Letter Before Claim – Getting it right from the very beginning to prevent adverse costs risk
A Letter Before Claim (‘LBC’), also known as a ‘Letter Before Action’, is one of the first steps taken by parties to formally inform the opponents of the details of their claim and their intention to issue proceedings. It is a step required under the pre-action protocols, of which the court will consider whether the parties have complied with, when managing the case and when considering costs. Therefore, it is crucial to get it right from the very beginning. As demonstrated in the recent case of Stubbins Marketing Ltd & Others v Rayner Essex LLP & Another, where the court has exercised its discretions by ordering the claimants to pay for the first defendant’s (‘Rayner Essex’) pre-action costs, in particular, costs in responding to the LBC, on an ‘indemnity’ basis, as the claimants made unjustified allegations against Rayner Essex in an LBC and had subsequently deleted them on the Claim Form.
In brief, the claimants’ LBC to the defendants, amongst all, stated their intention to claim in:
(ii) breach of contract;
(iv) breach of fiduciary duty;
(v) dishonest assistance in breach of fiduciary duty; and
(vi) unlawful means conspiracy.
Subsequently, points (i), (v) and (vi) were deleted in the Claim Form (‘the Deletion’).
At the point of the Deletion, the Claim Form had been issued, but not served on the parties. Rayner Essex argued that the claimants had removed these allegations when challenged, therefore the Deletion amounts to a discontinuance of claim under Civil Procedure Rules Part 38 (‘CPR 38’) and that the claimants should be liable for the costs under the rule. The claimants argued that, as the Claim Form had not been served, it should be considered as amendments of the Claim Form, rather than discontinuance of a claim.
The court exercised its wide discretionary powers under s.51 Senior Courts Act 1981 and have treated the Deletion as a discontinuance of claim in the defendants’ favour.
In reaching its judgment, broadly, Master Nurse considered 2 issues. Firstly, whether the Deletion amounts to a discontinuance of claim under CPR 38, and secondly, whether the order should be made on an ‘indemnity’ basis.
Court’s discretion to waive the requirements under CPR 38
Despite CPR 38 requiring parties to firstly obtain the court’s permission, followed by the filing and serving of a notice in order for discontinuance to take place, which did not occur in this case, the court has waived these requirements and treated the Deletion as a discontinuance.
In exercising its discretion, Master Nurse said that:
“On the facts of the present case, I am entirely satisfied that, even if the amendment of the unserved claim form was not strictly speaking a formal ‘Discontinuance’ within CPR 38, it should be treated as if it was.”
Master Nurse also pointed out that the inclusion of the allegations which were later deleted, could be considered as “dishonesty” as well as “a breach of duty of care”, which may explain why the court has exercised its wide discretion to this case.
‘Claim Form was not served’ – did it matter?
In terms of the claimants’ argument that the Claim Form was not served on the defendants and therefore the Deletion should be treated as amendments of the Claim Form, the court explained that, from the point of the issuance of the claim form, even though some part of the claim is subsequently deleted, “proceedings in respect of those claims has been commenced”, and “the court’s costs jurisdiction was engaged whether or not the Claim Form was served”. 
This means that, even though the Claim Form was not served on the parties, proceedings of those claims had commenced and a party to the proceedings would potentially be liable to pay for the costs of another party’s costs in those proceedings.
Costs assessed on an ‘indemnity’ basis?
Master Nurse considered whether costs shall be assessed under an ‘indemnity’ basis.
The court applied the principle that, ‘where claims based in fraud are the subject of a discontinuance, costs ought to be assessed on the indemnity basis’. Master Nurse also considered Mr Justice Mile’s analysis in a recent case, and concluded that the defendants should be paid on an ‘indemnity’ basis.
This means that the burden of proving the costs are unreasonable is on the claimants.
How we can help?
This case has demonstrated that, when a party makes a claim in relation to dishonesty and fraud, and later withdraws them, even though the relevant documents are not served, they will still face cost liabilities. Therefore, it is extremely important to get it right from the very beginning!
Whether you are writing a LBC by yourself, or by your legal representatives, care should be taken when drafting its terms. Often, a well drafted LBC may ‘shock’ the potential defendants into the actions required, but without considerations and care and under the court’s wide discretion, they may find themself in a situation faced with unwanted adverse costs risks.
If you require assistance in drafting an LBC, please do not hesitate to contact us on 020 7632 4300 or make an enquiry online.
  EWHC 515 (Ch).
 Civil Procedure Rules Part 17.
 Civil Procedure Rules 38.5(1).
  EWHC 515 (Ch) at para 37.
 Ibid, at para 40.
  EWHC 515 (Ch), at para 35.
 Citing Mr Justice Waksman in GREP London Portfolio II Trustee 3 Limited v BLFB Limited  EWHC 1850
(TCC), at para 20.
  EWHC 515 (Ch) at para 44 and Clutterbuck v HSBC Plc  1 Costs L.R. 13.
 Libyan Investment Authority v King  EWHC (Ch) at para 4.