Question: Can defendants recover fixed costs if a claim settles pre-issue?
Answer: Does the extension of Fixed Recoverable Costs enable defendants to recover their costs if a matter settles pre-issue? If so, this would mean that the mere act of sending a letter of claim might trigger an entitlement for the defendant to recover costs if the claim is then not pursued.
It is important to note that defendants have traditionally had no entitlement to recover costs where a matter settles pre-issue, regardless of how much work they have had to undertake to defeat the potential claim.
CPR 45.6 (1) states:
“Where, in any case to which Section VI, Section VII or Section VIII of this Part applies, the court makes an order for costs in favour of the defendant, the allowable costs are—
(a) the fixed costs set out in Section VI, Section VII or Section VIII”
Section VII (dealing with costs in the Intermediate Track), for example, has the following in Table 14 for the first line:
| Stage | 1 | 2 | 3 | 4 |
| S1
From pre-issue up to and including the date of service of the defence |
£1,600 + an amount equivalent to 3% of the damages | £5,000 + an amount equivalent to 6% of the damages | £6,400 + an amount equivalent to 6% of the damages | £9,300 + an amount equivalent to 8% of the damages |
If these costs are also the costs where “the court makes an order for costs in favour of the defendant”, does this create the entitlement for defendants to recover pre-issue costs?
There appears to be one insurmountable problem with a defendant seeking fixed costs for a matter which settles pre-issue. The way the rules have been drafted creates no mechanism for the fixed costs to be calculated.
The relevant Fixed Recoverable Cost figure for Stage 1 of the Intermediate Track, or the corresponding stage in the Fast Track, allow for Fixed Recoverable Costs of £x + a % of damages (e.g. £9,300 + an amount equivalent to 8% of the damages).
“Damages” are defined by CPR 45.6(3) as:
“For the purposes of paragraph (2)(a), ‘the value of the claim’ is –
(a) the amount specified in the claim form …
(b) if no amount is specified in the claim form, the maximum amount which the claimant reasonably expected to recover according to the statement of value included in the claim form under rule 16.3;
(c) if the claim form states that the claimant cannot reasonably say how much is likely to be recovered –
(i) £25,000 in a claim to which Section VI applies; or
(ii) £100,000 in a claim to which Section VII applies”
Unless and until proceedings are issued, there will be no claim form. There is no way to quantity the level of Fixed Recoverable Costs the defendant would be entitled to.
A further problem arises given the need for any defendant to have an order for costs in their favour. Clearly, if a matter has settled pre-issue, there will be no actual or deemed order for costs in their favour. When claims settle in a claimant’s favour, there will usually be an agreement in writing that the defendant will pay costs in addition to damages. The written agreement can then be used to issue costs-only proceedings under CPR 46.14 and thereby secure the order for costs. There is unlikely to be any such written agreement by a claimant who decides to abandon a claim pre-issue.
As such, the rules as drafted do not appear to enable defendants to recover costs where a claim is abandoned pre-issue. The trigger point for recovery would be when proceedings are issued.