Last year the High Court confirmed, in the case of Ayton v RSM Bentley Jennison & Others  EWHC 2851 (QB), that a claimant is entitled to issue a claim purely for the purposes of recovering costs. In her judgment, Mrs Justice May ordered the defendants to pay more than £460,000 to the claimant for costs which had arisen out of a dispute between the parties worth only a quarter of that sum.
The Defendant sought permission to appeal but in January 2019 the Court of Appeal refused leave, thus confirming the High Court’s decision and reminding parties of the need to act sensibly in the pre-issue stage of proceedings as well as once a claim has been commenced.
This was a professional negligence claim arising from investment advice given to the Claimant by the Defendant firm. The Claimant had invested some £150,000 into a scheme relating to Russian oil. Unfortunately for Mr Ayton, he neither saw any return on his money nor recovered more than £50,000 of his initial investment.
In late 2011 a letter before claim was sent to the Defendant firm, valuing the claim at just over £100,000 inclusive of interest. That letter included allegations of fraud and the conclusion of the High Court was that the letter would have made it “…clear that there were likely to be considerable costs involved.”
The Defendant did not comply with the Professional Negligence Pre-Action Protocol but in April 2012 its solicitors sent the Claimant a cheque for the sum claimed. The Claimant’s solicitor spoke with the Defendant’s representative who stated that the Defendant had no obligation to pay any of the Claimant’s cost as the claim had effectively been settled.
The Defendant’s cheque was never cashed by the Claimant and in September 2012 proceedings were issued for the £100,000 lost investment and approximately £32,000 in other consequential losses, including £30,000 in relation to a car said to have been purchased on the expectation that the investment would “come good”. The Defendant’s response was to pay just over £100,000 into court and defend the bulk of the claim on the basis of “tender before claim” (see CPR r.37.2).
The Claimant made a total of 3 Part 36 offers which were, the court found, effectively ignored by the Defendant. The Claimant ultimately succeeded on the main part of his claim at trial although the “car purchase” claim was dismissed. Costs, including pre-action costs, were awarded to the Claimant. Despite the Claimant having beaten his Part 36 offers, and due partly to the Claimant’s unsuccessful pursuit of the car purchase claim, the effect of the costs order was that the Claimant was awarded 70% of his costs up to the date of a Case Management Conference held in April 2016 but thereafter was liable for 80% of the Defendant’s costs.
The Claimant appealed the costs order and on appeal to the High Court, May J noted the Defendant’s position that the sending of the cheque in April 2012 had effectively extinguished the Claimant’s claim and so the issue of proceedings had been an abuse of process.
The Judge disagreed with that reasoning. Her conclusion was that
“Most parties who capitulate will bow to the inevitable and offer to pay the other side’s reasonable costs…The Pre-Action Protocol makes it clear that the onus is not just on a claimant to avoid proceedings…it is for both parties to seek to resolve their disagreements…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.” (paras 46-48)
The Judge also commented, at paragraph 53, that “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 [them] that [the claimant] would incur significant costs”.
Ultimately, said May J, the Defendant’s unreasonable stance meant that it was wrong that a claim had to be issued at all (but the fact that it was issued was not wrong). The claim could have been avoided had the Defendant firm acted reasonably in its response to the letter before claim and had it made an offer to settle the Claimant’s reasonable costs at the same time that it effectively conceded his claim. The Claimant’s claim was allowed on the basis that it would be unjust to deprive the Claimant of the usual consequences of beating a Part 36 offer.
The Defendant applied for permission to appeal but that application was dismissed in January 2019 with the Court of Appeal approving the Claimant’s submissions and rejecting the suggestion that it would have been just to have deprived the Claimant of his costs.
Costs-only proceedings are routinely issued in circumstances where parties have agreed that costs should be payable by one party to the other but disagree as to the quantification of those costs. In Ayton the issue was that the Defendant simply refused to accept that it had any liability whatsoever to pay any costs at all despite conceding the matter of damages.
However, the High Court’s decision that costs-only proceedings in those circumstances were not an abuse of process was made in the context of a claim which had not been entirely extinguished by the Defendant’s April 2012 cheque. The Claimant pursued additional claims, including that of the car purchase. Whilst May J’s judgment suggests that costs-only proceedings would also be allowed where an entire claim has been conceded prior to issue, her comments on that point are, strictly speaking, obiter dicta as that was not the situation she was faced with.
Claimants should therefore act cautiously before issuing costs-only proceedings if their entire claim has been extinguished. And for parties generally, this case is an illustration of the many and varied risks associated with litigation and of the need to adopt a pragmatic approach from an early stage.