Fair, but harsh

Mr McGlinn had building works carried out at his property in Jersey. When they were finished, he claimed that they contained serious defects – so serious that the property had to be demolished. He sued the building contractor, the architect and the engineer for about £4.5m.

In all construction disputes in the High Court the parties have to go through the steps set out in the pre-action protocol. If a party fails to do so, the court in the ensuing action can punish it by ordering it to pay costs, or to pay money into court, or by depriving it of interest. The pre-action protocol is in reality part of the court proceedings. Its purpose is to resolve disputes before they get to court. It can be expensive. The parties have to set out their cases in detail, to provide information and to have at least one meeting. In complex cases the costs can be significant.

When Mr McGlinn set out his claims in the pre-action protocol documents, they included claims against the architect for sums allegedly wrongly certified to the contractor. However when the action eventually started, these claims were omitted. The architect had spent money contesting them during the pre-action protocol stage – clearly with some success. He applied to the court for an order that

Mr McGlinn pay the costs that it had incurred in responding to those claims. Judge Coulson refused.

The power of the court to award costs is set out in section 51 of the Supreme Court Act. This allows the court to order a party to pay the costs “of and incidental to” the court proceedings. It has been established for some time that costs incurred before court proceedings started can be costs incidental to those proceedings. Accordingly Judge Coulson had no difficulty in holding that as a matter of principle costs incurred in complying with a pre-action protocol might be recoverable as costs incidental to subsequent proceedings. So what was the position where the costs had been incurred in relation to claims made in the pre-action protocol procedure, but which never became part of the action? Judge Coulson said that such costs (save in exceptional circumstances) could not be classified as costs incidental to the proceedings and so could not be recovered.

Judge Coulson’s decision was logical, in line with authority and, in my view, correct. However, the result seems rough

He relied on the decision of Sir Robert Megarry in In re Gibson’s Settlement Trusts. In that case, decided well before the introduction of pre-action protocols, the judge had to rule on the recoverability of costs incurred before proceedings were started. He said that where the court proceedings were framed narrowly he could not see how antecedent disputes, which had no real relation to the subject of the proceedings, could be regarded as part of the costs of the proceedings. However, if the disputes were to relevant to the proceedings as eventually constituted and it was reasonable for a party to apprehend that the litigation would include those disputes, then costs incurred in them could be recoverable.

Judge Coulson said that Mr McGlinn had sufficiently narrowed the proceedings so that the claims previously made against the architect and subsequently dropped bore no relation to the subject matter of those proceedings. He also said that it would be contrary to the purpose of the pre-action protocol if claiming parties were penalised in costs if they decided not to pursue claims originally included in their protocol claim letter.

Judge Coulson’s decision was logical, in line with authority and, in my view, correct. However, seen in the round the end result seems rough. The architect was forced to incur costs in contesting what seem to have been bad claims. If Mr McGlinn had included the claims in the action and lost them, the architect could have recovered these costs as part of the costs of the action. Since they were dropped before, he could not. That seems to be the law but if so surely the law needs changing. The solution might be either for no protocol costs at all to be recoverable as costs of the action or for all of them to be so. At the moment, as this judgment shows, there is a halfway house that is not satisfactory.