The High Court has recently decided that it can order costs against a party who issues, but does not serve, a claim in order to “stop the clock” for the purposes of limitation.  This is important because it exposes Claimants who are investigating potential claims to the risk of having to pay a Defendant its costs of considering the claim when, historically, it was thought they were not payable.

The Limitation Act 1980 prescribes timeframes by which claims must be commenced or they become time barred.  For claims in contract and negligence that is usually 6 years.  For a variety of reasons, Claimants may not consider bringing the claim until near the expiry of the relevant limitation period.  To protect a Claimant’s position whilst the investigations as to the merits of the case continue, solicitors either try to conclude a “standstill” agreement, i.e. both parties agree to suspend the limitation deadline for an agreed period, or issue “protective” proceedings through the court. 

The Civil Procedure Rules provide that a claim is effectively issued if the Claim Form is submitted to the court and required court fee is paid by the limitation date.  The Claim Form must then be served, i.e. formally sent to the Defendant within 4 months of the date of issue.  To avoid the commencement of the procedural timetable (i.e. the Defendant serving its defence), the Claim Form is not served on the Defendant whilst the parties continue their investigations and follow the applicable Pre Action Protocol applicable to that claim. 

The usual position is that if the claim is not pursued after complying with the Protocol, the Claimant need not pursue its claim and neither party can recover its costs from the other.  The discretion of the court to order costs for an abortive claim was thought only to arise after service of the Claim Form, not after its issue, hence if a claim had been issued but was not to be pursued, the Claimant will usually let the Claim Form be time expired without any costs consequences. 

The recent decision in Clydesdale Bank Plc -v- Kingleigh Folkhald & Hayward confirms that a Defendant can ask the court to order that the Claimant pay its costs of a claim that has been issued but not served.  The Claimant bank had issued protective proceedings against the Defendant firm of surveyors whilst it investigated whether to bring a claim for negligent valuation.  The parties agreed various extensions of time to serve the Claim Form but, ultimately, the Claimant deliberately did not serve the Claim Form in time so that the claim was at an end.  The Court accepted the Defendant’s argument that it had discretion to award costs in its favour from the time when the claim had been issued.

This poses a difficultly for prospective Claimants nearing a potential limitation period.  Defendants may not be willing to enter into a standstill agreement, thus leaving the Claimant with no option but to commence a protective claim.  As such, this decision raises yet another factor for Claimants to consider when conducting their risk/reward analysis and deciding whether or not to pursue a claim.

The information on this page is intended to provide an overview of what is a very complex and specialist area of law.  It is not a substitute for obtaining legal advice that is tailored to the facts of your particular case and the needs of your particular circumstances.  For further advice or assistance, please do not hesitate to contact us at dispute@berrysmith.com.