Fraser Barnstaple considers a recent ruling on the role of without prejudice schedules in costs disputes
Summary
Serving bills of costs which were materially less than previously sent informal without prejudice costs schedules did not amount to misconduct and did not warrant lifting the without prejudice protection afforded to those schedules.
In Henderson & Anor v Ministry of Defence [2026] EWHC 2655 (SCCO), the discrepancy between the schedules and the bills was around 17%-19% and the reason for the reduction was the result of the claimant choosing to remove costs which had been incurred but were nonetheless excluded in order to narrow issues and exclude costs which may have been irrecoverable inter partes.
Background facts
Readers may be aware of the large volume of noise induced hearing loss (NIHL) claims being pursued against the Ministry of Defence (MoD). To provide context as to the scale of such claims, the claimants’ solicitors in this case, Hugh James, have already conducted in excess of 10,000 such claims.
Given the scale of the litigation operation, the claimants’ solicitors agreed with firms acting on behalf of the MoD to adopt a process prior to costs proceedings whereby an informal costs schedule would be served upon the MoD to facilitate the making of an interim payment of costs.
Problems arose where, upon eventual commencement of detailed assessment proceedings, bills of costs on behalf of claimants were being served which (excluding the amount charged for preparing and checking the bill) were less than, sometimes significantly so, the amount sought in the informal costs schedule.
In this particular case, the bills of costs eventually served on behalf of the claimants were, according to the defendant, less than the informal schedules served previously by £7,678.23 and £30,548.61 respectively. This equated to reductions from the informal costs schedules of approximately 17% and 19%. Importantly, those schedules were served with the following label: “Without Prejudice Breakdown of Costs Schedule.”
The issue and arguments
The defendant contended that this conduct amounted to “systematic overcharging” by the claimants’ solicitors. The defendant made it clear that it sought to argue in the detailed assessment hearing that such conduct amount to misconduct for the purposes of CPR 44.11.
There was one problem: the schedules were marked ‘without prejudice’ by the claimants. Accordingly, the defendant sought permission to adduce and rely on the informal schedules.
One question the judgment notionally addressed was whether the informal schedules had the status of without prejudice privilege. However, prior to the hearing, the parties agreed that they were without prejudice documents and so Costs Judge Whalan did not concern himself with that issue.
The main issue his judgment addressed was the question of whether the defendant could adduce and rely on the documents this despite them enjoying this status.
The court, whilst it will be slow to do so, can remove the protection afforded to without prejudice evidence in circumstances where the “the exclusion of the evidence would act as a cloak for… unambiguous impropriety”). Judge Whalan refers to two Court of Appeal judgments, namely Unilever v Procter & Gamble [2002] 1 WLR 2436 (upon which the costs judge relied only on a recital of a paragraph from the leading textbook in the area, Passmore on Privilege) and Motorola Solutions Inc v Hytera Communications Corp Ltd [2021] EWCA Civ 11.
Whilst it is worth considering the above literature in more detail, the essence of it can be put as follows: the test of ‘unambiguous impropriety’ it is a high bar to overcome for parties wishing to adduce and rely on without prejudice evidence.
The defendant, in summary, argued that the above-mentioned conduct amounted to unambiguous impropriety. The MoD said the conduct was prejudicial to it in the context of settlement negotiations and that there was simply no justification for the inflated schedules.
The claimants submitted that the time in the informal schedules had been spent, the hourly rates were correct and that the bill drafter had simply chose to exclude some time when preparing the bill in order to narrow issues and exclude items which may not recoverable inter partes.
There was no misrepresentation and no inaccuracy. The defendant’s choice to use those schedules for the purpose of negotiations was their own election.
Judgment
Costs Judge Whalan concluded that there was no unambiguous impropriety. The defendant was therefore not entitled to adduce or rely on the informal schedules, which maintained their protected status.
On the balance of probabilities, the judge found that the without prejudice schedules claimed exclusively costs which the claimants had actually incurred. Furthermore, the without prejudice breakdowns were served primarily to support applications for interim payments and it was not the claimants’ intention, in the judge’s view, to use the informal schedules to induce settlement, let alone to induce settlement at an over value.
The claimants’ solicitors were, however, subject to some criticism from the judge. He considered that they could have done more to rationalise the costs claimed in the informal breakdown and, where the defendant was using the schedules for the basis of settlement discussions, to inform the defendant of the likely presence of duplication and disproportionality.
Practical considerations
The decision serves as a useful summary of the law in respect of the without prejudice rule in the context of detailed assessment proceedings. The high bar imposed by the ‘unambiguous impropriety’ test has been made clear once again. The sanctity created by without prejudice correspondence is important for parties to be able candidly and openly discuss matters so that issues can be narrowed and, if possible, cases can be settled.
Arguments about discrepancies between informal costs schedules and bills of costs subsequently produced are not particularly new or unusual. Usually, when a paying party raises such an issue, consequences flowing from CPR 44.11 is the recourse they seek.
However, perhaps receiving parties may breathe a small sigh of relief. Costs Judge Whalan concluded that “[t]he schedules represented the claimants’ actual incurred costs and any inconsistency in the claimants’ without prejudice and subsequent open positions was a long way short of any form of CPR44.11 misconduct”.
In this matter, the defendant had previously made an unsuccessful application to cross examination a number of Costs Lawyers and solicitors. Another stone was turned, and yet the court evidently saw no serious issue.
Should claimants seek to rely on without prejudice informal costs schedules, but after a bill drafter goes through the costs with a fine tooth comb a lower amount is claimed in the bill of costs, receiving parties can, within reason, be comfortable that no adverse inferences could realistically be made in respect of the same.
The use of without prejudice informal schedules can be encouraged, to benefit of all parties, if used properly.
