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courts find teeth for pre-litigation conduct costs sanctions

4 January 2012

It is often thought that the courts have little regard to pre-litigation conduct in exercising case management decisions or in making decisions about costs. The case of Kyle v Cedar Grange (25 January 2011 - Halifax County Court), is the first known decision on this issue where the court imposed the sanctions set out in the Pre-Action Conduct Practice Direction.

Background

In Kyle, the claimant was injured in an accident at work on 2 February 2010. Following receipt of her letter of claim, just three weeks later, the defendant admitted liability on 12 May 2010, prior to the expiry of the protocol period.

Kyles solicitors disclosed her medical evidence in September 2010 which recommended she undergo surgery. In the same letter, they invited the defendant to fund the treatment and sought confirmation that, in consideration from refraining from issuing court proceedings the defendant would agree to pay interest on general damages, to be calculated from the date of their letter. If this offer was not accepted, the claimants solicitors stated that they would issue court proceedings.

In an attempt to prevent the issue of proceedings, the defendant offered to agree general damages and to issue a cheque in settlement of the claim for general damages, or an interim payment on account of general damages. They argued that it was premature to issue proceedings while the claimant was still undergoing medical treatment and where liability and limitation were not an issue.

Kyles solicitors accepted the offer of an interim payment but nevertheless issued proceedings contending that they were entitled to do so to secure their clients entitlement to interest on general damages.

Arguments

The defendant appointed solicitors who applied to the court seeking the sanctions set out at section 4.6 of the Pre-action Conduct Protocol contending that the Practice Direction encourages parties to settle claims without the need to start proceedings and that proceedings, which should be a step of last resort, should not normally be started when settlement is still actively being explored.

The Practice Direction provides that: "If, in the opinion of the court, there has been non-compliance [with the pre-action protocols], the sanctions which the court may impose include -

(1) staying the proceedings until steps which ought to have been taken have been taken;

(2) an order that the party at fault pays the costs, or part of the costs, of the other party or parties;

(3) an order that the party at fault pays those costs on an indemnity basis;

(4) if the party at fault is the claimant in whose favour an order for the payment of a sum of money is subsequently made, an order that the claimant is deprived of interest on all or part of that sum, and/or that interest is awarded at a lower rate than would otherwise have been awarded;

(5) if the party at fault is a defendant, and an order for the payment of a sum of money is subsequently made in favour of the claimant, an order that the defendant pay interest on all or part of that sum at a higher rate, not exceeding 10 above base rate, than would otherwise have been awarded."

The claimant relied on the Court of Appeal authority of Jefford v Gee [1972] 2 WLR 202, arguing that claimants should issue proceedings promptly but the judge in Kyle agreed that the spirit and purpose of the Pre-action Protocols and the CPR was to encourage parties to resolve cases without the need for proceedings to be issued and that the issue of interest on general damages often gets lost in the ether as part of the overall settlement negotiations. The claimants solicitors conduct was criticised as being abrasive, unnecessary and disproportionate.

The judge considered that the issue of proceedings offended the principles of the protocol, the purpose of which is to avoid proceedings such as this being issued.

The judge agreed with the defendants argument and ordered that the action be stayed until such time as the claimant had served a medical report after the conclusion of her surgery. The case would then be listed for a Case Management conference.

The Judge did not deprive the claimant of interest on general damages, believing that it was her solicitors, not her, who were at fault and that to make such an order would be too draconian. However, it was recognised that any accruing interest would largely be offset by the pre-issue interim payment on account of general damages.

Costs

The defendants solicitors requested not only the costs of the application but also the costs of the action, to include the issue of proceedings up until the date of the Case Management Conference, on the basis that Kyles premature issue of proceedings had caused the defendant to instruct solicitors in a case where they may never have needed to.

The judge agreed and the defendants costs were awarded in full, with the costs to the Case Management Conference to be assessed on the standard basis if not agreed.

It is noteworthy that this order was made despite the fact that liability for the accident had been admitted.

Implications

It is encouraging to see that that the courts are willing, in appropriate cases, to penalise pre-litigation misconduct by imposing the sanctions set out in the Pre-Action Conduct Practice Direction and awarding costs, in particular against parties who issue proceedings unnecessarily.

This is also a welcome decision for parties seeking to contest the premature issue of proceedings and in particular, should deter proceedings being issued to recover interest on general damages, where there is no other need for proceedings to be issued.

This article was first published in Butterworths Civil Costs Newsletter

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