Liability for Costs on Discontinuation: When may the Court deviate from the ‘Usual Order’?

There are many different reasons for discontinuance of a claim. Generally speaking, regardless of the reason, the defendant is entitled to recover its costs up to the date of discontinuation. This fundamental entitlement is provided for in Civil Procedure Rule 38.6(1):

“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.”

This is consistent with CPR 44.2(2), with the general rule being that the unsuccessful party will be ordered to pay the costs of the successful party. Common sense certainly dictates that the defendant should not have to bear the burden of costs for a claim which has ultimately been deemed, not worth pursuing (for whatever reason) against it. But akin to CPR 44.2, the Court may make a different order. So when will the usual rule be disapplied and/or deviated from?

A claimant who wishes to avoid an order for costs under CPR 38.6 may apply to the court for its discretion to be exercised. Generally however, the claimant must show some form of unreasonable conduct on the part of the defendant which provides a good reason for departing from the usual rule. What amounts to unreasonable conduct? In Brookes, the Court of Appeal provided guidance in the form of 6 key principles which should be considered for the disapplication of CPR 38.6:

1. The starting presumption is that the defendant should recover its costs and the burden is on the claimant to show a good reason for departing from that presumption;
2. The fact that the claimant would or might have succeeded at trial is not itself a sufficient reason for departing from the presumption;
3. On the contrary, if it is plain that the claimant would not have succeeded in its claim, that is even more of a reason for the usual rule being maintained;
4. Allied to (2) is the fact that the claimant’s decision to discontinue may have been motivated by practical, pragmatic or financial reasons, and not a lack of confidence in the merits of the claim, is not enough to displace the presumption;

Whilst the first four principles set down by Brookes dictate ‘what will not be considered’, the final two principles set the scene for ‘what will be considered’ to disapply the usual rule:

5. The claimant will usually need to show a change of circumstances to which it has not contributed to or caused;
6. And such change in circumstance is only likely to suffice where it has been brought about by unreasonable conduct on the part of the defendant. 

Breaking this down, the real questions are how high is this hurdle and what is considered unreasonable conduct? The first health warning is, be prepared to have all and any pre and post action correspondence poured over by the claimant (and the court) in considering and determining this.

What amounts to a change of circumstances?

Nelson’s Yard provides an example of where the court did ‘order otherwise’ and deviated from the usual rule. Here, the determination of a surveyor, which revealed there were no issues with the excavations (meaning the claimant received the answer they wanted and their land was protected), amounted to a change in circumstances, and more specifically, a change in circumstances whereby the claimant’s claim became redundant. On the application of Brookes, it was determined that this change in circumstance (the surveyor making a determination) was brought about by the defendant’s failure to respond (at all) to pre-action correspondence and / or to give access to its land for the surveyor to make a determination.

In Hewson v Wells, where the claimant had issued a part 8 claim seeking a declaration that it had beneficial interest in property and sought a copy of deed, the eventual presentation of the deed by the defendant created a change in circumstance, and as in Nelson’s Yard, this essentially rendered the claimant’s claim redundant.

Similarly, in Benjamin v Benjamin disclosure was sought from trustees prior to proceedings being issued, no response received, proceedings were issued and following disclosure of documents, they were discontinued. Again, the handing over of fundamental documents amounted to a change in circumstances and this was brought about by defendant’s failure to provide those prior to issue of proceedings.

What amounts to unreasonable behaviour?

Seeking to untie the tethered principles of five and six in Brookes is clearly a challenge and they must be considered together. In Nelson’s Yard, the defendant’s failure to engage (at all) in pre action correspondence was largely considered unreasonable. Similarly, the failure to engage in pre-action correspondence in Hewson v Wells, and the failures in Hewson v Wells and Benjamin v Benjamin to disclose material documents was considered sufficient to depart from the normal rule.

Clearly, whilst there are pitfalls for a defendant to avoid, the ultimate burden lies with the claimant to show a reason to depart from the usual rule and this is a high hurdle to leap. Lord Justice Moore-Bick succinctly expressed the underlying rationale for CPR 38.6 and the fundamental presumption on the basis that: “…a claimant who commences proceedings takes upon himself the risk of the litigation.”

Lord Justice Moore-Bick went further than this to say that even in “cases in which it can be said that the defendant has brought the litigation on himself”, even “that is unlikely to justify a departure from the rule if the claimant discontinues in circumstances which amount to a failure of the claim”. This has been cited without criticism by the Court of Appeal in four subsequent cases and remains authoritative.  

One further point of contention which has arisen in the judicial (dis)application of CPR 38.6 is whether a refusal by a defendant to agree to a standstill for the purposes of limitation is sufficient to amount to unreasonable conduct. In GREP London Portfolio it was said that the fact a defendant refuses to agree a standstill agreement is irrelevant and indeed, it is a defendant’s entitlement to refuse to agree to something which seeks to circumvent the underlying statutory provisions on limitation.

In summary, parties must be mindful that whilst the underlying presumption remains that the defendant will succeed in getting costs on discontinuation, there is certainly scope for the court to ‘order otherwise’. If an application is made, the dirty laundry of pre-action correspondence will inevitably be aired and parties should be prepared for criticism on conduct. An aggressive approach or tone can look very different with hindsight. That said, the decisions of the court to date, suggest that a differentiation will be made between conduct which can be critiqued in hindsight and conduct which was blatantly unreasonable.

Points to consider remain

• Engagement in pre-action correspondence and the brevity of any early response to a letter before action may be considered;
• Refusals to meet other parties either pre or post action, if lacking in explanation and/or reason may be considered;
• The burden is ultimately on the claimant to show it has a legally recognisable claim but there is merit to the defendant stating its case / defence at an early stage and/or highlighting failures and inadequacies of the claimant’s claim.

Footnotes 

1. Brookes v HSBC Bank Plc [2011] EWCA Civ 354; [2012]
2. Nelson’s Yard Management Company and ors v Eziefula [2013] EWCA Civ 235
3. Hewson v Wells [2020] EWHC 2722 (Ch)
4. Benjamin v Benjamin [2024] EWHC 215 (Ch)
5. Four subsequent cases citing Moore-Bick LJ: Fresenius Kabi Detschland GmbH and ors v Carefusion 303 Inc [2011] EWCA Civ 1288; Kynaston v Carroll [2011] EWCA Civ 1699; Nelson’s Yard Management Company and ors v Eziefula [2013] EWCA Civ 235; and Ashany and anr v Eco-Bat Technologies Ltd [2018] EWCA Civ 1066.
6. GREP London Portfolio II Trustee 3 Ltd and ors v BLFB Ltd and anr [2021] EWHC 1850