Pre-Action Solicitor Costs Recoverable Where Insurer Settles Damages But Refuses Costs

The Senior Courts Costs Office’s decision in Alphabet (UK) Limited v AXA Insurance UK plc [2026] EWHC 674 (SCCO) concerned whether a vehicle leasing company acted reasonably in instructing solicitors before issuing proceedings to recover vehicle damage, and whether fixed recoverable costs applied to any resulting costs order.

Background

Alphabet (UK) Limited, a vehicle leasing company forming part of the BMW Group, was the registered owner of a Citroën van leased to Acorn Engineering Limited (“Acorn”). The van was insured by AXA Insurance UK plc under a policy taken out by Acorn. On 8 February 2023, the van was seriously damaged in a road traffic accident and was subsequently written off as uneconomical to repair. Regulations 2 and 3 of the European Communities (Rights Against Insurers) Regulation 2002 permitted Alphabet to pursue a claim directly against AXA in respect of the loss.

By 28 March 2023, solicitors had been instructed on behalf of Alphabet. On that date, the solicitors wrote to AXA notifying them of their instruction, nominating motor engineers to value the van and its salvage in the event of any dispute, and making a Part 36 offer to settle the claim for vehicle damage at £12,408.70. The letter made clear that costs were also being sought. On the same day, AXA’s agent, Copart UK, responded asserting entitlement to credit for a £500 policy excess and offered £11,909.88 in settlement of the damages claim. No mention was made of costs in that counter-offer. Alphabet subsequently delivered a bill for its costs totalling £1,006.80 plus VAT. AXA declined to pay those costs.

Proceedings were issued in the Civil National Business Centre on 12 March 2024 under Part 7 of the Civil Procedure Rules. The issue arising was understood to concern costs only and District Judge Worthington, sitting in the County Court in Willesden, transferred the matter to the SCCO on 29 May 2025. At a directions hearing on 3 September 2025, Costs Judge Brown, sitting as an ex officio District Judge of the County Court, determined that the principal issue was whether a costs order should be made at all, rather than merely the quantum of costs, and that the matter should therefore remain in the County Court.

The substantive hearing took place on 16 January 2026, with a further hearing on 13 March 2026. Benjamin Williams KC appeared for Alphabet, instructed by Clifford James Consultants Limited. Elahe Youshani appeared for AXA, instructed by Kennedys Law LLP. The judgment was handed down on 23 March 2026.

An earlier argument advanced by AXA—that the claim had been settled before the commencement of proceedings without costs—was withdrawn at the directions hearing. A further question as to whether the Part 36 offer had been accepted was also raised but was quickly resolved; it was clear that no such acceptance had taken place.

Costs Issues Before the Court

Three distinct costs issues fell to be determined. The first was whether the proceedings themselves constituted an abuse of process, AXA’s position being that it was abusive to issue Part 7 proceedings solely for the purpose of obtaining a costs order where there was no genuine dispute as to the underlying damages claim. The second, and more substantively argued, issue was whether it had been reasonable for Alphabet to instruct solicitors at all, given the prompt settlement of the damages claim and Alphabet’s status as a sophisticated commercial entity with regular experience of such matters. The third issue—which emerged as perhaps the most technically complex—was the basis upon which any costs order should be framed, specifically whether the fixed recoverable costs (FRC) regime under CPR Part 45 applied, and if so, what sum was recoverable.

The FRC point arose in an unusual way. Prior to the January 2026 hearing, both parties had proceeded on the common assumption that any costs would be assessed on the standard basis. Shortly before that hearing, it was argued that the FRC regime under CPR 45 applied, on the basis that the normal track for the claim was the fast track and that it would be assigned to complexity band 1, producing a fixed costs figure of £599. Mr Williams KC then contended that the January hearing itself constituted a “trial” for the purposes of the FRC regime, which would entitle Alphabet to the full fixed costs for a trial, including an advocate’s fee—a significantly higher sum. Neither party had addressed this point in their earlier submissions, and the judge requested further clarification before the March 2026 hearing.

The judge also raised, of his own motion, the question of whether the costs of the proceedings themselves could be dealt with proportionately, noting that the current dispute did not sit easily within the FRC framework as drafted, and querying whether the matter might have been more appropriately brought under Part 8 rather than Part 7.

The Parties’ Positions

Alphabet (Claimant)

Alphabet’s position was that the claim as a whole had not settled, because although there had been no dispute as to the value of the damages, AXA had not agreed to pay costs in circumstances where Alphabet had made clear, before AXA’s offer was made, that no complete agreement existed. Alphabet relied on the witness evidence of Mr Jackson, its Used Car Operations Manager, who explained that the company habitually engages solicitors to recover its losses in claims exceeding £10,000, and that it aims to recover the costs of doing so. Mr Jackson’s evidence set out a number of reasons why solicitor instruction was a reasonable and necessary part of Alphabet’s business operations: insurers frequently attempt to under-settle, raise liability issues, and seek to retain salvage to which they have no entitlement; insurers commonly make offers limited to the remaining finance rather than the pre-accident value less salvage; and the appointment of lawyers enables Alphabet to operate on equal terms against major insurers with in-house legal expertise. Mr Jackson also noted that the prompt instruction of solicitors had in fact led to an expeditious resolution of the claim, and that solicitor involvement enabled Alphabet to police the terms on which vehicles are written off and their salvage disposed of by licensed agents—a matter of public safety importance.

On the FRC point, Mr Williams KC argued that the normal track for the claim was the fast track, and that the FRC regime therefore applied. He submitted that the existence of a fixed costs provision for claims of this nature in Table 12 of CPR 45 was itself indicative that the instruction of solicitors in such claims was reasonable—otherwise there would be no provision for fixed costs at all. He further submitted that the January 2026 hearing constituted a “trial” or “final hearing” for the purposes of CPR 45.45(1)(d), relying on Bird v Acorn [2017] 1 WLR 1915, such that Alphabet was entitled to the full fixed costs for a trial together with an advocate’s fee.

On the abuse of process point, Alphabet relied on Birmingham City Council v Lee [2008] EWCA Civ 891, Ayton v RSM Bentley Jennison [2018] EWHC 285, and Moreira v French (HHJ Stewart, CC, 30 September 2008), all of which supported the proposition that where a defendant refuses to pay pre-action costs, the claimant’s only remedy is to issue proceedings.

AXA (Defendant)

AXA advanced two principal arguments. First, it contended that the proceedings were an abuse of process, there being no real dispute as to the damages claim which had already been paid. This argument was not ultimately pressed with any vigour at the hearing, and Ms Youshani appeared to acknowledge the force of the authorities relied upon by Alphabet.

Second, and more substantively, AXA argued that it had not been necessary for Alphabet to instruct solicitors. The submission was essentially that Alphabet, as a sophisticated commercial body dealing with such matters on a regular basis, had been too quick to instruct solicitors and should have allowed time for the matter to resolve itself. As events demonstrated, had Alphabet waited, an offer would have been received without the need for legal representation. Ms Youshani pointed to the fact that arrangements were already being made to deal with the damaged vehicle, and that agents had been appointed to deal with uninsured losses arising from the accident. The test, she suggested, was whether it had been necessary to instruct solicitors, rather than merely reasonable to do so.

On the FRC point, AXA’s position was that if a costs order were made, the applicable sum under the FRC regime would be £599, on the basis that the claim would normally be allocated to the fast track and complexity band 1.

Abuse of Process

Costs Judge Brown rejected the abuse of process argument. It was well-established that where a defendant refuses to pay costs properly incurred in the pre-action process, a claimant may issue proceedings to recover them. This was recognised by the Court of Appeal in Birmingham City Council v Lee, where Hughes LJ explained the importance of ensuring that defendants cannot evade liability for pre-action costs by strategically conceding damages only. Similarly, in Ayton v RSM Bentley Jennison, May J held that when a defendant tendered damages but refused to pay the claimant’s pre-action costs, “the only option left to a claimant” was to issue proceedings. This reasoning was echoed in Moreira v French, where the court observed that absent agreement, a claimant would have to issue proceedings for a nil-damages claim merely to recover costs.

There was an obvious problem with AXA’s position. In many claims—the judge gave the example of damages claims by victims of mesothelioma—the instruction of solicitors is plainly reasonable. Many such claims are settled before proceedings, and parties are encouraged in various pre-action protocols to settle their claims without the need for litigation. If AXA were right, an unscrupulous defendant could simply pay damages which are claimed and refuse to pay costs, and there would be no remedy for the claimant.

Further, the provisions of Part 36 contemplate that a claim may be settled before issue with the benefit of a costs order (see CPR 36.7). The rules anticipate that in respect of a claim where the normal track is the fast track for a claim for vehicle damage arising out of a road traffic accident, in the event of the claim being settled before proceedings are commenced the claimant would ordinarily be entitled to costs of £599. The judge reasoned that where there is an entitlement to an order for payment of this amount there must be a means of obtaining it. Accordingly, and in the absence of any other apparent means of doing so, a claimant whose claim for damages is settled before proceedings are commenced must be able to issue proceedings for an order for costs.

Reasonableness of Instructing Solicitors

The judge turned to the more substantive issue: whether it had been reasonable for Alphabet to instruct solicitors. Neither party had provided any authority which provided any principled or binding determination on this issue. The judge was not satisfied that the test was, as Ms Youshani suggested, whether or not it was necessary for Alphabet to instruct lawyers. There appeared to be no basis in law for such a high hurdle. If she were right it would be open to a losing party to argue that it would have been possible for someone to represent themselves (in many cases that may be so) and that the costs they actually and reasonably incurred would not be recoverable. The question was whether it was reasonable for solicitors to be instructed, albeit that test inherently imports at least some element of need.

The judge accepted that the line drawn in Table 12 was at least indicative for this purpose, so that in a claim for in excess of £10,000 it was prima facie reasonable to instruct solicitors. The judge did not think that merely because Alphabet was a commercial organisation, possibly of some size, with a degree of sophistication or that they would be dealing with these matters on a regular basis, made it unreasonable to instruct solicitors. Just because the company had experience and expertise in car leasing did not mean it had the expertise to deal with a claim for damages. Such a claim might involve consideration as to whether there is responsibility as a matter of law for an accident. Moreover the higher the value of the claim the more important the claim can be assumed to be, and the more important and complex it may be.

Perhaps recognising the force of these points, Ms Youshani’s emphasis was on the assertion that it was premature to instruct solicitors even if it were reasonable in general to instruct solicitors in a claim such as this. True it was that arrangements were being made to deal with the damaged vehicle and agents were appointed to deal with uninsured losses arising out of the accident. However much of the material she relied on was not known by Alphabet at the material time. Moreover, there was no admission of liability by the date of instruction and it seemed to the judge not unreasonable for Alphabet to instruct lawyers from the outset of any potential claim.

On the limited information available, the judge was unable to conclude that there was any degree of certainty that AXA would accept liability or make an offer in the amount claimed. In the event AXA made an offer for the full sum Alphabet said was due on same day as the various letters sent by Alphabet’s solicitors, and this happened very rapidly after solicitor’s instruction. Had Alphabet delayed instruction they may not have received an offer so quickly. In fact liability was somewhat transiently put in doubt at some point thereafter. It appeared that whilst AXA acted promptly once solicitors were instructed, whether they would have acted so quickly if no solicitors were instructed and costs were not payable was perhaps a matter of speculation.

The judge noted that he could readily understand that if there were a protocol or mutual understanding by which insurers were required unilaterally to inform interested parties, such as the owner of the vehicle, if liability is disputed and make a suitable offer within a certain period, things might be different. He was not however made aware of any such protocol or understanding. Alphabet was entitled to proceed with the claim promptly and the judge could see why the prompt resolution of these claims was important for their business. It was not suggested that it was improper or unreasonable for them to press for an admission of liability.

The judge accepted Mr Jackson’s witness evidence as to the reasonable business need to instruct solicitors. There had been no cross-examination of Mr Jackson on the contents of his witness statement. Ultimately it should benefit insurers to have claims presented with the benefit of some legal assistance. For these reasons the judge accepted that it was reasonable to instruct solicitors.

Application of Fixed Recoverable Costs

Before turning to the FRC analysis, the judge noted that having looked at the bill of costs, the costs claim had the appearance of being unreasonably high. He was concerned that before any Part 36 offers were made the parties should first have been clear that a dispute arose. Further, it was difficult to justify any involvement of a Grade A fee earner, and it struck the judge that if payable in principle it was difficult to see how the reasonable cost might have exceeded a very modest sum. It seemed that before the FRC regime came in, it would have been at the very least doubtful that a claim would have been made by the claimant to recover any costs.

The judge noted that where a party represents itself, the FRC do not apply (see CPR 45.4). This exception might be relevant where it is said that no representation was reasonable.

The judge agreed that the normal track for this claim was the fast track. A District Judge may have allocated this matter to the small claims track having regard to the factors in CPR 26.13. The claim may have had limited complexity. But merely because that might have happened was not relevant for the purposes of CPR 45.43. For these purposes the term “normal track” is a term of art, relying on the unreported decision of Costs Judge Haworth in Thaxton v Goodman (23 November 2010).

The judge addressed a conceptual difficulty: it appeared from Table 12 that even if there is settlement of the claim before issue, some view must be taken as to whether the claim “would normally be” allocated to the fast track. Plainly at that stage nobody would have known how long the trial would be, or indeed as to whether there might be the need for expert evidence, so the parties and the court cannot ascertain whether it was the normal track for the purposes of allocation under CPR 26.9(5). CPR 45.43 assumes that the “normal track” can be ascertained even in a claim which settles before issue. It seemed to the judge that the drafter of the rules must have assumed that in deciding whether the Table 12 fixed costs apply to claims which settle pre-issue, the parties and the court should look to the amount of the claim and the nature of the claim but not the provisions of CPR 26.9(5) (length of trial etc.) in deciding the track to which the claim would normally be allocated.

The judge added that he was not sure that it was open to AXA to complain that the costs were too high in this case, albeit the work actually done was very modest. It is in the nature of a fixed costs regime that there will be instances where the payment exceeds that which would be assessed as being reasonable; but there may be other more difficult cases where the fixed costs payable are less than would be reasonable. If the judge were to parse back the costs so that only reasonable costs were allowed it would undermine the ‘swings and roundabouts’ nature of the scheme.

It followed that if the claim was treated as having settled, Alphabet was entitled to £599. Had AXA accepted that in principle that would have been the end of the matter.

The Costs of the Proceedings

The question of what order to make as to the costs of the proceedings themselves emerged as perhaps the more difficult element of the dispute between the parties. Both parties, at least in their written submissions following the hearing in January, appeared to indicate that if the judge were to accept Alphabet’s case on the above two points, it ought to follow that the FRC apply and indeed that that hearing should be treated a “trial” for these purposes. Reference was made to CPR 45.45(1)(d) which provides that the reference in Table 12 to a ‘trial’ is a reference to a ‘final hearing’, and to Bird v Acorn [2017] 1 WLR 1915.

As both advocates observed, the current dispute did not sit easily within the FRC as drafted. The difficulty was perhaps not so obvious in this case given the sums involved but if in principle Alphabet were right about this, and the costs of these proceedings can only be awarded on the basis that the hearing that took place were a ‘trial’, then the costs payable in similar circumstances involving a Complexity Band 4 case might be said to be highly disproportionate (c. £10,000 plus VAT). It might be questioned whether Parliament can have intended such an outcome.

Ms Youshani made it clear that she was not arguing that Alphabet acted unreasonably when issuing the claim under Part 7. The judge was told that in other cases insurers appear to have equated the position to that which applies in Costs-only proceedings, when there is an agreement that costs are payable (see CPR 46.14). Here there was no agreement that costs were payable. But since, on one view, the only real issue was about costs the judge raised the question as to whether this claim could be dealt with under the more general provisions of Part 8. If there is, as the parties agree, a discretion as to whether pre-issue costs are payable then it might be said that there must be a proportionate way of resolving any issue that might arise as to the exercise of that discretion.

The judge determined that it was not necessary or appropriate to determine the issue as to the order as to costs at that stage. He stated that his comments were not intended to do anything more than indicate some concern, not binding determinations. The matter was reserved for further submissions.

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