Landlord and tenant — Service charges — Whether landlords entitled to costs on indemnification basis following payment into court
defendants hold an underlease of premises at 22 Bruton Street, London W1, from
the plaintiffs — By the terms of the lease the defendants covenanted to pay
service charges — A dispute having arisen between the parties, the plaintiffs
commenced two actions seeking the recovery of arrears of rent and service
charges — Shortly before the trial of both actions the plaintiffs accepted a
sum of £8,600 paid into court by the defendants — In accordance with Ord 62,
r5, of the Rules of the Supreme Court, the plaintiffs became entitled to their
costs ‘up to the time of giving notice of acceptance’ — In the application
before the court the plaintiffs contended that it was appropriate for the court
to order that the plaintiffs’ costs be taxed on an indemnity basis by virtue of
a contractual provision of the underlease ‘To pay the Landlord all proper costs
charges and expenses . . . incurred by the Landlord . . . In connection with
any breach of a covenant by or the recovery of arrears of rent due from the
Tenant . . .’
the defendants it was submitted that: (1) the plaintiffs were now seeking to
enforce a contractual claim which had not been pleaded; (2) the wording of the
contractual provision was not apt to entitle the plaintiffs to costs on an
indemnity basis; and (3) because the application was delayed, the court should
exercise its discretion against the plaintiffs
discretion as to costs, may take into account a relevant contractual term
notwithstanding a failure to plead it — The discretion cannot be fettered by a
contractual term — To recover costs on an indemnity basis, it is necessary for
the plaintiffs to show that the contractual term plainly and unambiguously
entitles them to be indemnified for their costs — ‘All proper costs’ means no
more than such costs as may be recovered under an order of the court;
accordingly, there was no such contractual term — The application would not
have been rejected on the grounds of delay
The following
cases are referred to in this report.
Adelphi
Hotel (Brighton) Ltd, Re, District Bank Ltd v Adelphi
Hotel (Brighton) Ltd [1953] 1 WLR 955; [1953] 2 All ER 498
Bank
of Baroda v Panessar [1987] Ch 335; [1987] 2
WLR 208; [1986] 3 All ER 751
This was an
application by the plaintiff lessors to have their costs taxed on an indemnity
basis following a payment into court by the defendant lessees in an action by
the plaintiffs claiming arrears of rent and service charges for premises at 22
Bruton Street, London W1.
Andrew Jordan
(instructed by H Omar & Co) appeared for the plaintiffs; Stephen Jourdan
(instructed by Beachcroft Stanleys) represented the defendants.
Giving judgment,
JUDGE ESYR LEWIS QC said: The defendants hold an underlease of the first
floor and part of the basement of business premises at 22 Bruton Street, London
W1, from the plaintiffs for a term commencing from December 25 1987. Under
clause 5.8.2 of the underlease the defendants were obliged to pay to the
plaintiffs 17.79%.
of the costs
expenses and outgoings incurred by the Landlord in the repair maintenance and
renewal of and the provision of services to the Building. . .
A dispute arose
between the plaintiffs and defendants and other sublessees of parts of the
premises as to claims made by the plaintiffs for payment of maintenance and
service charges. The plaintiffs began two actions against the defendants for
recovery of maintenance and service charges said to be due to them under the
provisions of clause 5.8.2. In the first action the plaintiffs claimed rent,
which had been withheld, together with service and maintenance charges alleged
to have fallen due between January and June 1988 and interest. This action was
commenced by a writ dated September 9 1988. In a second action, commenced by a
writ dated December 17 1990, the plaintiffs made similar claims for sums which
were said to have become due to them in the period after June 1988. The
defendants served defences and counterclaims in each action. The counterclaims
were disposed of before the plaintiffs accepted on April 3 1991 the sum of
£8,600 paid into court by the defendants in respect of both actions on March 15
1991. The acceptance of the sum in court brought the two actions to an end
shortly before the date of trial. At the time of the acceptance the plaintiffs
were claiming a sum of £14,000 plus interest in their first action and a sum of
£7,700 plus interest in the second action.
Ord 62, r 5, provides,
inter alia, that a plaintiff who accepts a payment into court in respect
of all his causes of action ‘shall be entitled to his costs of the action
incurred up to the time of giving notice of acceptance’: see Ord 62, r5(1) and
(4).
Ord 62, r 3,
makes the following relevant provision:
(4) The amount of his costs which any party shall
be entitled to recover is the amount allowed after taxation on the standard
basis where —
(a) an order is made that the costs of one party
to proceedings be paid by another party to those proceedings, or
(b) an order is made for the payment of costs out
of any fund (including the legal aid fund), or
(c) no order is required,
unless it
appears to the Court to be appropriate to order costs to be taxed on the
indemnity basis.
In this
application the plaintiffs contend that in the circumstances of this case it is
appropriate that the court should order that the plaintiffs’ costs should be
taxed on the indemnity basis. The basis on which the plaintiffs’ costs should
be taxed is important to both parties in the light of the provisions of Ord 62,
r 12. The relevant parts of this rule are as follows:
12.–(1) On a taxation of costs on the standard basis
there shall be allowed a reasonable amount in respect of all costs reasonably
incurred and any doubts which the taxing officer may have as to whether the
costs were reasonably incurred or were reasonable in amount shall be resolved
in favour of the paying party; and in these rules the term ‘the standard basis’
in relation to the taxation of costs shall be construed accordingly.
(2) On a taxation on the indemnity basis all
costs shall be allowed except insofar as they are of an unreasonable amount or
have been unreasonably incurred and any doubts which the taxing officer may
have as to whether the costs were reasonably incurred or were reasonable in
amount shall be resolved
basis’ in relation to the taxation of costs shall be construed accordingly.
The effect of
para (2) is to enlarge the scope of the costs which may be recoverable on
taxation by the party having the benefit of a costs’ order on the indemnity
basis. Prima facie, this party is to be allowed ‘all costs’ subject to
the exception and any doubt as to whether his costs were reasonably incurred or
were reasonable in amount is to be resolved in his favour.
The plaintiffs
submit that they are entitled to an order for the taxation of their costs on an
indemnity basis by virtue of a contractual provision contained in clauses 5.8.3
and 5.8.3.4 of the underlease under which the defendants covenanted, in so far
as is relevant:
To pay to the
Landlord all proper costs charges and expenses (including professional
advisers’ costs and fees) incurred by the Landlord . . . (5.8.3)
In connection
with any breach of covenant by or the recovery of arrears of rent due from the
Tenant hereunder (5.8.3.4).
I should say
that, by virtue of the provisions of clause 3.2 of the underlease, service and
maintenance charges payable by the tenant are ‘reserved as rent’ and thus fall
within the provisions of clause 5.8.3.4.
The substance
of the submission made by Mr Jordan, on behalf of the plaintiffs, is that
clauses 5.8.3 and 5.8.3.4 of the underlease give them a contractual right to
recover their costs on the indemnity basis and is essentially to the same
effect as the provisions of Ord 62, r 12(2). It is further submitted that, as
the plaintiffs have a contractual right to be indemnified for the costs
incurred in enforcing their right to recover arrears of rent, including service
and maintenance charges, the court should make an order for taxation on the
indemnity basis rather than requiring the plaintiffs to pursue their claim
under the contract in fresh proceedings should a taxation of their costs on the
standard basis leave them short of what they are entitled to recover under the
contractual term of the underlease.
In support of
his submissions, Mr Jordan, has referred me to the decision of Walton J in Bank
of Baroda v Panessar [1987] 2 WLR 208. In that case the defendants
entered into a guarantee to pay the bank in certain circumstances sums owed by
two companies to the bank and secured by debentures and ‘all costs charges and
expenses which you (ie the bank) may incur in enforcing or obtaining payment of
the sums due to you from the principal . . .’
The guarantors unsuccessfully defended the claim against them and the
bank successfully sought an order for their costs on an indemnity basis. Having
said that the claim for costs on an indemnity basis under the terms of the
guarantee raised a novel point, Walton J said at p 224C:
Well,
treating this as an entirely novel point, it seems to me that it is not
possible for a person in the position of the bank to exclude the discretion of
the court, but one nevertheless starts from the position that the contractual
position between the parties is that the costs will be paid on an indemnity basis.
I cannot think that the words ‘all costs’ mean anything other than that. So one
starts from the position that this is the contractual position but not, as I
venture to think, binding on the court. The court might very well take the view
that, in the circumstances of any particular case, that was a contractual
provision which it ought to overlook and it ought not to give effect to.
However, when one comes to consider whether this is such a case, I think the
circumstances are all one way. Mr Higham has pointed out to me that, in this
case, the defences of the defendants raise the points that the guarantees on
which the bank sued were not signed properly by all parties, that no demand for
payment was ever made and also that alternative finance was available; and,
really, those were persisted in to an extent which was totally and utterly
unreasonable.
After
describing in more detail the basis on which the guarantors’ defence was run,
Walton J said at p 225B:
Therefore, so
far as the bank is concerned, I have no hesitation whatsoever at the end of the
day in saying that I think, basing myself first on exact terms of the
guarantee, but also, if it were necessary, on the way in which the action has
been conducted on behalf of the defendants — and I must make it perfectly clear
that I am not making the slightest criticism of counsel — that it is just and
proper that in this case the award of costs should be on an indemnity basis.
Walton J thus
founded his decision that the plaintiffs should be awarded their costs on an
indemnity basis both on the contractual term and on the manner of their
defence. It is to be noticed that Walton J’s opinion was that the contractual
term could not exclude the exercise of the court’s discretion in making an
award of costs and was not binding on the court. He dealt with the matter, it
seems to me, on the basis that the contractual term as to costs was a matter
which could be taken into account in the exercise of his discretion.
Mr Jourdan,
for the defendants, has submitted that the court should not make an order for
costs on the indemnity basis on three main grounds. First, he submits that the
plaintiffs did not plead in either of the two actions that they were entitled
to costs on an indemnity basis and are now seeking to enforce a contractual
claim of which the defendants had no warning before this application was
launched. Second, he submits that the wording of clauses 5.8.3 and 5.8.3.4 of
the underlease is not apt to entitle the plaintiffs to costs on the indemnity
basis and contrasts the phrase ‘all costs charges and expenses which you may
incur in enforcing the sums due to you . . .’ used in the contract
considered by Walton J in the Bank of Baroda case with the phrase ‘To
pay to the Landlord all proper costs charges and expenses’ . . . used in
the underlease in this case. Third, he submits that this application is made
very late in the day and that the delay in making it is a ground on which the
court should in any event not exercise its discretion to award costs on the
indemnity basis. He points to the fact that the present summons, issued on
August 5 1991, was not served until October 3 1991 although under Ord 62, r
29(1)(b) proceedings for taxation should have been begun within three months of
the plaintiffs’ acceptance of the payment into court. He has also referred to
Ord 62, r 28(4), which provides that where a party fails without good reason to
commence or conduct proceedings for the taxation of his costs in accordance
with Ord 62 the taxing officer may allow the party entitled to costs less than
he would otherwise have allowed or may wholly disallow the costs.
Conclusions
I can find no
indication in the report of the Bank of Baroda case that a claim for
costs on an indemnity basis based on the contract of guarantee was pleaded. As
I have said, it seems to me that the existence of the relevant contractual term
was a matter taken into account by Walton J in exercising his discretion as to
what was the appropriate order in the circumstances of that action. Since the
question of costs arises in normal circumstances only at the conclusion of an
action, whether after a hearing or on the determination of the action in some
other way, as here, I cannot see any logical reason why circumstances relevant
to the making of an appropriate order should have to be pleaded. If indeed the
plaintiffs have a contractual right to recover their costs on an indemnity
basis, I consider that it would be absurd for the court wholly to ignore it in
considering what order is appropriate. I accordingly reject Mr Jourdan’s first
submission.
I consider, as
Walton J indicated in his judgment in the Bank of Baroda case, that the
court has a discretion in the matter of costs which cannot be fettered by a
contractual term agreed by the parties.
Usually, the
appropriate order for costs, where the order has to be made by the court, is
made in the light of the result of the proceedings where they have been
contested and the manner in which they have been conducted and must take into
account matters such as a payment into court. In the present case, since the
proceedings ended with the acceptance of the payment into court, there is, in
my judgment, no material which I am able to take into account in deciding
whether the plaintiffs are entitled to costs on the indemnity basis rather than
on the standard basis, as provided for by Ord 62, r 3 (4)(c), except the
provision of the underlease relied on by the plaintiffs. It is not, in my view,
a relevant circumstance that the plaintiffs, by accepting the payment in,
received very substantially less than the amount they claimed. This is, I
consider, a neutral matter whether viewed from their standpoint or the
defendants. I am, however, left in no doubt by the judgment of Walton J, which
I respectfully follow, that I am entitled to take into account the terms of the
relevant provision of the underlease in deciding the issue before me.
Mr Jourdan has
referred me to a passage in Fisher and Lightwood on The Law of Mortgage (10th
ed), which has given me assistance. It reads at p 660:
Party and
party costs. The basic rule is that costs in a
mortgage suit should be recovered by the mortgagee on the standard basis . . .,
unless there is a contract between the parties plainly and unambiguously
providing for taxation on some other basis (for example, the indemnity basis).
. . but even such a contract cannot exclude the exercise of the court’s
discretion . . .
One of the
cases referred to in a footnote to that passage is a decision of Vaisey J in Re
Adelphi Hotel (Brighton) Ltd, District Bank Ltd v Adelphi Hotel
(Brighton) Ltd [1953] 2 All ER 498. There, where mortgagees sought to
recover costs on an indemnity basis under a contractual provision contained in
a mortgage, Vaisey J said this at p 502, after construing the contract term
relied on by the mortgagees:
It suffices
for me to say that I put my judgment on this part of the case, involving as it
does a point of construction, on the ground that, as every taxation in which
more than one party (in addition to the solicitor) is interested is prima
facie a taxation as between party and party, any other basis of taxation is
only justified when the party asking for it can show that he is entitled to it,
either on some well-recognised principle, or under some contract plainly and
unambiguously expressed. I can find no such principle nor any such contract
here. The relevant part of the order of Apr 23, 1953, is framed with sufficient
aptness. There is no need to use the words ‘as between party and party’ or any
other words to express what is, in my judgment, implied. I should myself have
put the direction slightly differently, thus: Let the costs of the plaintiff of
this action together with any other costs, charges and expenses properly
incurred by it as mortgagee be taxed. But the variation is not of substance; it
is merely of form, and the order may properly stand as it is without variation.
The motion must be dismissed with costs.
I consider
that the principle stated in Fisher and Lightwood and exemplified by
Vaisey J’s decision applies with equal force in this case. In my judgment, in
order to recover their costs on an indemnity basis, it is necessary for the
plaintiffs to show that the contractual provision upon which they rely plainly
and unambiguously entitles them to be indemnified for their costs of their
action and thus to obtain an order for costs on the indemnity basis rather than
on the standard basis as provided in Ord 62, r 12(2). It seems to me that ‘all
proper costs’ means, in relation to legal proceedings to enforce the
plaintiffs’ claim, nothing more than such costs as the plaintiffs are entitled
to recover under an order of the court or, as here, under a provision in the
rules. I am accordingly unable to find that the contractual provision upon
which the plaintiffs rely does entitle them to be indemnified for their costs
of the proceedings and thus to an order for costs on the indemnity basis. The
language used in the relevant contractual term in the Bank of Baroda case
was different, namely ‘all costs charges and expenses which you may incur. .
.’. The vital difference is, of course, the presence of the adjective ‘proper’
in the provision on which the plaintiffs rely.
The conclusion
I have reached on Mr Jourdan’s second submission is enough to dispose of the
application. In deference to his argument, however, I will briefly express my
view on his third submission, which relates to the delay by the plaintiffs in
bringing this application. I would not have rejected this application on the
grounds of delay. In my judgment, the matter of delay should be left for
consideration by the taxing master, who is given a wide discretion to deal with
it under the provisions of Ord 62, r 28(4).
For the
reasons I have given, this application is dismissed.
Application
dismissed.
