Lands Tribunal –– Costs –– Calderbank offer to settle –– Lands Tribunal allowing landlord’s appeal from leasehold valuation tribunal –– Award of tribunal exceeding determination of leasehold valuation tribunal –– Nominee purchaser’s Calderbank offer exceeding award –– Calderbank offer omitting reference to costs –– Tribunal awarding costs to landlord –– Whether Calderbank offer should deal with costs –– Whether tribunal entitled to award costs to landlord
The appellant nominee purchaser was appointed by qualifying tenants in respect of the exercise of their rights of collective enfranchisement of premises containing their flats. The respondent landlord appealed to the Lands Tribunal against the leasehold valuation tribunal’s determination of the purchase price of £3,300. By a Calderbank letter dated 6 October 1999, the purchaser offered £4,000 for the freehold interest to settle the appeal “without prejudice save as to costs”. The letter made no reference to the parties’ costs. The Lands Tribunal allowed the appeal and determined the purchase price at £3,610. The tribunal accepted the landlord’s submissions that there were still grounds for dispute as regards costs in relation to the purchaser’s Calderbank offer, as the offer was too uncertain to be accepted, and awarded costs to the landlord. The purchaser appealed.
Held: The appeal was allowed. The tribunal was wrong to take the view that the offer was too uncertain to be capable of acceptance. The Calderbank offer was plainly made on the basis that, if accepted, the proceedings before the tribunal would determine, and that neither side would be entitled to any costs. Alternatively, the tribunal was wrong not to have addressed the question of whether it was reasonable for the landlord to reject the offer without attempting to ascertain the position regarding costs. A reasonable offer by a purchaser ought to be accepted, notwithstanding that the offer does not make provision for costs, in circumstances where, as in the present case, it was made at an early stage. If the recipient of a Calderbank offer is in doubt about its effect, he has a duty to seek clarification.
The following cases are referred to in this report.
Calderbank v Calderbank [1975] 3 WLR 586; [1975] 3 All ER 333, CA
Cymru Investments Ltd v Watkins [1997] RVR 171
Lee v Herbert-Smith [2000] RVR 227
This was an appeal by the nominee purchaser, 86 Lordship Road Ltd, from a decision of the Lands Tribunal allowing an appeal by the landlord, Phyllis Trading Ltd, from a decision of the London Leasehold Valuation Tribunal determining the purchase price of premises under the Leasehold Reform, Housing and Urban Development Act 1993.
Stephen Bickford-Smith (instructed by Farrington Webb, of Brighton) appeared for the appellant; Nicholas Bacon (instructed by Percy Short & Cuthbert) represented the respondent.
1. Giving the first judgment, CHADWICK LJ said: This appeal raises a short question in relation to the award of costs on an appeal to the Lands Tribunal from the determination by a leasehold valuation tribunal of the price payable upon enfranchisement. The question has arisen in circumstances where the landlord has succeeded on the appeal to the Lands Tribunal, but: (i) the landlord had rejected a Calderbank offer by
2. The appellant company, 86 Lordship Road Ltd, was appointed by qualifying tenants as the nominee purchaser in connection with the exercise of their right of collective enfranchisement under the Leasehold Reform and Urban Development Act 1993, in respect of leasehold premises at 86 Lordship Road, Stoke Newington, London N6. The respondent, Phyllis Trading Ltd, was the freeholder of those premises.
3. The price payable by a nominee purchaser in respect of the freehold interests to be acquired under the 1993 Act falls to be determined (in the absence of agreement) in accordance with the provisions of Schedule 6 to that Act: see section 32(1). In the event of dispute, the matter is referred to a leasehold valuation tribunal: see section 91 of that Act. An appeal from the decision of a leasehold valuation tribunal lies to the Lands Tribunal: see para 2 of Schedule 22 to the Housing Act 1980.
4. In the present case, the price payable for the freehold of the premises at 86 Lordship Road was referred to the London Leasehold Valuation Tribunal for determination. Following a hearing, the valuation tribunal issued its determination on 11 May 1999. The amount payable for the freehold interest under that determination was £3,300. The valuation tribunal made no order for payment of the costs of the determination. It had no power to do so.
5. The landlord appealed to the Lands Tribunal. The appeal was heard on 6 December 1999 by the member (Mr PR Francis FRICS) selected for that purpose under section 3(2) of the Lands Tribunal Act 1949. His decision (save as to costs) was issued on 11 January 2000. He allowed the appeal, to the extent of increasing the amount payable for the freehold to £3,610.
6. The member identified three issues that arose for his determination: (i) the yield to be attributed to the ground rents receivable under the long leases held by qualifying tenants; (ii) the value (if any) to be attributed to the right to nominate the insurer, and so earn commissions on insurance effected in respect of the premises; and (iii) the value (if any) to be attributed to the right to manage the property.
7. On the first of those issues, the member found in favour of the purchaser. He took a yield of 8%, to produce a capital figure of £2,980. On the second issue, he assumed a commission rate of 15% on insurance premiums of £643.29, which, capitalised over six years’ purchase and rounded up, produced a figure of £580. That represented an increase of £280 on the figure that had been allowed by the leasehold valuation tribunal. On the third issue, the member accepted the evidence of Mr Ian Rennie, the valuer called by the purchaser, that no value could be attributed to the right to manage. The total value determined by the member (£3,610) represented the aggregate of £2,980 (the capital value attributed to ground rents) and £580 (the value attributed to the right to nominate the insured), together with £50 as the landlord’s one-half share of the agreed marriage value.
8. Rule 52(1) of the Lands Tribunal Rules 1996 provides (so far as material in the present case) that the costs of and incidental to any proceedings before it shall be in the discretion of the Lands Tribunal. In the final paragraph of the decision, issued on 11 January 2000, the member invited the parties to make submissions in writing as to the costs of the appeal.
9. The purchaser’s submissions on costs were set out in a letter from its solicitor dated 14 January 2000. It contended that the costs of the appeal should be paid by the landlord. It advanced that contention on two grounds, that: (i) the appeal was allowed in part only –– as to the right to nominate the insurer and so receive insurance commission, which (as it said) produced a marginal increase in the price to be paid over that determined by the leasehold valuation tribunal, the landlord being unsuccessful on the other two issues; and (ii) by a letter dated 6 October 1999, it had made a Calderbank offer on behalf of the purchaser in the amount of £4,000 –– that is to say, in an amount greater than the amount at which the price had been determined by the member following the hearing.
10. The landlord’s submissions are set out in a document signed by counsel and dated 21 January 2000. It was pointed out that the landlord had succeeded, albeit on one point only, with the result that it had obtained a higher figure than that awarded by the leasehold valuation tribunal. As to the letter of 6 October 1999, it was said that: (i) the offer was incapable of acceptance because it had made no provision for the payment of costs; alternatively, (ii) if the letter of 6 October 1999 was to be construed as an offer to compromise upon the basis that each party would bear its own costs, then the landlord had done better by rejecting the offer than it would have done by accepting it, in that its costs of the appeal as at 6 October 1999 were greater than £400, that being (as it was said) the difference between the amount offered (£4,000) and the amount of the member’s determination.
11. The member accepted the submissions made on behalf of the landlord. In an addendum to his decision, issued on 7 February 2000, he said:
I prefer the appellant’s submissions. It did succeed in the appeal, in that my award exceeded the sum determined by the LVT. Furthermore I accept the argument that there were still grounds for dispute as regards costs in relation to the respondents’ without prejudice offer.
12. Accordingly, the member ordered that the purchaser should pay the landlord’s costs of the appeal, such costs (if not agreed) to be the subject of detailed assessment. The costs claimed by the landlord, as set out in a statement of costs dated 20 January 2000, which was put before the tribunal, are in excess of £4,400; that is to say, an amount that exceeds significantly the amount of the purchase price for the freehold interests.
13. The order made by the Lands Tribunal is dated 7 February 2000. By a separate order dated 8 March 2000, the tribunal gave permission to appeal to this court. It has stated a case for the opinion of this court pursuant to section 3(4) of the Lands Tribunal Act 1949 and Ord 61 of the Rules of the Supreme Court 1965. The question upon which this court is asked to give its opinion is whether the member erred in law in coming to his decision on costs in the respects and on the grounds set out in a letter dated 29 February 2000 from the purchaser’s solicitor. Section 3(4) of the 1949 Act makes it plain that an appeal to this court from the Lands Tribunal lies only on a matter of law.
14. The grounds set out in the letter of 29 February 2000 are rehearsed in the notice of appeal dated 17 March 2000 which the purchaser has lodged in this court. They may be summarised as follows: (i) the member erred in law in finding that the offer in the Calderbank letter of 6 October 1999 was incapable of acceptance because it was made “without prejudice save as to costs”; (ii) the member erred in law in that, when exercising his discretion as to who should bear the costs of the appeal, he failed to take account of the letter of 6 October 1999 –– because, as he thought, there was no offer in that letter capable of acceptance; (iii) the member erred in law in failing to ask himself, when exercising his discretion as to costs, whether the landlord ought reasonably to have accepted the proposal in the offer letter of 6 October 1999; (iv) if he had asked himself that question, the member must have concluded that the offer ought reasonably to have been accepted; (v) the member erred in finding that the landlord was the successful party; and (vi) the member erred in law in failing to take account of, or have regard to, the factors set out in CPR Part 44, in particular rr 44.3(4) and (5).
15. In my view, the first of those grounds, as framed, is misconceived. The Calderbank letter of 6 October 1999 was in these terms:
To try to bring this matter to an end we are instructed to offer £4,000 for the freehold interest of the property subject to the three leases.
If this offer is not accepted our clients reserve the right to refer to it when the Lands Tribunal is considering the costs of the appeal. It remains open for acceptance for 14 days.
16. A fair reading of the member’s decision does not support the purchaser’s contention that he thought that the offer contained in that letter was not capable of acceptance because it was made “without prejudice save as to costs”. It is clear that the member took the view, which had been urged upon him in the landlord’s written submissions dated 21 January 2000, that the offer was not capable of acceptance because it left the position as to the costs of the appeal unresolved. When he observed that “there were still grounds for dispute as regards costs in relation to the respondent’s without prejudice offer”, the member was pointing out that (as he thought) it was unclear whether the offer of £4,000 was put forward on the basis that: each party would bear its own costs of the appeal; the purchaser would accept liability for the landlord’s costs of the appeal, incurred thus far; or there was to be no agreement as to the costs incurred thus far, with whatever consequences that might have.
17. The response from the landlord’s solicitor, in a letter dated 12 October 1999, was a bare rejection of that offer. But on 23 November 1999, some six weeks later, the landlord’s solicitor put forward a counter-offer “to accept the sum of £4,500 plus our client’s costs of the appeal to date”. The importance of that letter is that it fixes the landlord’s costs of the appeal, as at 23 November 1999, at £350 (exclusive of VAT) and a lodgement fee of £50 –– that is to say, a total of £461.25, if VAT is payable. That is how it must have appeared to the landlord on 23 November 1999. It could not have appeared to it some six weeks earlier that its costs were any greater than that.
18. The real question under ground (i) is whether the member was right to take the view that it was unclear whether the offer of £4,000 was put forward on the basis that each party would bear its own costs of the appeal; or the offer was put forward on the basis that the purchaser would accept liability for the landlord’s costs of the appeal, incurred thus far or the offer was put forward on some other (and, if so, what) basis. If he were right in that view, then the grounds of appeal that I have described under (iii) and (iv) earlier in this judgment would fall away. The member could not be criticised for failing to ask himself whether the landlord ought reasonably to have accepted the offer contained in the letter of 6 October 1999 if, on a true analysis, the offer was insufficiently certain to be capable of acceptance. But, if he were right in his view that the offer was insufficiently certain to be capable of acceptance, it would still be necessary to address ground (ii). In those circumstances, it might have been expected that the landlord would have sought to clarify the position, and the member should have taken into account the fact that the landlord did not do that.
19. We were referred to two decisions of the Lands Tribunal (in both of which the member was Mr PH Clarke FRICS), in which the effect of Calderbank letters on the exercise of the tribunal’s discretion as to costs have been considered.
20. The first, Cymru Investments Ltd v Watkins [1997] RVR 171, does not, I think, provide any assistance. It is no more than an illustration of the application, by the Lands Tribunal, of the general practice that a party who fails to “beat” a Calderbank offer will, although successful in the appeal, be required to pay the costs of the appeal after the date of the offer. The offer, in that case, included an amount in respect of the appellant’s costs incurred prior to the date of the offer.
21. In the later case, Lee v Herbert-Smith [2000] RVR 227, the offer did not include any amount in respect of costs. The offer was accepted on the basis that the issue of costs had not been agreed and would be determined by the Lands Tribunal. When the matter came before the tribunal, the member declined to make any order for costs. In my view, he was plainly correct for the reasons that he gave –– namely that the merits of the parties’ contentions remained unresolved. They had reached an agreement in order to avoid a determination upon the merits, and there was no basis upon which the tribunal could hold that either could be said to have won. In the course of his determination, the member said at para 21:
In my judgment it is reasonable for the agreement on price, having regard to the respective contentions of the parties, to be on the basis that each party should bear his own costs. It was unreasonable for the landlord to seek all his own costs on the acceptance of the offer and even more unreasonable for him to take this dispute to a hearing. To award costs against a party who seeks a compromise in this way would discourage settlements.
22. I am satisfied that the member in the present case was wrong to take the view that the offer contained in the letter of 6 October 1999 was too uncertain to be capable of acceptance. In my view, it is plain that the offer is an offer of £4,000 for the freehold interest of the property subject to the leases, on the basis that, if accepted, the proceedings before the Lands Tribunal will determine, and that neither side will be entitled to any costs in those proceedings.
23. But if I were wrong in that view, then I would hold that the member ought to have addressed the question of whether it was reasonable for the landlord to reject the offer of 6 October 1999 without making any attempt to ascertain whether the amount offered included costs, or to ascertain whether the purchaser was proposing to make some additional payment by way of costs.
24. It follows that I would hold that the member was wrong as a matter of law in failing to take account of the Calderbank offer contained in the letter of 6 October 1999. If he were wrong in law, then this court has the duty to interfere.
25. The question, therefore, is what order should be made in the circumstances that there was an offer to compromise at a figure of £4,000: a figure that, in the event, turned out to be £390 greater than the amount that the Lands Tribunal determined. The obligation upon the landlord, to which that offer was made, was to give consideration as to whether it was reasonable to accept it. In the circumstances that the offer turned out to be £390 greater than the amount determined by the Lands Tribunal, thereby leaving a significant margin of nearly 10% to cover whatever costs had been incurred by the landlord prior to the offer, I am satisfied that the decision to reject the offer out of hand was unreasonable. It is important, in low value cases of this nature, that a landlord (who, in practice, is the usual appellant) should not be in a position to insist upon a higher price for the freehold than that objectively justified, by the threat, expressed or implied, that, if his terms are not met, he will obtain an order for substantial costs if he succeeds in increasing the valuation tribunal’s determination by only a relatively small amount.
26. The figures in the present case illustrate the point. The landlord, having succeeded in raising the determination of the valuation tribunal by some £300, that is to say, by less than 10%, is seeking to charge the purchaser £4,400 by way of costs, in circumstances in which the purchaser had made an offer that itself exceeded the determination of the valuation tribunal by only 20%. If the belief that a tenant who has made a reasonable offer will be obliged to pay substantial costs, even if the landlord succeeds in increasing the valuation tribunal’s determination by a relatively small amount is not discouraged, then there is an obvious danger that tenants will, in effect, be held to ransom. They will be deprived of the benefits that the 1993 Act was plainly enacted to provide. A reasonable offer by the purchaser ought to be accepted, notwithstanding that the offer does not make provision for costs, in circumstances where it is made at an early stage. Different considerations might arise if the offer were made after substantial costs in preparation for the hearing had been incurred. This is not such a case.
27. For those reasons, I am satisfied that this is a matter in which this court can substitute its own discretion as to costs for that exercised by the member. For my part, I would propose that the order for costs below should be: no order up to 20 October 1999 (that is to say, from the conclusion of the 14 days within which the offer made in the letter of 6 October 1999 was open to acceptance), and for the landlord to pay the purchaser’s costs after that date.
28. Agreeing, HALE LJ said: I entirely agree. It is particularly important in this context that the power to award costs should be
29. Also agreeing, THORPE LJ said: I also agree. Mr Stephen Bickford-Smith’s submissions as to how the Calderbank mechanism operates would certainly not be accepted in ancillary relief proceedings in the Family Division. The whole purpose of the mechanism is to avoid unnecessary litigation and to curtail the escalation of unnecessary costs. The recipient of a Calderbank letter takes a real risk if he opts for summary rejection. As authority in this court makes plain, if he regards the offer as insufficient, he has some obligation to state what would be sufficient. If the offer is in any way unclear to him, he has an undoubted obligation to seek clarification. These obligations seem to be of equal application in Lands Tribunal applications.
Appeal allowed.
