Settlement of claim — Claimants accepting sum in accordance with valuation by joint expert — Sum originally claimed much greater — Parties agreeing that costs to be determined by court — Whether claimants winning — Effect on costs order of higher initial claim — No order for costs
The claimants held a leasehold interest in a property. They sent a pre-action protocol letter to the defendant firm of solicitors in which they alleged that, because of the defendant’s breach of retainer, they had been deprived of the combined leasehold and freehold interest in the property. The letter set out a claim for damages in the sum of £3.75m. The defendant disputed liability. It later rejected the claimants’ suggestion of mediation, maintaining that the claim was misconceived and that the retainer alleged was vague and not particularised. The claimants then served particulars of claim for the smaller sum of £350,000 plus interest and costs. The defendant made a without prejudice offer to settle the claim on a drop-hands basis. That offer was withdrawn when the claimants failed to respond.
At a case-management conference, it was agreed that the issue of valuation should be dealt with by evidence from a single joint expert. The expert’s report indicated that the difference in value between the claimants’ existing leasehold interest and the combined leasehold and freehold interest was £38,000. The claimants disputed that valuation and sought to introduce further evidence in support of their £350,000 claim. The defendant made a further drop-hands offer, which the claimants countered with an offer to accept £38,000 plus costs. The defendant then made an open offer to pay £38,000, with no interest, and for the court to determine the issue of costs. The claimants accepted that offer.
At the costs hearing, the claimants submitted that they should be awarded all or a substantial proportion of their costs because they had won the full amount of the loss identified by the joint expert in circumstances where they had had to resort to litigation and the defendant had rejected mediation and contested liability throughout. The defendant submitted that no order should be made as to costs. It claimed that it was paying the £38,000 as a nuisance value for commercial reasons, to remove the claim, which had been grossly inflated and which the claimants had settled for a fraction of the pleaded sum.
Held: No order for costs was made.
Although the starting point for a costs order, under CPR 44.3(2)(a), was that the unsuccessful party would be ordered to pay the costs of the successful party, the court could make a different order under CPR 44.3(2)(b) having regard to factors such as the conduct of the parties, any admissible offer to settle, whether a claimant had exaggerated its claim, the manner in which each party had pursued or defended its case and whether a party had succeeded on any part of its case.
In the instant case, there should be no order for costs. It was not possible to conclude that the claimants had effectively won in circumstances where they had accepted a sum that represented only around 10% of their pleaded claim and had agreed to forgo interest on that sum. The making of the £38,000 payment did not amount to an acceptance of liability. It was not realistic for the claimants to argue that they had won on the basis that they would not have recovered anything without litigation; although the defendant had rejected the claim throughout, it might well have taken a different course had a lower valuation been put on the claim. The claim had been grossly exaggerated throughout, both at the protocol stage and when the proceedings were commenced, in a way that was bound to affect the way in which the defence was run. It had been reasonable for the defendant to reject mediation when it received the initial protocol claim for £3.75m, unsupported by expert evidence and with little in terms of particulars as regards the alleged retainer. The defendant had not obstructed settlement because it had made meaningful offers. The claimants had not been obliged to accept the defendant’s offer; they had made a commercial decision to settle having regard to the risk that they might fail at trial or recover only the sum determined by the joint expert. Although the claimants’ costs were considerable, a decision to let costs lie where they fell did not penalise the claimants since they had taken the risk of such a result when they accepted a settlement that did not include costs. Although such an order would result in the defendant also having to support its own costs, the settlement had saved it a considerable sum, and there would have been a degree of irrecoverable costs in any event if the defendant had won and had had to recover them personally from the claimants.
Mr Kremin (instructed by Russell Jones Walker) appeared for the claimants; Mr Parker (instructed by Reynolds Porter Chamberlain) appeared for the defendant.
Sally Dobson, barrister
