Costs prior to application are incidental and therefore recoverable
Posted on 24th June 2022 at 10:34
By Sean Linley, Costs Draftsman
The judgment in Gee, Re The Estate of [2022] EWHC 1590 (Ch) (21 June 2022) gives an interesting insight to the correct approach to what constitutes costs which are incidental to an application and to the extent the same may be recoverable.
The case at hand concerned an application by the Claimant "for relief in connection with the Defendants' alleged breach of a court order dated 14 February 2019". The Claimant's position was that the recoverable costs should include time spent which pre-dated the making of the application.
"Their costs in relation to this issue began to be incurred from October 2019 onwards, when they learned of the respondents' threat to commit the breach. There followed an extended dispute by correspondence leading to the breach itself in September 2020. This application for relief in relation to the breach was issued on 10 December 2021 and, as I have said, heard by me in March 2022. The respondents say that costs incurred prior to the breach are not costs of the application, and therefore not within the scope of the order being sought."
HHJ Matthews stated that:
"The critical words defining the scope of the court's jurisdiction therefore are "the costs of and incidental to all proceedings". The proceeding with which I am currently concerned is the application made by the applicants and dated 10 December 2021. The question accordingly is, what are the costs "of and incidental to" that application. As to this, it is long established that recoverable costs may be incurred before the relevant proceeding has begun: see eg Re Gibson's Settlement Trusts [1981] Ch 179, 184-88; ENE Kos v Petroleo Brasileiro SA [74]-[100]. Indeed, I pointed this out in my judgment in the earlier application in these proceedings which I dealt with in July 2020: see [2020] EWHC 1842 (Ch), [34]."
The Court considered the judgment in National Westminster Bank Plc v Kotonou [2009] EWHC 3309 (Ch), specifically the following passages:
"35. The question of principle thrown up by that analysis is whether costs incurred in the pursuit of negotiations designed to provide an interim solution to issues forming the subject matter of pending (or contemplated) litigation while leaving the issues to be finally determined at a later date, can (subject to the usual questions of proportionality and reasonableness) form part of the costs of those proceedings.
36. The need to negotiate interim solutions to difficulties thrown up by contemplated or pending claims is a common feature of civil litigation. They include questions as to security for costs, questions as to the liberty of the defendant to use his assets (or assets claimed from him in the proceedings) for his own purposes pending trial, including for the purposes of funding the litigation, and issues as to the interim custody of, and dealings with, property the subject matter of the claim. Such issues are very frequently resolved without either party having to make an interim application, for example during pre-action stages, or by solicitors' correspondence and oral negotiations shortly after the commencement of a claim.
37. In the context of the litigation environment created and encouraged by the CPR and the Woolf Reforms, it seems to me obvious that such negotiations as to the resolution of interim issues should be encouraged, and that, therefore, the costs regime should accommodate the costs of such negotiations as part of the costs of the litigation, subject to the usual considerations of reasonableness and proportionality.
38. It has for many years been part of the court's analysis of the question whether pre-litigation costs are costs of the proceedings to ask whether those costs related to the creation of materials 'ultimately proving of use and service in the action' or as being costs the incurring of which was 'proper for the attainment of justice' in the case: see Frankenburg v. Famous Lasky Film, Service Ltd [1931] 1 Ch 428 at 436 per Lord Hanworth MR, and Re Gibson's Settlement Trusts [1981] 1 Ch 179 at 185-187 per Sir Robert Megarry V-C. In my judgment costs incurred in the reasonable negotiation of interim solutions to problems arising between the parties in connection with issues to be decided in contemplated or pending litigation clearly fall within those principles."
HHJ Matthews considered matters and concluded:
"In my judgment, the position here is similar. The original claimant (now the first claimant) reacted to the threat of what he considered to be a proposed breach of the order made in the original litigation and sought to dissuade the respondents from committing that breach. As it turned out, he was unsuccessful in doing so. But, had he succeeded, it would have saved this further application. And the materials which were produced by those attempts have been relevant to and useful in this application. I have no hesitation in saying that in my judgment the costs of reacting to the threat to commit a breach and the attempts to dissuade the commission of the breach are "incidental to" this application, seeking relief in respect of the breach after the event."
Practical Points
Gee reinforces that costs incurred prior to an application can be recoverable as costs which are incidental. It is important though for practitioners to be wary of the subtle difference in costs orders. The inclusion in the costs order of phrases like 'costs of and occassioned by' or 'costs of and incidental to' are significant. An order for costs of the application only does not provide the same expansive scope for the wider recovery of costs.
It also goes without saying that there will be specific facts that have to be considered with any pre-issue time needing to "ultimately prov[e] of use and service in the action' or as being costs the incurring of which was 'proper for the attainment of justice' in the case".
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