Without Prejudice Schedule Of Incurred Costs Kept Privilege | Lower Bill Did Not Show Unambiguous Impropriety

In Ian Henderson & Anor v Ministry of Defence [2026] EWHC 2645 (SCCO), the SCCO refused to lift privilege over informal costs breakdowns whose figures exceeded the later certified bills. A without prejudice schedule that reflected costs actually incurred did not, on those facts, disclose unambiguous impropriety merely because the bill was lower. Practitioners who use informal schedules to obtain payments on account need to know where that line falls.

Background

The claimants claimed damages against the Ministry of Defence for noise-induced hearing loss sustained during military service [2]. In about January 2020, Hugh James agreed with the MOD’s solicitors an informal protocol under which the claimant served a without prejudice schedule or breakdown of costs and disbursements, with a view to encouraging an early payment of 50% on account [3]. Where no settlement followed, the claimant served a certified bill with a Notice of Commencement.

Increasingly, the MOD used the schedules as a basis for negotiating substantive costs settlements. In about August 2024, having noted apparent discrepancies between schedules and bills, it accused Hugh James of systematic overcharging, and the protocol was abandoned [3]. The first claimant’s breakdown totalled £44,939.52; the relevant net bill figure was £37,261.29 [4]. The second claimant’s breakdown totalled £162,601.36 against a net bill figure of £132,052.75 [5].

Costs Issues Before the Court

Point 1 of the Points of Dispute in both claims was headed as a discrepancy to previous cost details, and the defendant asserted that the disparities were suggestive potentially of CPR 44.11 misconduct [6]. As a prerequisite to pleading that allegation, it sought permission to adduce and rely on the breakdowns at the detailed assessment hearing. The court determined two preliminary issues: whether the breakdowns had without prejudice status and, if so, whether the defendant could demonstrate unambiguous impropriety [7].

The Parties’ Positions

The defendant submitted that delivering schedules containing significantly higher costs than were justifiable, to induce the paying party to overpay, was a clear example of unambiguous impropriety, and that the sums claimed exceeded the costs actually incurred [11]. Mr Dunne relied on McNamee v LB Brent, where privilege was set aside over an informal statement of costs that fundamental errors, including incorrect, inflated hourly rates, had caused to grossly exaggerate the claimant’s entitlement [12].

The claimants maintained that the breakdowns, proffered primarily to facilitate payments on account, were accurate estimates of the costs incurred, and that the lower bills reflected a choice to limit their claims and narrow issues [13]. They acknowledged that the defendant sometimes used the schedules for substantive negotiation, but said that was the defendant’s election [14].

The Court’s Decision

The parties agreed at the hearing that the schedules were, prima facie, without prejudice documents [8]. Mr Dunne referred to Schering Corporation v Cipla Limited, in which Laddie J said that marking a document without prejudice is some indication that the author intended it to be treated as part of a negotiating process. Costs Judge Whalan proceeded on that common understanding.

Without prejudice status confers a veil or cloak of privilege which the court should be slow to remove. One exception, identified by Walker LJ in Unilever v Procter & Gamble, arises where exclusion of the evidence would act as a cloak for unambiguous impropriety [9]. The passage from Passmore on Privilege set out by the judge records that the hurdle is high and that, in Motorola Solutions Inc v Hytera Communications Corp Ltd, the test was described as deliberately difficult to satisfy.

Mr Hogan relied on the judgment of Males LJ in Motorola [10]. That judgment states that even where something said without prejudice is contrary to a party’s open position, it will not be admitted unless the statement demonstrably constitutes an abuse of the privilege. It also holds that the test is not diluted where the issue arises at an interim stage.

On the balance of the available evidence, the judge was satisfied that the schedules claimed exclusively costs which the claimants had actually incurred, and rejected the allegation that they included costs in excess of those incurred or costs for which the claimants were not liable [16]. He accepted that the later bills, compiled by cost lawyers, reduced or discounted the sums claimed, anticipating challenges on assessment and narrowing the inter partes dispute.

The claimants’ witness evidence explained how that happened [14]. The breakdowns were filtered summaries of recorded time and disbursements from the case management system; they did not purport to be bills and were not certified. When external cost lawyers drew the bills, they excluded items such as routine internal correspondence, funding work, administrative tasks and recorded time considered excessive, duplicative or disproportionate.

The breakdowns were served primarily to support applications for interim payments. Although the defendant sometimes used them as a starting point for substantive negotiation, the judge did not accept that the claimants intended to induce final settlement, let alone settlement at an over value [16]. Costs of a failed application in the McPherson breakdown were a genuine, isolated mistake, later corrected, rather than an illustration of “systematic overcharging”.

The judge added that the claimants’ solicitors were not entirely invulnerable to criticism [17]. More could have been done to rationalise the fairly detailed breakdowns. Once it became evident that the defendant was using them as the basis for substantive inter partes negotiation, more could reasonably have been done to alert it to the likely presence of some duplication and disproportionality.

Those criticisms did not change the result. Costs Judge Whalan held that the breakdowns contained no fundamental errors of calculation and no misrepresentation, and that any inconsistency between the without prejudice and open positions “was a long way short of any form of CPR44.11 misconduct” [17]. He contrasted McNamee, where “a succession of fundamental errors produced an informal schedule which grossly inflated the costs actually incurred by the receiving party”.

The defendant’s case therefore fell a long way short of demonstrating unambiguous impropriety. On the facts, the claimants were entitled to maintain privilege, and the defendant could not adduce and rely on the breakdowns at the part-heard detailed assessment [17], [18]. A central question was whether the without prejudice schedule overstated costs actually incurred, not whether it exceeded the figure later claimed in the bill.

Practical Implications

This is a first instance decision, and the outcome turned on the evidence. For receiving parties, protection rested on the finding that each without prejudice schedule claimed only costs actually incurred [16]. Before service, check hourly rates, fee earner seniority and recorded time, since fundamental errors of that kind distinguished McNamee [12], [17], and remove items such as unsuccessful applications.

Consider rationalising an informal schedule before it is served: the judge noted that cost draughtsmen later did this without difficulty [17]. Where a paying party starts treating the schedule as the basis for substantive negotiation, write promptly to flag the likely presence of duplication and disproportionality, and state that the schedule is not a certified bill and makes no representation about inter partes recoverability.

For paying parties, a comparison of schedule and bill totals, however stark, was not enough here. An application to adduce a schedule, and any CPR 44.11 point built on it, needs evidence that the schedule exceeded costs actually incurred or rested on fundamental errors, measured against the strict Motorola test of unambiguous impropriety [10], [17].

Admissibility (or not) of without prejudice offers on costs

Without Prejudice Letter Reveals Fundamental Dishonesty Undermining Claimant’s Case

Without Prejudice Offer: Admission Denied

Miscertification of a bill of costs and the court’s powers in relation to misconduct under CPR 44.11

CPR 44.11: Misconduct in detailed assessment proceedings

Allegations of misconduct and the court’s powers under CPR 44.11