnity costs because, in effect, the
defendant has no choice but to come to court to defend his position.
18. In circumstances where, instead of the matter proceeding to trial
and failing, the claimant serves a notice of discontinuance, thereby
abandoning the case in fraud, it is in my judgment appropriate for the
court to approach the question of costs in the same way.
19. The defendant has been put in this case to considerable expense
in defending to date the allegations made. As I mentioned earlier a
defence was served, applications were made to strike out the
particulars of claim and the applications to amend were resisted in
circumstances where the amendments would maintain the allegations of fraud.”
  1. Mr Roe emphasised with this, as in other aspects of this Application, that my decision about costs is a matter for my discretion. In particular he pointed out that no additional costs have been incurred in respect of the discontinued claims by Rayner Essex since the issue of the Claim Form, not least because they were not aware of the contents of the original Claim Form at the time.
  2. Furthermore, following the conclusion of the argument on 27 February 2023, and after I had released the draft of my Judgment, but before this Judgment could be formally handed down, I received an email from Mr Roe on 13 March 2023 in which he drew my attention to a very recent reported authority, namely Libyan Investment Authority v King [2023] EWHC (Ch). The case contains a Judgment of Mr Justice Miles in which he considered whether unsuccessful claimants at trial, who had made allegations of dishonesty, ought to pay the defendant’s costs on the standard or indemnity basis. Mr Roe highlighted in particular the following passages from the Judgment at para 3:
“There is a danger of seeking to substitute for the overall requirement, that the court must make such order as it thinks just in accordance with the overriding objective, some other gloss or formulation.”
And at para 9:
“It seems to me in the light of these authorities that the failure of a case of fraud or dishonesty is a factor that the court may take into account in deciding on the basis of assessment but there is no automatic […] rule that the making of such allegations which fail at trial will justify an order for indemnity costs or even operate as a starting point in the sense that the paying party is then required to explain why indemnity costs are not appropriate. It is also right to recall that the default position is that standard costs are to be paid unless the court orders otherwise.”
And later, at para 32:
“I find this case to be close to the dividing line between indemnity and standard costs. I have accepted the submission of the claimants that the bringing of a failed case in dishonesty does not of itself justify an award of indemnity costs. On the other hand, I have decided that the case was a speculative one in a number of respects.”
  1. Mr Roe submitted that my approach to the decision I have to make as between directing assessment on the ‘standard’ or ‘indemnity’ basis should not be made starting from an initial ‘general approach’ that it should be ‘indemnity’ costs, but that the starting point should be the ‘standard’ basis. He went on to submit that what he described as the ‘just order’ should be to direct assessment on the standard basis.
  2. In response by email the following morning, Mr Kinman, on behalf of Rayner Essex, submitted that it was neither appropriate or necessary for me to re-visit the conclusions I had set out in my draft Judgment. He submitted that it was not appropriate, because the circulation of a draft Judgment should not be used as a pretext to reargue the case, and that it was unnecessary in any event. Mr Roe responded by email later on the same day. Albeit that this is a somewhat unusual procedure to have been followed, it was sensible in the short time available, and I directed that the parties could, if they wished, make further oral submissions to me before I formally handed down this Judgment, provided any arguments they intended to rely on were formalised in Skeleton Arguments to be exchanged and filed the day before the hearing fixed for the handing down of this Judgment.
  3. In the event, although Mr Roe had not elaborated on his email submissions in his Skeleton Argument, I did permit him to make further oral submissions before I finally came to my decision on this aspect of the case.
  4. I have re-considered my view on this issue, and the extent, if any, to which Mr Justice Miles’ recent Judgment should effect my decision having regard to the known facts in the present case. I do not regard the discovery of a very recent, and relevant, reported authority, as a mere pretext to re-argue the case.
  5. As for the principles to be applied, Mr Justice Miles’ Judgment contains a very helpful analysis, from para 4:
“4  The cases include the very well-known decision in Three Rivers DC v Bank of England [2006] EWHC 816 (Comm) where Tomlinson J set out a number of factors (which are listed in paragraph 44.3.10 of the 2022 edition of the White Book). This case has been referred to in many later decisions. In the quoted passage, the judge said at [25]:
(8) The following circumstances take a case out of the norm and justify an order for indemnity costs, particularly when taken in combination with the fact that a claimant has discontinued only at a very late stage in proceedings:
(a) where the claimant advances and aggressively pursues serious and wide-ranging allegations of dishonesty or impropriety over an extended period of time;
(b) where the claimant advances and aggressively pursues such allegations, despite the lack of any foundation in the documentary evidence for those allegations, and maintains the allegations, without apology, to the bitter end;
(e) where the claimant pursues a claim which is, to put it most charitably, thin and, in some respects, far-fetched;
(f) where the claimant pursues a claim which is irreconcilable with the contemporaneous documents …”
“5  There have also been cases which have discussed the relationship between bringing an unsuccessful claim for fraud or dishonesty and the award of indemnity costs. These include Clutterbuck v HSBC Plc [2015] EWHC 3233 (Ch) and Natixis SA v Marex Financial and Others [2019] EWHC 3163 (Comm). In a more recent decision, Bishopsgate Contracting Solutions Limited v O’Sullivan [2021] EWHC 2628 (QB), Mr Justice Linden said at [16]:
“Various decided cases illustrate the sort of situation in which an order for an assessment on the indemnity basis may be made although, in my view, they do no more than this. Thus, as Mr Forshaw [counsel for the claiming party] points out, examples of where such orders have been made include:
(i)  where a claim is dishonest and/or is dishonestly maintained, as I have pointed out;
(ii)  where a claim is “speculative, weak, opportunistic or thin”: see Three Rivers District Council v The Governor of the Bank of England [2006] EWHC 816 (Comm) at para 25(5);
(iii)  where a claim is pursued for reasons or purposes unconnected with any real belief in their merit. As Coulson LJ put it in Lejonvarn v Burgess [2020] EWCA Civ 114 at para 66:
“An irrational desire for punishment unlinked to the merits of the claims themselves is precisely the sort of conduct which the court is likely to conclude is out of the norm.”
(iv)  where allegations of fraud or dishonesty are made which have failed: see Clutterbuck v HSBC plc [2015] EWHC 3233 (Ch) at paras 16 and 7. In relation to this authority, Mr Forshaw came close to submitting that as a matter of course, if allegations of fraud or dishonesty have failed, costs must be ordered to be assessed on an indemnity basis. Insofar as that was his submission, I do not agree. There is, in my view, no such rule in the context of applications for indemnity costs although, as I have said, where such allegations are made and fail, that may be a reason for making such orders;
(v)  where an overly aggressive and unreasonable approach to correspondence between solicitors has been adopted: see Excalibur Ventures LLC v Texas Keystone Inc [2013] EWHC 4278 (Comm) at para 48.”
“6 Earlier in the same judgment, Mr Justice Linden recorded that he accepted that the conduct which forms the basis of an order for assessment on the indemnity basis must involve a sufficiently high level of unreasonableness or inappropriateness to justify an order. He quoted Sir Anthony Colman in National Westminster Bank v Rabobank [2007] EWHC 1742 (Comm) at [28]:
“Where one is dealing with the losing party’s conduct, the minimum nature of that conduct required to engage the court’s discretion would seem, except in very rare cases, to be a significant level of unreasonableness or otherwise inappropriate conduct in its widest sense in relation to that party’s pre-litigation dealings with the winning party or in relation to the commencement or conduct of the litigation itself.”
  1. Mr Justice Miles, following the above analysis, concluded as set out in Mr Roe’s first email, quoted above. He then went on to refer to the facts of the case before him, and the rival contentions of the parties. He weighed up the evidence for each side of the argument, and he finally concluded that to award indemnity costs was appropriate.
  2. Turning then to the present case, I have already held that, although there was no formal discontinuance, it is appropriate to approach, applying the discretion in Section 51, the costs issue in such a way as would produce the same result. It also seems to me that I am bound to accept the clear statement of principle contained in Mr Justice Miles’ Judgment that:
“….the failure of a case of fraud or dishonesty is a factor that the court may take into account in deciding on the basis of assessment but there is no automatic […] rule that the making of such allegations which fail at trial will justify an order for indemnity costs or even operate as a starting point in the sense that the paying party is then required to explain why indemnity costs are not appropriate.
  1. I have therefore reconsidered all the evidence available to me.  In particular, I note the paucity of the explanation given for the initial outpouring of serious allegations contained in the Letter of Claim. I refer back, in particular, to my comments on this at paragraph 26 above. Mr Keens, in particular when he had the opportunity to explain the approach taken when the Letter of Claim was sent, says nothing further in his Witness Statement opposing this Application. I have reread Mr Justice Trower’s long Judgment. I note, in particular that, at paragraph 30, he refers to the evidence of Mr Heyes as being “essentially reliable”. There is no suggestion, and no evidence has been put before me, to support the allegation that he behaved dishonestly. Yet Mr Heyes was subjected to having to answer allegations that must, in my view, at the very least be capable of being described as speculative. That the Claimants eventually accepted this is clear from the abandonment of the allegations after the Claim Form had been issued. The Claimants have offered no satisfactory explanation that might go some way to justifying the way in which they approached this Claim.  I do regard their conduct as ‘outside the norm’. They have not offered sufficient evidence, in my view,  to suggest that the approach was other than speculative at best (which is sufficient for present purposes). Indeed, in my view, its impact on Mr Heyes could be reasonably described as vindictive. It would not be a ‘just’ outcome if Mr Heyes is not entitled to recover all the additional expense he had to incur in dealing with the allegations that were subsequently abandoned.
  2. In addition, in my view the Claimants, through their lawyers, must be deemed to have been aware of at least three things: (a) that Rayner Essex would be bound, through their lawyers, to incur substantial costs in responding to the Letter of Claim; (b) that there would be a likelihood that, on losing a Claim based on dishonesty and fraud, costs could be awarded against them on the indemnity basis; and (3) if the proceedings were not commenced including allegations of dishonesty and fraud, any costs of the proceedings awarded against them could not include the costs incurred by Rayner Essex in responding to such allegations.
  3. In the exercise of my discretion, I am satisfied that this is a case where an assessment on the indemnity basis is appropriate.



  1. As for the timing of the assessment, Mr Grant urged on me that I should depart from the general ‘default position’ as set out in CPR 36.6(2)(b). One of the reasons he gave was that it would over-complicate the final detailed assessment, especially where there is a Third Party involved in the litigation. While of course there would be one more assessment for the Costs Judge to deal with, I do not accept that it would be an ‘over-complication’. Indeed, whatever the outcome of the Trial, I suspect (although I profess no expertise as a Costs Judge) it would be easier, when that outcome is known, for the Costs Judge to identify the expenditure that Rayner Essex would not have incurred but for the inclusion of the initial (but subsequently abandoned) claims as set out in the Letter of Claim. I therefore accept Mr Roe’s fourth submission, as summarised above.


The Master was keen to ensure that the order distinguished between those costs that would have been incurred in any event, and the costs that arose from the allegations that had been withdrawn.

  1. This brings me to the last aspect of the form of the Order. The Application Notice sought all the costs of and occasioned by the Letter of Claim and the Response Letter. I quoted at some length from the long Letter of Claim and the Response Letter.  I have no doubt that a considerable amount of work was carried out by RPC in preparing the Response Letter.  I am not in a position to criticise or otherwise the amount of the costs claimed, which the Claimants have severely criticised and Mr Roe described as ‘exorbitant’. However, I have little doubt, although of course I have no actual evidence, that,a significant amount of the work carried out by a firm of solicitors such as RPC doing a thorough job on behalf of their client in preparing the Response Letter, would have been carried out even if the Letter of Claim had been confined to allegations of professional negligence. Therefore, even on an assessment on the ‘indemnity basis’, I think that a Costs Judge could not simply award all the costs occasioned by the Letter of Claim and the Response Letter.
  2. In the proposed draft Order attached to the Application Notice, the relief sought included in the alternative that the Claimants do pay:
“the First Defendant’s costs relating to the part of the proceedings which was discontinued by the Claimant when it amended its claim form on 20 April 2022 to delete various causes of action”
It is this alternative formulation that should be included in the Order.