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Will discontinuance of a claim reverse previous costs orders?

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Posted by Jennifer Rhind on 13 August 2015

Jennifer Rhind Solicitor

Following the issue of proceedings, a claimant may decide to discontinue their claim if they no longer feel the claim is worth pursuing. The Civil Procedure Rules (“CPR”) provide rules as to who will be liable for the legal costs when a claim is discontinued in all cases other than case in the small claims track, i.e. cases which are below £10,000. CPR Part 38.6 provides:

Unless the court orders otherwise, a claimant who discontinues is liable for the costs which a defendant against whom the claimant discontinues incurred on or before the date on which notice of discontinuance was served on the defendant.

The question which then arises is; Will the discontinuance of a claim reverse previous costs orders that have been made?”

This question was considered in Safeway Stores and others v Twigger and others [2010] EWCA Civ 172. It was Pill LJ’s judgment that the wording of CPR Part 38.6 was clear and that where a party discontinues their claim; they are accepting that their claim was now invalid and therefore they should meet the costs which the defendant has incurred. It was Pill LJ’s judgment that this would therefore reverse any costs order already made. It was the position of Longmore LJ and Lloyd LJ that any costs orders previously made before the discontinuance will not be reversed just because the claim has been discontinued. However, Longmore LJ did acknowledge that discontinuance might have the effect of reversing previous costs orders.

The position remained unclear.

The recent case of Dar Al Arkan Real Estate Company and another v Mr Majid Al-Sayed Bader Hashim Al Refai [2015] EWHC 1793 (Comm) has provided further clarification on this point.

The Defendant was a former CEO of a Bahraini Bank and was dismissed. Proceedings were brought against the Defendant as the Claimants alleged that the Defendant has begun a campaign against them with the intention of discrediting and destroying the businesses. An agreement was reached between the parties and the Claimants agreed to discontinue proceedings and pay the Defendant’s costs on the indemnity basis.

During the proceedings, interim costs orders had been made in favour of the Claimants and one of the issues that arose following discontinuance was what effect did the discontinuance have on these orders. This issue was considered by Andrew Smith J.

Andrew Smith J considered both the judgment of Pill LJ in Safeway Stores and others v Twigger and others and also the CPR.  Andrew Smith J pointed out that the CPR does not state on the face of it that if a party discontinues their claim this would reverse any previous costs orders that have been made. Furthermore, after considering Pill LJ’s judgment and hearing Counsel for the Claimants, Andrew Smith J found that the rules on discontinuance do not prima facie have any effect on costs orders which have already been made and he could not find any justification for making any order to the contrary.  Andrew Smith J stated:

 

As a matter of policy it would be surprising if the CPR provides for harsher consequences on a litigant who discontinues a claim or part of a claim than are typically visited on one who pursues an invalid claim or arid litigation to the bitter end.

It should be noted that Andrew Smith J clarified that even if it was his finding that previous costs orders might be reversed upon discontinuance, in this case, due to the Defendant’s unreasonable and obstructive behaviour throughout the litigation, he would not reverse the previous costs orders made.

The overriding objective of the Court is to ensure that cases are dealt with justly and at proportionate cost. A claimant, who has issued proceedings which should no longer be pursued, should be encouraged to take the step of discontinuing their proceedings rather than continuing with an unrealistic claim which would subsequently waste limited court resources and time and incur unnecessary costs for both parties.

About the author

Jennifer is a solicitor in the commercial litigation department.

Jennifer Rhind

Jennifer is a solicitor in the commercial litigation department.

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