James McIlvaney v A Gordon & Co Limited - [2010] CSOH
118
Increasingly, we are faced with litigation which is either
premature or which appears to have been raised solely to maximise
costs for the claimant's representatives. The courts are generally
reluctant to wade into the resultant arguments. In
McIlvaney we have a welcome ray of light for those
defending such claims.
The facts
Mr McIlvaney was injured in an accident at work; he sued for
£100,000 and settled for £6,000 at a very early stage. He had been
offered and had rejected an offer of £6,000 before the action was
raised. The defenders argued that the action was unnecessary and
that Mr McIlvaney's expenses should be reduced to nil.
Mr McIlvaney argued that by raising the action he had achieved a
better result than he would have achieved if he had settled
earlier. Pre-litigation, Mr McIlvaney was represented by Quantum
Claims Limited, a company which offers claims negotiation services.
Quantum is not a firm of solicitors and accordingly is not
regulated by the Law Society of Scotland. In return for their
services, Quantum take a percentage of the damages recovered by
their clients - 25% of the first £5,000 and 20% of any sum
thereafter. Where expenses can be recovered under the pre-action
protocol scale those expenses offset the deduction made from the
damages. The defenders' insurers refused to meet Quantum's fees on
the pre-action protocol scale, on the basis that Quantum are not
solicitors. Quantum offered to settle at £7,500 inclusive of their
fee - which in this case would have been £1,750. Mr McIlvaney would
have received £5,750. Quantum argued that this sum represented fair
compensation. The insurers offered £6,000. When the insurers
refused to increase the offer from £6,000 Mr McIlvaney raised an
action in the Court of Session. The defenders did not admit
liability and maintained a contributory negligence argument. The
sole purpose of the action was to recover fees for the work carried
out by Quantum pre-litigation.
The decision
Lord Tyre rejected Mr McIlvaney's argument and reduced his
expenses to nil. Lord Tyre gave three reasons for this decision. In
the first place, the contract between Mr McIlvaney and Quantum
Claims should not be allowed to impact on the defenders. They were
not a party to that agreement. Secondly, where the sole purpose of
litigation is to achieve an award of expenses the court should
exercise its discretion and reduce the expenses to nil. Thirdly, it
was not clear that raising the action would allow Mr McIlvaney to
recover the pre-litigation expenses incurred by Quantum. Lord Tyre
concluded that any one of these three factors alone would have
caused him to reduce Mr McIlvaney's expenses to nil.
Lord Tyre also made the general observation that litigation
should neither be commenced nor prolonged unnecessarily. He
commented that the general rule whereby expenses follow success
should be viewed as referring, with the benefit of hindsight, to
whether the action was necessary or unnecessary.
Comment
The argument advanced by Mr McIlvaney appears novel and perhaps
even misguided. Claimants often argue that something has changed
since a pre-litigation offer was made. Here, there was an explicit
acceptance that the only reason for litigation was to obtain an
award of expenses. However it is worthy of note that the argument
advanced by Mr McIlvaney was successful in an earlier Court of
Session case. That said, the general principles stated by Lord Tyre
are useful. It is also significant that liability was not admitted
and the defender maintained contributory negligence arguments. Very
often applications to reduce claimant's expenses are met with
resistance from the bench where liability remains in dispute.
This decision is a useful authority for persuading the court to
intervene in arguments about expenses. It should also assist
pre-litigation negotiations, particularly in those cases where
claims handling companies use the potential cost of litigation in
an attempt to extract an offer beyond the value of the claim. The
issue of pre-litigation costs is a barrier to settlement in an
increasing number of cases. However uncertainty in this area
remains; Mr McIlvaney has appealed the decision and, in any event,
sheriffs and other Court of Session judges are not bound by Lord
Tyre's decision. The decision's usefulness is therefore in
negotiation rather than as a reliable indicator of future judicial
approach. The case also serves as a reminder that pre-litigation
offers should be realistic and at the top end of the claim's value.
Settlement at an increased figure post-litigation renders arguments
for modification all but impossible.
Contributed by Kate Donachie