Legal Cost Specialists

Can defendants recover costs if a claim settles pre-issue?

Does the extension of Fixed Recoverable Costs enable defendants to recover their costs if a matter settles pre-issue? There are certainly a number of commentators who have suggested that this is indeed the case. If correct, this would mean that the mere act of sending a letter of claim might trigger an entitlement for the defendant to recover costs if the claim is then not pursued.

There are two issues to consider:

  • What was the intention behind the new rules?
  • What do the rules allow as drafted?

The starting point is surely to look at Lord Justice Jackson’s Supplemental Report Fixed Recoverable Costs, which provided the basis for the new rules.

This report had various proposed tables for the amount of the Fixed Recoverable Costs. For example, the top line of Table 5.2 reads:

“Matrix of FRC for fast track claims (applies to both claimant and defendant recoverable costs)

Complexity Band
Stage: 1 2 3 4


£104 + 20% of damages £988 + 17.5% of damages £2,250 + 15% of damages + £440 per extra defendant

At first blush, this certainly looks as though the intention was that defendants would recover pre-issue cost if the matter settled at that stage. There is no express qualification that the pre-issue stage would only apply to claimants.

It is important to note that defendants have traditionally had no entitlement to recover costs where a matter settles pre-issue, regardless of how much work they have had to undertake to defeat the potential claim.

If the new Fixed Recoverable Costs regime were intended to introduce recovery for the first time by defendants, this would be a significant development. However, I have been unable to find anything within the Report that suggests that this was a development that was being proposed or the reasoning behind it. Further, this development could only be provided by the new rules relating to the Fast Track and the new Intermediate Track. Why should defendants in these cases recover costs whereas defendants in Multi Track matter would continue to be denied the same, despite often having had to incur much higher levels of cost defending the claim?

Equally, I cannot see anything in the MOJ’s Extending Fixed Recoverable Costs in Civil Cases or in the Government’s Response commenting on any intention to change the previous position.

What about the actual rules?

CPR 45.6 (1) states:

“Where, in any case to which Section VI, Section VII or Section VIII of this Part applies, the court makes an order for costs in favour of the defendant, the allowable costs are—

(a) the fixed costs set out in Section VI, Section VII or Section VIII”

Section VII (dealing with costs in the Intermediate Track), for example, has the following in Table 14 for the first line:

Complexity Band
Stage 1 2 3 4

From pre-issue up to and including the date of service of the defence

£1,600 + an amount equivalent to 3% of the damages £5,000 + an amount equivalent to 6% of the damages £6,400 + an amount equivalent to 6% of the damages £9,300 + an amount equivalent to 8% of the damages

If these costs are also the costs where “the court makes an order for costs in favour of the defendant”, does this create the entitlement for defendants to recover pre-issue costs?

For those who consider that such an entitlement arises, the issue they have focused on is trying to identify what mechanism is available to obtain the order for costs. Costs-only proceedings under CPR 46.14 would not assist as this requires agreement as to “which party is to pay the costs”, which would be unlikely to come from a claimant.

I believe the answer is more straightforward. The relevant Fixed Recoverable Cost figure for Stage 1 of the Intermediate Track, or the corresponding stage in the Fast Track, allow for Fixed Recoverable Costs of £x + a % of damages (eg £9,300 + an amount equivalent to 8% of the damages).

“Damages” are defined by CPR 45.6(3) as:

“For the purposes of paragraph (2)(a), ‘the value of the claim’ is –

(a) the amount specified in the claim form

(b) if no amount is specified in the claim form, the maximum amount which the claimant reasonably expected to recover according to the statement of value included in the claim form under rule 16.3;

(c) if the claim form states that the claimant cannot reasonably say how much is likely to be recovered –

(i) £25,000 in a claim to which Section VI applies; or

(ii) £100,000 in a claim to which Section VII applies”

Unless and until proceedings are issued, there will be no claim form. There is no way to quantity the level of Fixed Recoverable Costs the defendant would be entitled to.

Although referring to “particulars of claim” rather than “claim form”, Lord Justice Jackson’s Report anticipated:

“If the defendant succeeds, the specified percentage applies to the claim defeated, as valued in the particulars of claim”

Clearly, there would be no particulars of claim for a claim that was never issued.

As such, I have no doubt the rules as drafted do not enable defendants to recover costs where a claim is abandoned pre-issue. The trigger point for recovery would be when proceedings are issued. Whether this was the intention is a moot point. It would obviously have been preferable if the rules had spelt this out so as to avoid the confusion which has arisen.

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