The recovery of costs “incidental” to proceedings

Legal fees incurred in connection with a claim cannot be claimed as damages from the opposing party. They fall within the Court’s sole jurisdiction and discretion to award costs should litigation ensue.

It is a well established principle that legal costs incurred before an action has been commenced can be recovered in the subsequent litigation. In Ross v Caunters [1980] Ch. 297 at page 323, the Court noted that:

“The statement of claim also claims the legal expenses of investigating the plaintiff’s claim up to the date of the issue of the writ …. . … at present I doubt whether any sum is recoverable under this head. If an order for costs is made in favour of the plaintiff, then some of these legal expenses of investigation may fall within that order as being “costs of or incidental to” these proceedings, and so of course could not be claimed as damages.”

Provided they are “costs incidental to proceedings“, pre-action costs are properly recoverable. Of course, whether costs are “incidental” must depend upon the circumstances of the case: for instance, the costs of work carried out under one of the pre-action protocols are incidental to any subsequent proceedings.

There is a potential complication. In the early stages of a dispute, it may be thought prudent to investigate a range of potentially relevant issues, but not all of these issues may feature in the subsequent claim.

In Re Gibson’s Settlement Trusts [1981] 1 All ER 233, the Vice-Chancellor expressed the following view (239 to 240):

” Obviously the test cannot be simply whether the materials in question proved in fact to be of use in the action, for otherwise when a case is settled before trial … it would often not be possible to say with any certainty which materials had been or would have been of use in the action. Nor would it be right to penalise the successful litigant for obtaining materials which appeared likely to be of use in the action but which, in the event, were never used because the other party did not contest the point. Whatever may be the position on a party and party taxation, if the taxation is on the common fund basis I think that one must go back to the words ‘costs reasonably incurred’…”

Re Gibson’s Settlement Trust is of course a pre-CPR case. It does not deal with the assessment (or “taxation”) of costs as between litigants i.e. inter partes costs where the loser generally pays the winner’s costs.

More recent decisions show that a defendant who succeeds in rebutting some allegations following pre-action protocol exchanges, so that the Claimant does not include those allegations in subsequent proceedings, will generally be unable to claim for the pre-action costs relating to any abandoned heads of claim.

HHJ Coulson QC so held in McGlinn v Waltham Contractors Ltd. [2005] EWHC 1419:

” … 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 subsequent proceedings, such claims do not feature at all.”

It is not clear what would qualify as “exceptional circumstances”, to allow the recovery of “wasted” pre-action costs.

However, the more generous approach adopted in Re Gibson’s Settlement Trusts should be preferred to the approach taken by the Court in McGlinn. A test on the basis of whether costs were reasonably incurred at the time, but without applying the benefit of hindsight, to see how proceedings eventually played out, is clearly a much fairer approach.

“Incidental to” is an important phrase. Solicitors have for years attended Coroner’s Inquests and criminal trials, usually to maintain a watching brief with a view to pursuing a civil claim. This often raises the vexed question of who pays the costs of such work. The Coroner has no power to award costs of attending an inquest. Yet you can still normally recover the costs if they can be shown to be “incidental to” a subsequent civil claim.

The two cases of Roach v The Home Office and Matthews v The Home Office dealt specifically with Inquest costs in cases involving deaths in custody:.

Mr Justice Davis rejected the Home Office argument that the costs in one set of proceedings (the Inquest) are never recoverable in another set of proceedings (the compensation claim).

Authority to award costs comes from section 51 of the Supreme Court Act 1981 which says:

(1) Subject to the provisions of this or any other enactment and to rules of court, the costs of and incidental to all proceedings in:

a) the civil division of the Court of Appeal;

b) the High Court; and

c) any county court,
shall be in the discretion of the court.

Mr. Justice Davis approved the approach taken by Mr Justice Clarke in the The Bowbelle [1997] 2 LL.Rep. 196. That in turn applied the “three strands of reasoning” from re Gibson’ Settlement Trusts [1981] 1 CH.179, namely:

that of proving of use and service in the action; that of relevance to an issue; and that of attributability to the [paying parties’] conduct.” Hence in the Bowbelle negligence for the collision with The Marchioness had been admitted before the inquest. The inquest costs relating to the cause of the accident were not recoverable but cost relating to pre-death suffering and loss of life were.

Tests of reasonableness and proportionality are also ever present safeguards available to the paying party. Indeed in the Roach case 90% of the costs claimed arose from attendance at the Inquest.

Although Mr. Justice Davis declined the invitation to lay down guidelines for Costs Judges in future cases he did say:

“It seems to me that the discretionary regime available to Costs Judges in this context, and the application of section 51 and Rule 44, will not be advantaged by further guidelines (so called): each case should properly be decided by reference to its own circumstances. I am fortified in this view by the suggestion, as to which I express no opinion, that what is decided in these cases (which relate solely to inquests preceding a subsequent resolution of civil proceedings) may also be relevant in other contexts: for example, attendance prior to civil proceedings at a criminal trial involving death by dangerous driving or a criminal trial involving Health and Safety issues. Better, I think, to leave it to Costs Judges to decide each case on its own facts by reference to section 51 and the subordinate statutory rules and having regard to the principles indicated in Gibson.”

Jim Knight, Partner and Costs Lawyer