Problem: I am in dispute with a customer over approximately £15,000.00, and although we have been communicating with each other, we are at an impasse, with the same old arguments and views being exchanged – clearly the customer does not want to pay.
Although the sum in dispute is not particularly large, I did want to instruct a firm of solicitors as I have no experience of the legal process. I therefore approached a legal firm who told me that before I could start proceedings, I would have to send a ‘letter before action’ and go through some sort of pre-action process, and any costs I incurred during this process would not be recoverable, even if the customer capitulated and paid.
Obviously, any monies that I spend on solicitors, I want to recover in full. Could you therefore enlighten me on the pre-action process and why I cannot recover my costs.
Response:
The ‘letter before action’ is now formally known as the Letter of Claim and is part of a process under the Civil Procedure Rules (“CPR”), called the Pre-Action Protocol (“the Protocol”).
I have previously written about the Protocol, which was introduced back in the late nineties and there are rules covering several protocols for different kinds of dispute including construction and engineering. These protocols set out how a dispute is to be conducted before a claimant issues proceedings and it is vital that both parties follow the rules otherwise there is a substantial risk that a successful party’s costs may not be recoverable. The objectives of the Protocol are:
- To encourage the exchange of early and full information about the prospective legal claim;
- to enable parties to avoid litigation by agreeing a settlement of the claim before commencement of proceedings; and
- to support the efficient management of proceedings where litigation cannot be avoided.
From experience, the Protocol is extremely conducive at facilitating settlement of disputes.
The main negative of the Protocol and any pre-action work is that the costs cannot be claimed as damages and are not usually recoverable as costs unless:
- The parties settle the dispute and any settlement includes recovery of costs;
- where damages have been settled, a party can commence costs only proceedings if certain criteria have been met; or
- the costs are part of an order made by the court providing for costs recovery, for example:
- The principle that costs that would otherwise be recoverable are not to be disallowed by reason of the fact that they were incurred before the proceedings were commenced;
- the wording ‘costs of or incidental to’ do not exclude costs which had been incurred pre-action [Re Gibson’s Settlement Trusts (1981)]; or
- pre-action costs incurred in compliance with a pre-action protocol are, in principle, recoverable (per the Court of Appeal case in Birmingham City Council v Lee (2008)).
In essence therefore, if no claim form is issued, then there is no litigation and so there are no costs of litigation, whatever costs may have been incurred in complying with a Protocol. It is only if a claim form is issued that the costs incurred in complying with a pre-action protocol may be recoverable as ‘costs of or incidental to’ any subsequent proceedings.
All that said, I would still recommend that you seek a suitably experienced solicitor and instruct that solicitor to draft a Letter of Claim. In order to minimise the costs, provide a written brief including how and when the contract came into being and make reference to the written evidence. Also request the solicitor to provide you with a quote to draft the Letter of Claim. Once issued, you may feel confident enough to manage the process yourself, but with ad-hoc support from your solicitor.
© Michael Gerard 2022
The advice provided is intended to be of a general guide only and should not be viewed as providing a definitive legal analysis.
Author background
Michael is a Solicitor, Chartered Builder & Registered Construction Adjudicator, and is a director at Michael Gerard Law Limited, a solicitors practice regulated by the SRA.