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Ally Tow
Ally Tow,
Defendant claiming costs where proceedings issued but not served
24 August 2016

In Webb Resolutions Ltd V Countrywide Surveyors Ltd [2016] the High Court had to decide whether Webb should pay Countrywide’s costs incurred on a pre-action basis in circumstances where Webb had issued, but not served, a claim form.

The facts

In August 2007 Countrywide were instructed to inspect a property in Nottingham for the purposes of obtaining a mortgage valuation for a re-mortgage of the property. The defendant’s report valued the property at £117,000. In reliance on the report the lender advanced the borrowers £105,301.17.

In July 2009, after the borrowers had defaulted on the monthly instalments due under the advance, the lender sold the mortgage to Webb who repossessed the property and sold it in January 2010 for £84,500, resulting in a shortfall on the sum advanced of £31,148.04.

In May 2011, Webb instructed solicitors who wrote to Countrywide alleging that the report had been prepared in breach of its duty to provide an accurate open market valuation and seeking to recover the shortfall loss suffered.

Countrywide, through its own solicitors, denied the allegations and in turn rejected any liability to make payment. A series of without prejudice offers followed from Webb:

  • In September 2011 a global offer to accept £46,000 (to include costs of a little over £20,000)
  • In July 2012, a formal offer made pursuant to Part 36 of the Civil Procedure Rules 1998 to accept £25,000 plus costs or, by way of separate letter, in the alternative a global offer to accept £54,000 inclusive of costs
  • In May 2013 a global offer to accept £72,000 (to include costs of just under £63,000)

Countrywide’s solicitors did not reply to any of these offers. Accordingly, on 25 July 2013, Webb’s solicitors wrote further inviting Countrywide to reconsider its position pointing out that “the primary limitation period in this matter expires on 7 August 2013” and advising them that if the matter did not now settle they expected to receive instructions “to issue proceedings in Court very shortly”. By this time, it appears that Webb had incurred costs of some £60,000 or so. Again, Countrywide’s solicitors did not accept the offer but they did reply confirming they had instructions to accept service of the proceedings.

On 7 August 2013 Webb issued the claim form. It was never served. Instead, on 13 September 2013 Webb’s solicitors made a further Part 36 settlement offer letter, this time indicating a willingness to accept £12,500 plus costs.

Despite the reduced offer, Countrywide’s solicitors still did not reply and on 13 November 2013 Webb’s solicitors sent a further chasing letter. That letter contained confirmation that proceedings had been issued in August 2013 and made it clear that if a response was not now received to the offer letter by 15 November 2013 then particulars of claim would have to be drafted prior to service of the proceedings.

Countrywide’s solicitors replied at the beginning of December 2013 reiterating that their client denied any liability and rejecting the settlement offers. Subsequently, they wrote seeking confirmation as to where the claim form had been issued. These requests were not answered by Webb’s solicitors but in September 2014, having obtained a copy of the claim form direct from the court, they wrote further to Webb’s solicitors seeking payment of Countrywide’s costs alleging that there had been a discontinuance of the proceedings by Webb.

The application

Webb’s solicitors contended that as the claim form had not been served Countrywide were not entitled to payment of its costs. Accordingly, Countrywide made an application to court seeking a declaration as to costs.

At the hearing, it was common ground between the parties’ counsel that the court had discretion to make an award of costs in Countrywide’s favour and further, that any such award may include pre-action costs. Where counsel differed was as to what the result of the exercise of that discretion would be – Countrywide’s counsel contended that Webb should be required to pay costs to the same extent as would normally be the case if the matter had gone to trial and Webb had lost. On the other hand, Webb’s counsel submitted that they should not be required to pay any costs or, alternatively, only such costs as were incurred after the issue of the claim form.

The court’s attention was drawn to Section 51 of the Senior Courts Act 1981 and Part 44 of the Civil Procedure Rules which both set out the wide discretion the court has in relation to costs and gives some guidance on factors to be taken into account when considering how to exercise that discretion.

In seeking to persuade the Court not to award costs, Webb’s counsel relied on the judgment of His Honour Judge Peter Coulson QC in McGlinn v Waltham Contractors Ltd [2005] in which he said:

“… I consider that, as a matter of principle, unless the circumstances are exceptional and thereby give rise to some sort of unreasonable conduct, costs incurred by a defendant at the Pre-Action Protocol stage in successfully persuading a claimant to abandon a claim (either in whole or in part) are not costs incidental to any subsequent proceedings if, in those proceedings, such claims do not feature at all. Accordingly, such costs are not recoverable …”.

The court was not persuaded by this argument - full particulars of claim had never been served but there was no suggestion that the defendant might have been so persuasive in its pre-action correspondence as to persuade the claimant not to proceed with a particular issue as part of the litigation if matters had proceeded. On the contrary, the court considered that the very issue of the claim form fundamentally changed the position – the issue of the claim form was not only necessary but essential if Webb was to preserve its cause of action. Webb had a choice as to whether to issue proceedings or walk away. It could have taken the decision that it ultimately took in November 2013 not to proceed, which Webb’s solicitors described as a commercial decision due to the low value of the claim”, in July 2013 but it did not. It chose to go ahead and issue proceedings. The fact that the claim form was not then served was, in the court’s view, only one factor to be taken into account when considering costs.

Finally, Webb’s counsel submitted that an order for costs should be neither a punishment nor a reward and that in the circumstances it would be unjust to award costs in this case.

In the court’s view it was wrong to ignore the considerable expense that Countrywide had had to incur in dealing with the claim or to disregard the fact that it had been aware throughout the process of the disproportionate expense of the course it had embarked upon. Having regard to these factors, the Deputy Master stated that he did not regard an award of costs to be a punishment for Webb nor a reward for Countrywide but he did feel it was unjust if an order for costs was not made in Countrywide’s favour. Indeed, having considered all factors put before him, he stated that he had no hesitation in holding that Countrywide were entitled to its costs of and incidental to the claim.

As to how much of the costs are “costs of and incidental to the claim” will be a matter for determination by a costs judge on detailed assessment but this case is a reminder of the need to ensure that careful consideration is given as to whether to issue proceedings, particularly if you have no intention of serving the claim form. As an alternative, Webb could have invited Countrywide to enter into a standstill agreement which, if Webb agreed, would have prevented the need to issue proceedings and thus, may have avoided the costs consequences as ordered.

For more information about this case or to find out more about how the Dispute Resolution team can help you please contact Ally Tow on 0118 952 7206 or email [email protected].

Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.

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