Pre-action costs

Lobster Group Ltd v (1) Heidelberg Graphic Equipment Ltd (2) Close Asset Finance Ltd [2008] EWHC 413 QBD (TCC) 6 March

Lengthy pre-action mediation had failed and the first defendant sought security for the costs of the mediation from the claimant, which was now in administration. The court held that, although as a matter of principle, pre-action costs can be the subject of an application for security ( Re Gibson’s Settlement Trusts, Re (1981) Ch 179 ChD and McGlinn v Waltham Contractors Ltd (2005) EWHC 1419 (TCC), (2005) 3 All ER 1126) the court should be slow to exercise its discretion in favour of an applicant as there was a risk that, if the pre-action period was lengthy, the costs could be extensive and any subsequent attempt to obtain security might become penal in nature. Under the terms of the mediation the parties had agreed to bear their own costs. The costs of the mediation were unlikely to be recoverable in the subsequent proceedings and, even if they were, they should not form part of the security ordered. Costs of separate pre-action mediation were not ‘costs of and incidental to the proceedings’. Both the course of the mediation and the reasons for its unsuccessful outcome were privileged matters and, as a matter of general principle, the costs incurred in respect of such procedure were not recoverable under the s51 of the Supreme Court Act 1981. The pre-action period was very prolonged, covering a period of more than two years, and to order the claimant to provide security for costs incurred during that period would be draconian. The claimant was ordered to provide security for costs from the commencement of proceedings up until the exchange of witness statements.