In Ayton v RSM Bentley Jennison  EWHC 2851 (QB), the Court of Appeal has laid down guidance on whether a claim can be issued, solely to recover costs, in a claim which the defendant had agreed to settle (on the substantive matter out of court in the pre-action stage). The claimant had a claim for circa £100,000 against a firm of accountants over negligent advice. The accountants were prepared to pay the full sum of £100,000 but crucially would not countenance any contribution whatsoever to the claimant’s legal costs to that date. The claimant issued proceedings for £100,000 plus costs and on appeal the claimant was awarded £430,000 in respect of the costs element of the claim (60% of the claimant’s bill).
This clearly represents a fantastic result for the claimant and more importantly the case clarifies important principles on recovery of costs in professional negligence claims.
The key takeaway is that a claimant is entitled to issue a claim to recover the costs of complying with the Professional Negligence PAP, especially in circumstances where the defendants have conceded the claim but failed to contribute towards costs.
Did the claimant follow the pre-action protocol?
Yes. The claimant (as required in all professional negligence cases) followed the Pre-action Protocol for Professional Negligence, and instructed for a letter of claim to be sent to the accountant’s legal representatives (Clyde & Co). Without explanation, the pre-action protocol fails to make any provision for the costs arising from preparing the pre-action letter and investigating the merits of the claim (which work we can agree a fixed fee for with our clients depending on the merits of the case).
How did the negligent accountants respond to the pre-action letter?
No substantive response was provided save for a cheque attempting to settle the matter for the sum claimed in the letter of claim (save for costs). The defendant made it clear that it had no intention of paying the claimant’s legal costs (in circumstances where a Conditional Fee Agreement is agreed this is not an ideal situation for a claimant or their legal representatives).
What did Clyde & Co advise their client?
The defendant’s legal representatives attempted to utilise the lacuna in the PAP Professional Negligence to the advantage of their client. They claimed that the defendant had no obligation to pay the claimant’s legal costs under the pre-action protocol and there was apparently no mechanism by which a claimant could seek payment of costs in circumstances where the defendant had paid the full amount.
Can a professional negligence claim be issued when the defendant has already accepted liability?
Yes. The claimant issued proceedings claiming £100,000 for damages, plus some £1,500 for consequential loss and expenses and of course costs. The defendants responded by filing a defence which pleaded tender before claim and paid circa £100,000 into court. The defendant continued to defend the remainder of the claim and pleaded that it had no obligation to pay any of the defendant’s pre-action costs.
The Court of Appeal decision
The judge awarded costs to the claimant in the sum of circa £400,000. May J summarised the position clearly:
“The PAP makes it clear that the onus is not just on a claimant to avoid proceedings. Once the process has started, by the issuing of a letter of claim, it is for both parties to seek to resolve their disagreements. What the defendants did at the pre-action phase in this case was to offer an ex gratia payment, with no admission of liability, of the full amount of the damages claimed plus interest at 1 per cent. There was no offer to pay costs, and when the claimant enquired about costs, it was clear that the defendants were adopting a position (of refusing to pay) which they intended to maintain and to fight, as they did, all the way to the Court of Appeal.
The only option left to a claimant in circumstances where a pre-action offer is made to pay damages but there is a persistent refusal to cover legal costs is to issue proceedings…”May J in Ayton v RSM Bentley Jennison  EWHC 2851 (QB)
The professional negligence perspective: Did Clyde & Co provide negligent advice to the defendants?
In order to succeed in a negligence claim, one step is for the court to assess whether a reasonable solicitor with the skill and expertise expected of a partner and specialist in litigation would consider the approach taken by Clyde & Co to be reasonable. Arguably, their course of action was reasonable. Clyde’s put forward a highly technical and tactical argument which on this occasion failed.
Of course it was open to the defendant’s solicitors to choose to run the tactical course that they did, seeking to rely upon the wording of the CPR in relation to a tender before claim (on some occasions tactical game playing in litigation works- see one of our cases here (which was far more clear cut in that the Defendant’s solicitors were entitled to pursue their tactical course of action): Woodward and Another v Phoenix Healthcare Distribution Limited  EWCA Civ 985).
However, Clyde’s course of action was beset by risks – the key question therefore is whether the client was warned of these risks. Indeed, Clyde & Co would certainly have realised that costs must necessarily have been incurred by the Claimant in complying with the pre-action protocol. Moreover, the City law firm must have realised that the clear and present risk in adopting this tactical course (which had no clear guarantee of success) was that interest and costs would rise whilst they continued to deny the Claimant’s claim for costs.
If no clear warnings were given then the defendant accountants may be able to issue a claim for professional negligence between the settlement amount offered at the outset (plus costs) in response to the letter of claim and the consequent amount they were ordered to pay the claimant by the Court of Appeal.
Furthermore, did Clyde & Co advise their client that they could have settled the substantive sum and agreed to pay the claimant’s costs to be the subject of assessment (which is an inherent mechanism provided for by Part 36)? If the defendant had misgivings about the claimant’s costs, the extent of the uplift, the amount of hours claimed, the rates charged- these could all have been challenged on assessment (when costs were far lower).
Can the defendant accountants challenge the (ultimately) unnecessary costs incurred by Clyde & Co?
Potentially. Unlike many other law firms, we have an experienced legal costs team, who specialise in challenging the reasonableness of bills/invoices rendered by your previous solicitor. We find that in many professional negligence claims, clients are not happy with the service they have received and in tandem the price that they have paid for the sub-standard work completed.
If you consider that your bill (i.e. invoice) is overpriced for the work that you instructed to be done, our expert costs team can help you to understand the reasonbaleness of the bill(s) and if appropriate, challenge the bill in addition to any professional neglgience claim.
What is the Pre-Action Protocol for Professional Negligence?
Parties to litigation or contemplating litigation must adhere to the Civil Procedure Rules 1998 (the CPR). Therefore, the provisions of the CPR are applicable, in particular the Pre-Action Protocol for Professional Negligence (professional negligence PAP).
The updated PAP for professional negligence came into effect in May 2018, on which date claims to be issued from then must comply with.
All the parties are encouraged to attempt to settle the professional negligence claim without issuing formal proceedings in court. The PAP sets out the framework to be followed and encourages an exchange of information and a set timetable, which both parties must comply with to encourage early settlement without the need for a costly court process.
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