It's on issue, not service, that potential costs liability to your opponent arises

The High Court has recently held that a defendant, in a case where a claim was issued but then abandoned before service, was entitled to its costs of and incidental to the proceedings.

In May 2011, the claimant mortgage company brought a claim against the defendant surveyor alleging that a property had been overvalued.

On receipt of the letter of claim, the defendant instructed solicitors who responded to the allegation, denying liability. The Claim Form was issued on 7 August 2013, but was never served. Despite this, correspondence continued. In September 2013 the claimant made a Part 36 offer. It was not accepted.

In 2014, the defendant's solicitors became aware that the Claim Form had been issued and wrote to the claimant's solicitors alleging that there had been a discontinuance by the claimant and seeking costs. The defendant sought not only costs incurred since the Claim Form was issued, but also its "pre-action" costs. The parties disagreed about how the court's discretion as to costs (under section 51 Senior Courts Act and CPR 44) should be exercised and whether the discretion covered pre-action costs, as well as costs post issue.

The court ordered the claimant to pay the defendant's "costs of and incidental to the claim", including pre-action costs, to be assessed on standard basis if not agreed. The Master observed that section 51 gave the court power to order a party to pay another party's costs of and incidental to "proceedings" and that CPR 7.2(1) provides that proceedings start when the court issues a claim form. In his view, all the expense that followed as a direct consequence of the pre-action letter of claim would be incidental to the claim eventually issued.

Clydesdale Bank plc v Kinleigh Folkard & Hayward [2014] (unreported), 6 February 2014, (Chancery Division) was a similar decision: the claim form was issued but not served; there was considerable pre-action correspondence and ultimately the claimant made a decision not to proceed. The defendant sought its costs. The bulk of the claimant's costs in that case had been incurred after the claim form was issued, so the pre action costs point was not argued.

Comment

Issuing a claim form fundamentally changes the position with regard to an opponent's costs. The fact that the claim form was not served is, however, a factor to be taken into account when the section 51 discretion is exercised.

For claimants with limitation difficulties it is clearly preferable to attempt to agree a standstill agreement, rather than issue protective proceedings.

Webb Resolutions v Countrywide Surveyors Ltd [2016] Ch Div (4 May 2016)

Contact Kristina Anglin

Background

In McTear and another v Engelhard and others the claim was issued on 24 February 2012. In early 2014 the first defendant found a number of new documents. By then the deadline for additional disclosure had already passed, and the witness statements were due six days later, on 21 February 2014.

On 21 February 2014, the claimants served their witness statements before the 4pm deadline. The defendants' served theirs by hand on the claimants' solicitors at 4.50 pm, including a 12-page statement from the first defendant exhibiting 700 pages of documents, including all or most of the new documents. The documents had not, at that stage, been formally disclosed.

This was followed by three applications by the defendants, for orders:

• Pursuant to CPR 3.1(2)(a) extending time by one hour for the service of their witness statements, or relief from sanctions under CPR 32.10, pursuant to CPR 3.9
• Extending time for service of their further disclosure list
• Permitting them to serve a re-amended defence

The three applications, together with a strike out application issued by the claimants, were heard by the judge in 2014, after the Mitchell Court of Appeal decision on relief from sanctions, but before the Denton decision. The judge held that the defendants had not provided any satisfactory explanation as to why they had not disclosed the new documents on time; they had decided to follow their own rules so as to disrupt the trial, which was unacceptable.

Grounds of appeal

The defendants' grounds of appeal included the following:

• The judge wrongly and unjustly applied Mitchell which denied the defendants a fair trial
• The judge took into account factors that were not relevant, when deciding the issue of late service
• The judge was wrong to find that there were no good reasons for the delay of 50 minutes in serving the witness statements

Witness evidence

The central issue was whether the judge had properly excluded the defendants' witnesses from giving evidence. The documents that had been disclosed late were of limited relevance. The delay was therefore caused by the decision to exhibit them to the first defendant's statement. The judge had ignored the most important factor, which was whether it was proportionate and just to exclude the defendants from giving that evidence.

The new documents

Vos LJ considered the second application concerning permission to rely on the new documents (CPR 31.21). As he noted, by the time of the hearing, it was not that the defendants had not disclosed them; they had served a formal list.

The question for the court, therefore, was "was the judge right to treat the application in relation to the new documents as purely one for relief from sanctions?". In Vos LJ's view, he was not. In fact, the question was broader: "in all the circumstances, were the defendants to be permitted to rely on the documents at the forthcoming trial?"

Points to Note

The timing of this application at first instance may have been significant; it was heard after the Court of Appeal's decision in Mitchell, but before Denton. Mitchell can be seen as the "high water mark" of a zero tolerance approach to breaches of rules and court orders. Denton may have tempered that approach. In McTear the Judge's decision to combine the witness statements application with the disclosure application was not in line with Denton; courts should not take into account other breaches of rules or orders as part of their consideration of the first stage of the three-stage test, or the grant of relief from sanctions.

• If a party discovers new documents, it ought, immediately after they are found, to notify the other party's solicitors, in accordance with the continuing duty of disclosure. A sensible approach would be to send copies to the other party's solicitors immediately, with an assurance that a list will be provided as soon as possible
• Post-Denton, the courts will reserve special criticism for parties that engage in uncooperative and/or aggressive correspondence with each other, over the course of a dispute
• Denton reconfirmed: it is wholly inappropriate for litigants, or their lawyers, to take advantage of mistakes made by opposing parties in the hope that relief from sanctions will be denied and that they will obtain a windfall strike out or other litigation advantage. An application for relief from sanctions does not exist in a vacuum

Contact Jessica-Alice Curtis

Summary

Any party may seek to settle at any stage of legal proceedings and in whatever way it chooses. However, only offers which comply with CPR 36.5 will have the potential cost-shifting consequences of a Part 36 offer if the other party fails to beat the offer at trial.

A rather surprising County Court decision in Sutherland v. Khan (unreported) 21 April 2016 (Kingston upon Hull County Court) may be a warning to any party looking to accept a Part 36 offer out of time.

Facts

Sutherland v. Khan was a low-value RTA claim. The claimant made a Part 36 compliant offer which the defendant accepted some 28 or 30 days after the expiry of the 21 day period for acceptance, without the court's permission.

The issue before the court was the extent of any additional benefits the claimant was entitled to and, in particular, whether it was limited to recovering fixed costs (the normal basis in low-value personal injury claims) or possibly standard, rather than indemnity costs.

Application

As the claimant had made a valid Part 36 offer which was accepted before trial, the proceedings were stayed pursuant to CPR 36.14 (1). The parties were unable to reach agreement as to costs and the claimant issued an application for its costs under CPR 36.
The Judge looked to CPR 36.13 for guidance. CPR 36.13 (4)(b) provides that where a Part 36 offer is accepted after the expiry of the relevant period, liability for costs must be determined by the court where the parties cannot agree. CPR 36.13 (5) provides that in the present situation the court must, unless it is unjust to do so, order that the claimant be awarded costs up to the date of the expiry of the relevant period (21 days after the offer) and the offeree (here the defendant) must also pay the costs of the offeror (here the claimant) up to the date of acceptance. The rule does not specify on what basis those costs should be awarded.

In Fitzpatrick Contractors Ltd v. Tyco Fire Ltd [2009] EWHC 274 (TCC), an argument that indemnity costs should be awarded following late acceptance of a Part 36 offer failed before the High Court. The Judge in Sutherland, said, however, that the legal landscape had changed since that decision and that Fitzpatrick provided no incentive for an offeree to accept promptly.

The defendant submitted that to make an order for indemnity costs, the Judge must be satisfied that there was some form of bad faith or unreasonable conduct. The Judge disagreed, stating that there is no such pre-requisite given that "...part 36 offers are meant to have teeth".

The Judge referred to the matters set out in CPR 36.17 (usually only relevant post-trial, where an offer has been beaten) and ordered that the defendant pay the claimant's costs, on a fixed basis up until the expiry of 21 days after the offer, and then on an indemnity basis from this date until the date of acceptance.

Comment

It is surprising that the Judge did not follow Fitzpatrick. The Judge held that "if there was no incentive or penalty there would be little point in a defendant accepting offers early…as opposed to waiting immediately prior to trial. It [is] unsatisfactory that there should be penalties flowing if you do not beat an offer at trial whereas if you settle before trial there are none". Arguably, however, the Judge's approach, if followed by other courts, would be to discourage settlement after the 21 day 'relevant period' for acceptance without the court's permission, and parties may do better to be guided by the High Court decision in Fitzpatrick. In any event, if you intend to accept a Part 36 offer you should seek to do so within the time limit prescribed by the offeror or, in the County Court at least, you appear to risk indemnity costs.

Contact Michael Leadbeater

In an application for summary judgment or strike out, inter alia, on limitation grounds, the court has allowed the claim to proceed, holding that the effect of the claimant's underpayment of court fees should be considered at trial. (Bhatti and another v Asghar and another [2016] EWHC 1049 (QB))

The defendants had not raised a limitation defence in their pleadings, but argued shortly before the strike out hearing that the claimants had not paid the correct court fees, so the action had not been properly "brought" within the limitation period under the Limitation Act 1980. They had not included a claim for unliquidated damages when calculating the claim value for the purpose of payment of the court fee; also they had included a non monetary claim (for "further or other relief") so should have paid an additional £480 for that element of the claim.

The court noted that following Page v Hewetts Solicitors [2012] EWCA Civ 805, [2012] C.P. Rep. 40 the proceedings were only brought for the purposes of the Limitation Act 1980 where the claimant had done all it could to set the claim in motion, including paying the court fee. The only exception would be if the miscalculation of the fee was the fault of the court rather than the claimant, and further evidence would be needed to establish if that were the case. The limitation issue should therefore be dealt with at trial to give the claimants an opportunity to address the factual issues as to whether they had validly issued the claim and to present evidence of any alleged miscalculation by the court: they argued in the hearing that they had gone to court with a blank cheque and had been advised by court staff what fee should be paid. Moreover there were further possible arguments to be investigated in relation to when the cause of action accrued, and whether, therefore, the limitation period had in fact expired.

The court also refused the application as the limitation point had not been addressed in the defendant's pleadings, nor the summary judgment application; the late submission on this point had left the claimants no reasonable opportunity to respond. The defendants were given permission to amend their pleadings to include the limitation defence.

Comment

The principles set out in Lewis v Ward Hadaway [2015] EWHC 3503 (Ch), [2016] 4 W.L.R. 6, were directly relevant, but in that case the claim was struck out due to failure to pay the correct fee within the limitation period. Despite the similar facts in this case, the judge refused the application, to give the claimant a proper opportunity to respond.

As well as underlining the risks of not paying the correct court fee on issue, the decision also shows the importance of dealing with any arguments on limitation in a timely and procedurally correct manner.

Contact Lee Malam