In Webb Resolutions Ltd v Waller Needham & Green, the High Court shows it’s willingness to depart from the normal costs rules where a mortgage lender had failed to comply with its disclosure obligations under the Professional Negligence Pre-Action Protocol, and how this can prove to be an expensive mistake for a claimant.
In this case the defendant solicitors accepted a Part 36 offer one year after it was made, yet, in a departure from the normal costs rule, they were not obliged to pay the claimant’s costs for the whole period between offer and acceptance.
A mortgage lender brought a professional negligence claim against a firm of solicitors who had been engaged by the original lender, from whom the claimant had purchased the loans. The claimant alleged that it would not have made the loan in question had the solicitor acting on the transaction not been negligent, and claimed damages accordingly.
The lender sent the defendant solicitors a letter of claim under the Professional Negligence Pre-Action Protocol in July 2010, claiming the sum of £165,000. The defendant in turn requested disclosure of certain documents, which it explained were needed in order to assess its potential responsibility and produce a letter of response. The claimant refused disclosure of any further documents, claiming that it had complied with its obligations under the protocol, and that the defendant was not entitled to further disclosure until they had admitted liability.
In May 2011, the claimant made a Part 36 offer, asking for £140,000 plus costs. The defendant alleged it could not assess the offer without receipt of the documents it had already requested. Over the next year, the defendant repeatedly requested disclosure of the documents, but these requests were ignored and refused by the claimant.
In September 2011 the claimant issued proceedings. In its defence the defendant expressed disappointment at the failure of the claimant to comply with the protocol. It drew attention to the provision of the protocol that ‘The parties should supply promptly, at this stage and throughout, whatever relevant information or documentation is reasonably requested.’ They once again explained which documents were sought and why.
In March 2012 the claimant eventually provided standard disclosure, inspection took place, and in May 2012 the defendant accepted the Part 36 offer made a year earlier.
As the offer had been accepted after expiry of the 21-day period, costs became a matter for the court’s discretion under rule 36.10(4). The usual order in a case where the defendant’s fail to accept the Part 36 offer within the relevant period would be that the defendant pays the claimant’s costs up to the defendant’s acceptance of their offer. The court should depart from the normal order only if it would be unjust not to.
In his judgment the judge reiterated that the aim of the protocol is to establish an early exchange of information so that the claim can be fully investigated and, if possible, resolved without the need for proceedings. It was held that the claimant’s refusal to disclose the documents requested by the defendant was unreasonable.
The court allowed the claimant to recover its costs until the end of the 21 day period of acceptance. However, in relation to the costs incurred after this period had expired, it was held to be unjust to require the defendant to pay the claimant’s costs after June 2011. Furthermore, since it was unlikely that such costs would have been incurred had the claimant acted reasonably, the claimant was ordered to pay the defendant’s costs for the period between June 2011 and acceptance of the offer to pay damages.
This decision is a significant warning to parties to take a co-operative approach throughout the dispute, and ensure compliance with any pre- action protocol. Failure to do so can be very costly. Not only did the claimant not recover its costs, it was ordered to pay the defendant’s; it is not known whether the damages paid covered the costs liability but they certainly would have eroded the benefit of the claim very significantly.
It has been suggested that the Professional Negligence Pre-Action Protocol is weighted too far in favour of defendants and used tactically by defendants and their insurers to delay responses to claims. Often defendants make broad requests for items and classes of documents that they would not be entitled to on standard disclosure. Such requests are frequently made at the end of protocol periods suggesting that there has been no proper analysis of the claim in the preceding months. However, the decision does highlight that certain documents do have to be disclosed if the claimant is not to be at risk of this type of costs outcome.