Background
Ian Henderson and Jonathan McPherson brought claims against the Ministry of Defence for noise-induced hearing loss sustained during military service. After the claims settled, their solicitors, Hugh James, supplied detailed costs breakdowns under an informal protocol intended primarily to facilitate payments on account. The Ministry later identified substantial differences between those breakdowns and the lower certified bills served for detailed assessment.
The Ministry alleged that the discrepancies potentially indicated misconduct under CPR 44.11 and sought permission to use the breakdowns at the detailed assessment. The parties agreed that the documents were prima facie protected by without prejudice privilege, leaving the court to decide whether the privilege should be displaced under the exceptional rule for “unambiguous impropriety.”
The Court’s Holding
Costs Judge Whalan held that the breakdowns remained protected by without prejudice privilege and that the Ministry could not adduce or rely on them during the detailed assessment. The evidence showed that the schedules reflected costs actually incurred by the claimants, while the later bills were reduced by costs professionals to anticipate assessment challenges and narrow the disputed inter partes claim.
The court found no fundamental calculation error or misrepresentation. Although McPherson’s breakdown mistakenly included costs from an unsuccessful disclosure application, that was an isolated error later corrected in the bill, not evidence of systematic overcharging. Any inconsistency between the claimants’ privileged and open positions fell far short of CPR 44.11 misconduct and did not satisfy the deliberately demanding test of unambiguous impropriety.
The court acknowledged that the solicitors could have rationalised the breakdowns more carefully and could have warned the Ministry about possible duplication and disproportionality once the schedules began to be used in substantive negotiations. Those shortcomings, however, did not justify removing the privilege.
Key Takeaways
- A difference between a without prejudice costs estimate and a later certified bill does not, by itself, establish unambiguous impropriety.
- Reducing actually incurred costs when preparing an inter partes bill to reflect likely assessment objections may legitimately explain the discrepancy.
- Without prejudice privilege remains strongly protected and is displaced only where the evidence clearly demonstrates an abuse of that privilege.
Why It Matters
The decision confirms the high evidential threshold facing a paying party that seeks to deploy privileged settlement material in costs proceedings. Even significant numerical disparities will not suffice where the earlier figures represented costs genuinely incurred and the later reductions arose from professional judgments about recoverability.
The ruling also cautions receiving parties to explain the purpose and limitations of informal costs breakdowns, particularly when those documents begin to serve as the basis for final costs negotiations rather than merely supporting payments on account.