Canada: Defendant Can Recover Costs Of, And Incidental To, A Claim Issued But Not Served

The Chancery Court has confirmed a defendant in a professional negligence claim was entitled to its costs of, and incidental to, the claim when it was abandoned by the claimant after issue. The court held that it would be wrong to ignore the considerable expense the defendant had to incur in dealing with the claim, even though the claim form was never actually served.

Background

In Webb Resolutions Ltd v Countrywide Surveyors Ltd the claimant, Webb, issued a claim against Countrywide (the claimants) for damages arising as a result of Webb's breach of contractual and tortious duties in failing to provide an accurate mortgage valuation. Damages were claimed in the sum of £27,000 plus interest.

A Letter of Claim was sent to the claimants in May 2011. The parties engaged in correspondence but neither accepted liability. No agreement was reached and for limitation reasons Webb was required to issue proceedings on 7 August 2013.

Further correspondence was exchanged, including two purported 'claimant' Part 36 Offer letters. Despite confirmation from Webb that particulars of claim would be prepared, the claim form was never in fact served.

In September 2014, the claimants confirmed to Webb that it had incurred almost £8,000 in costs and disbursements in relation to the claim and that, as Webb had 'discontinued its claim', it was liable to pay the claimants's costs. Webb rejected the claimants's claim, arguing that there was no basis upon which the claimants was entitled to recover its alleged costs.

The claimants asserted that it had become entitled - pursuant to section 51 of the Supreme Court Act - to all of its costs of, and incidental to, the proceedings, which would include those costs incurred before the claim form was issued. It received no response from Webb and issued an application as a result - seeking payment of the "defendant's costs of the Claim...to be assessed if not agreed".

Webb subsequently accepted that it was within the court's discretion to award the defendant its costs, and that those costs could include costs incurred pre-issue - if they were costs 'incidental to the proceedings'. However, Webb argued that the court should exercise its discretion in this matter not to award C its costs as claimed - or alternatively only to award the claimants its costs incurred after proceedings had been issued.

Decision

The court held that Section 51 SCA and the provisions of the Civil Procedure Rules (CPR) provide for three distinct phases regarding recovery of costs:

  1. Phase 1 - parties incur costs that would be recoverable as pre-action costs if a claim form had been issued - but no claim form is in fact issued;
  2. Phase 2 - claim form is issued but not served;
  3. Phase 3 - claim form is issued and served but the claimant does not take the claim any further.

Phase 1 costs would not generally be recoverable - only in specific circumstances which did not apply to this matter in any event.

Phase 2 and 3 costs could be recovered in accordance with s51 SCA and CPR 44 and a defendant would be entitled to payment of its costs of, and incidental to, the claim. There was case law which held that a defendant was entitled to recover its costs when a claim had been issued but not served, although in those cases the defendant had incurred most of its costs after the claim had been issued.

However, the CPR recognised that costs can be incurred before proceedings are issued and previous case law had also confirmed that costs incurred in complying with a pre-action protocol could be 'costs incidental to the claim' once proceedings had been issued. Issuing a claim form fundamentally changes the position and the fact a claim form has not been served is only a factor to be considered when the court exercises its discretion.

The judge held that in this case the costs soon became wholly disproportionate to the amount being claimed. Prior to proceedings being issued, the claimant had been concerned about the costs it was incurring and, at that stage, it understood the defendant "had no offers to make in relation to settlement". The claimant could have made the commercial decision then to abandon the claim. Instead, Webb chose to issue proceedings and make a further attempt to persuade C to make a payment in settlement.

Taking all of the above into consideration the judge held it would be wrong (a) to ignore the considerable expense the Defendant has had to incur in dealing with the claim; (b) to disregard the way in which C has throughout been aware of the disproportionate expense of the course it was on; and (c) to ignore the difference in the application of s51 SCA and the CPR once a claim form has been issued.

The defendant was therefore entitled to its costs of the claim - to include its pre-action costs of, and incidental to, the claim - to be assessed if not agreed.

Comment

This case is a useful reminder that issuing proceedings can have significant cost consequences - even if proceedings are not subsequently served.

If a defendant is aware that a claimant has issued proceedings but has chosen not to serve them, it should always seek to recover the costs it has incurred in dealing with the claim until that date. Such costs could be significant if, for example, the professional negligence pre-action protocol has been followed, the matter fully investigated and a detailed Letter of Claim prepared.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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