A judgement by Senior Court Costs Office Judge Whalan in Henderson and McPherson v Ministry of Defence (‘MoD’) has rejected an attempt by the MoD to use without prejudice costs schedules to pursue allegations of overcharging. In a decision on a preliminary issue, Costs Judge Whalan found that the schedules reflected costs actually incurred and that the defendant’s case fell well short of the “unambiguous impropriety” required to remove their privileged status. The decision has practical significance for costs disputes arising from the continuing military deafness litigation, while leaving the amount of recoverable costs to a detailed assessment.
Background to the military deafness litigation
The military noise-induced hearing loss litigation involves many thousands of claims by former service personnel against the MoD. The cohort pursued by claimants represented by us, Hugh James, is known as the “Hugh James Military Deafness Litigation”. Those claims have been managed together, with test cases used to determine common issues and guide the resolution of individual claims. They form part of a wider military hearing loss caseload involving other firms.
In April 2026, Mr Justice Garnham’s judgment in Abbott and others v Ministry of Defence [2026] EWHC 941 (KB) addressed generic issues concerning diagnosis, quantification and damages. A framework agreed in 2024 between the Hugh James claimants and the MoD had already disposed of several other issues, including breach of duty and limitation. As individual claims settle, the legal costs payable alongside compensation remain a significant element of the MoD’s financial liability.
Mr Henderson and Mr McPherson’s claims settled for £65,000 and £20,000 respectively, with provision that the MoD pays their costs on the standard basis. The costs judgment records that Hugh James had conducted approximately 11,500 military hearing loss claims. Against that background, a dispute about how costs were presented in two settled cases was said by the MoD to have implications beyond the individual bills.
How the informal costs protocol worked
At the hearing on 22 July 2026, Andrew Hogan, instructed by Hugh James, represented the claimants; Robin Dunne, instructed by Keoghs LLP, represented the MoD. The Court heard that from around January 2020, Hugh James and the MoD’s solicitors, Keoghs and Plexus Law, operated an informal costs protocol. The Claimants supplied without prejudice schedules of costs and disbursements to facilitate early payments of approximately 50% on account. More than 300 cases were handled in this way. The MoD increasingly used the schedules as a starting point for negotiating final costs settlements, without the need for formal bills of costs. Where agreement was not reached, claimants commenced detailed assessment by serving certified bills.
The protocol ended around August 2024, after the MoD identified differences between schedules and subsequent bills and raised a very serious allegation of “systematic overcharging”. Thereafter, costs claims proceeded by certified bill. In Henderson, the schedule sought £44,939.52; the subsequent bill, excluding its preparation costs, sought £37,261.29. In McPherson, the corresponding figures were £162,601.36 and £132,052.75. The defendant relied on reductions of approximately £7,678 and £30,549 as evidence supporting its allegations.
The preliminary issue was whether the MoD could deploy those schedules at detailed assessment as a prerequisite to pursuing allegations under CPR 44.11 (misconduct provisions). That rule permits the court to disallow costs, or order payment of costs caused to another party, where relevant conduct is unreasonable or improper.
By the hearing, the parties agreed that the schedules were prima facie without prejudice documents. The central question was therefore whether the MoD could establish unambiguous impropriety, an exceptional basis for admitting otherwise privileged settlement material. This distinction matters: an allegation of misconduct does not itself make protected negotiations available as evidence.
The parties’ arguments
The MoD argued that significantly inflated schedules, served to induce a paying party to overpay, amounted to such impropriety. Its case was that the schedules included costs exceeding those actually incurred and were designed to secure settlements above any justifiable entitlement. It relied on the scale of the military hearing loss caseload and its responsibility for taxpayers’ money. It also pointed to cases in which inaccurate costs schedules had attracted sanctions or lost their privileged status, including McNamee v London Borough of Brent [2025] EWHC 2612 (SCCO).
The claimants disputed both the factual premise and the inference of misconduct. The schedules were summaries of recorded time and disbursements extracted from Hugh James’s case management system. They were not certified bills and were supplied primarily to negotiate interim payments. The costs had been incurred; the later reductions reflected specialist costs lawyers’ professional judgment about what should be claimed against the defendant. Items were removed or reduced to anticipate assessment challenges and in order to narrow disputes, including internal correspondence, funding work, administrative tasks and time considered excessive, duplicative or disproportionate.
The court’s findings
Judge Whalan accepted that explanation entirely. He found that the schedules claimed exclusively costs actually incurred, rejecting the allegation that they included costs for which the claimants were not liable. He also accepted that their primary purpose was to support interim payments, and rejected an intention to induce final settlement at an excessive value. In McPherson, the schedule had mistakenly included costs of an unsuccessful application. The judge treated this as a genuine, isolated error, subsequently corrected in the bill, rather than evidence of systematic overcharging.
The court applied the demanding approach in Motorola Solutions Inc v Hytera Communications Corp Ltd [2021] EWCA Civ 11. The exception requires demonstrated abuse of without prejudice privilege; a discrepancy between a negotiating position and an open position is insufficient by itself. Nor is the threshold diluted because admissibility arises at an interlocutory stage. He determined in the present cases there were no fundamental calculation errors or misrepresentation. The circumstances were materially different from McNamee, where fundamental errors had grossly inflated the claimant’s actual costs.
The judgment nevertheless contains a practical qualification. The judge considered that Hugh James could have done more to rationalise the detailed schedules before serving them. When the MoD began using them for substantive negotiations, more could also have been done to explain the likely presence of duplication and disproportionality. Those observations should inform future practice. They did not, however, establish misconduct: the judge described the inconsistency between the schedules and bills as “a long way short” of CPR 44.11 misconduct.
What the ruling means for costs disputes
For the MoD, the immediate consequence is that it cannot rely on these schedules in the detailed assessments. More broadly, the ruling undermines an inference central to its challenge: a lower certified bill does not establish that the earlier schedule claimed fictitious costs. Costs actually incurred and costs ultimately pursued against an opponent are distinct figures. A receiving party’s decision to reduce its claim can reflect responsible preparation for assessment rather than evidence of an inflated underlying ledger.
That reasoning is likely to be influential where other disputes arise from the same protocol and materially similar evidence. It is not a determination of every military deafness costs claim, nor does it establish that every sum recorded or claimed is recoverable. The MoD remains entitled to contest hourly rates, time, reasonableness and proportionality through ordinary assessment. Equally, its public funding responsibilities and the size of the caseload do not lower the threshold for displacing privilege.
The wider significance lies in preserving workable settlement negotiations across substantial litigation. Informal arrangements can secure interim payments and avoid additional applications, but they benefit from clear explanations of what a schedule represents and how it may differ from a certified bill in due course. For the MoD, the judgment redirects attention towards scrutiny of recoverable costs in individual assessments, with allegations of impropriety requiring evidence sufficient to meet the applicable legal tests.
The part-heard assessments are listed to resume on 25–29 January 2027.
