McGlinn v Walter Contractors - Recovery of Pre-Action Costs
McGlinn v Walter Contractors - Recovery of Pre-Action Costs
Ian McGlinn v Waltham Contractors and Others
High Court, Queen’s Bench Division (TCC)
[2005] EWHC 1419
Recovery of costs incurred at pre-action stage – costs incidental to proceedings – section 51 Supreme Court Act 1981
Facts
The proceedings arose from allegedly defective building works carried out on a substantial property on Jersey. The Defendants in the proceedings were the building contractors, the architects and the engineers. It was alleged that the defective works were so extensive that the property had to be demolished. The claims totalled in the order of £4.5 million.
Prior to issuing proceedings the Claimant had followed the Pre-Action Protocol for Construction and Engineering Disputes which led to an unsuccessful mediation.
One of the Defendants, namely the architect, sought an interim payment of £20 000 for costs allegedly thrown away at the Pre-Action Protocol stage in considering and dealing with claims that had been intimated pre-action, but were not pursued when proceedings were issued. The abandoned claims in question related to allegations that the architect had made overpayments to the main contractors on the project, and claims in respect of loss and expense paid to the main contractors.
Decision
His Honour Judge Peter Coulson QC held that he did in principle have the jurisdiction to award pre-action costs in that they were “costs of and incidental to the proceedings” within the meaning of section 51 of the Supreme Court Act 1981. In particular he held that having regard to the consideration of the matter in Callery v Gray [2001] 1 WLR 2112 costs incurred in compliance with a Pre-Action Protocol may be recoverable as costs “incidental to” any subsequent proceedings, though the question of whether or not any particular items of costs could be properly so described was a matter of fact and assessment in each occasion.
However, costs incurred by a Defendant in dealing with and responding to issues that are raised by a Claimant under a Pre-Action Protocol, and where those issues are subsequently dropped from the action when the proceedings are commenced cannot, save in exceptional circumstances, be costs “incidental to” such proceedings. The Judge considered the words of Sir Robert Megarry in Re Gibson’s Settlement [1981] Ch 179 where it was held that in deciding whether the costs were reasonably incurred one had to ask how relevant the pre-issue disputes were to the issues in the proceedings as ultimately constituted and the costs of investigating issues which bore “no real relation” to the ultimate proceedings could not be said to be part of the costs of the proceedings.
Furthermore the Judge held that it would be contrary to the whole purpose of the Pre-Action Protocols, if claiming parties were routinely penalised if they decided not to pursue claims in court which they had originally included in their Protocol letters. He held “The whole purpose of a Pre-Action Protocol procedure is to narrow issues and to allow a prospective defendant, wherever possible to demonstrate to a prospective Claimant that a particular claim is doomed to failure…It would be wrong in principle to penalise the Claimant for abandoning claims which the Defendants had demonstrated were not going to succeed, because to do so would be to penalise the Claimant for doing the very thing which the Protocol is designed to achieve”. A Defendant would only be allowed such costs if the circumstances were “exceptional” or gave rise to “some sort of unreasonable conduct”.
On the question of when a Defendant should make such an application for pre-action costs it was held that it was proper to make the application at the start of any ensuing proceedings and the Court could determine the issue at such time.
On the facts of this case the Judge held that the Defendant architect was not entitled to their costs.
Comment
This case emphasises a litigant’s entitlement to pursue reasonable claims at the pre-issue stage without being at risk of paying the prospective defendant’s legal costs, so long as the enquiries are within the scope of the relevant Pre-Action Protocol. This is the case even where the prospective defendant’s pre-issue costs are substantial (in this case they were said to amount to £20 000).
Parties in personal injury cases are familiar with the position that the successful Claimant usually recovers their pre-action costs (whether proceedings are in fact issued or not) whereas the Defendant usually only recovers his pre-action costs if the Claimant issues and then fails to establish liability. In the latter circumstance the Defendant’s costs of dealing with the Protocol investigation would be part of the Defendant’s costs of defending the case. One of the consequences of this situation is that the Defendant who succeeds in fending off the claim pre-issue is in a less favourable position in terms of recovering his costs than the Defendant who does not dissuade the Claimant from issuing, but wins at trial or persuades the Claimant to discontinue once proceedings have been issued. It would be a harsh costs judge who deprived the successful Defendant of all his costs in these circumstances.
It is perhaps surprising that the Defendant in this case chose to make their application for pre-issue costs at the start of the proceedings. In a personal injury case a disgruntled Defendant eager for his pre-issue costs would usually be best advised to wait until the conclusion of proceedings, unless there was some distinct tactical advantage in making the application early. The advantage for the Defendant of making the application at the conclusion of the proceedings is twofold: first, the Defendant who succeeds on liability would usually recover all the pre-action costs, (even if some of those costs went beyond the issues that were litigated in the issued proceedings), and secondly, even if the Defendant lost on liability, he could rely upon Rule 44.3 CPR which states (i) that the Court must have regard to whether a party has succeeded on part of his case, even if he has not been wholly successful (Rule 44.3(4)(b) and (ii) that the Court must have regard to “conduct”, in particular “whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue” (Rule 44.3(5)(b)). Thus at the end of proceedings a Defendant could seek an order that the successful Claimant pay a proportion of the Defendant’s costs, or the Defendant’s costs of a particular issue.
If a Claimant decides not to issue proceedings, there are perhaps still circumstances in which a Claimant may have to pay the Defendant’s pre-issue costs pursuant to Rule 44.3 CPR, for example if the claim was clearly devoid of merit at the outset, or if the correspondence was prolonged unnecessarily. The Claimant would usually have to pay the Defendant’s costs of pre-issue disclosure (Rule 31.13 CPR) in any event in accordance with Rule 48.1 CPR.