Leasehold dilapidations dispute – Settlement – Costs – Claimant making CPR part 36 offer in respect of leasehold dilapidations dispute – Defendant accepting offer and reaching settlement – Claimant applying for costs on indemnity basis – Whether claimant establishing grounds for indemnity costs – Application dismissed
The claimant was the sub-lessee of 125 year leases on three blocks of industrial premises in Salford. The defendant had been the sub-sub-lessee to the claimant in respect of each demise. When the sub-sub-leases expired, the claimant’s surveyors prepared three schedules of dilapidations relating to alleged breaches of repairing and maintenance covenants. The total remedial work cost was said to be £1,774,000.
Following correspondence between the parties, the claimants’ solicitors had sent a letter of claim purportedly pursuant to the dilapidations pre-action protocol (DPAP), which contained the revised dilapidations schedules, a quantified demand and valuation reports for each unit. The claimant issued proceedings for leasehold capital dilapidations. The defendant had pleaded and maintained a “no loss” defence. Each party alleged that the other’s expert witnesses had behaved badly, discourteously, incompetently or without sufficient regard to professional standards. The claimant’s offer to mediate was refused but the defendant suggested a form of expert determination or early neutral determination by reference to a barrister.
The case was settled about a week before the due trial date because the defendant accepted a CPR part 36 offer dated 11 October 2013, although it had not been formally served until four days later because the defendant’s solicitors had not been authorised to accept service by email. The claimant applied to the court for indemnity costs under CPR 36.10 and for an order that it could depart from its costs budget. The grounds on which the claimant sought to justify its application for an indemnity costs order were: (i) the defendant’s failure to comply with the DPAP; (ii) the defendant’s failure to mediate; and (iii) the defendant’s maintaining of a positive denial of there being no loss; and (iv) the conduct of the defendant’s experts.
Held: The application was dismissed.
(1) CPR part 36.9 made it clear that a part 36 offer was accepted by serving written notice of the acceptance on the offeror. Indemnity costs were appropriate only where the conduct of a paying party was unreasonable to a high degree. “Unreasonable” in that context did not mean merely wrong or misguided in hindsight. Therefore the court had to decide whether there was something in the conduct of the action, or the circumstances of the case in general, which took it out of the norm in a way which justified an order for indemnity costs. The pursuit of a weak claim would not usually, on its own, justify an order for indemnity costs, provided that the claim was at least arguable. But the pursuit of a hopeless claim might well lead to such an order. The discretion to award indemnity costs was a wide one and had to be exercised taking into account all the circumstances and considering the matters complained of in the context of the overall litigation. The discretion to award indemnity costs was a wide one and had to be exercised taking into account all the circumstances and considering the matters complained of in the context of the overall litigation. Dishonesty or moral blame did not have to be established to justify indemnity costs. The conduct of experts could justify an order for indemnity costs in respect of costs generated by them. A failure to comply with pre-action protocol requirements could result in indemnity costs being awarded. A refusal to mediate or engage in mediation or some other alternative dispute resolution process could justify an award of indemnity costs: Elvanite Full Circle Ltd v Amec Earth & Environmental (UK) Ltd [2013] EWHC (TCC), Kiam v MGN Ltd [2002] 1 WLR 2810, Excelsior Commercial and Industrial Holdings Ltd v Salisbury Hammer Aspden and Johnson [2002] EWCA (Civ) 879, Wates Construction Ltd v HGP Greentree Alchurch Evans Ltd [2006] BLR 45, Digicel (St Lucia) Ltd v Cable and Wireless plc [2010] EWHC 888 (Ch), Three Rivers District Council v Governor of the Bank of England [2006] EWHC 816 (Comm), Reid Minty v Taylor [2001] 1 WLR 2800 and Williams v Jervis [2009] EWHC 1837 (QB) applied.
(2) On the evidence, the present case was not appropriate for an award of indemnity costs on any of the grounds upon which the claimant sought to rely. It was clear that the claimant had not complied either with the words or the spirit of the DPAP. With regard to non-compliance, the inflexibility and lack of co-operation had been apparent on both sides. The suspicion and ill-feeling between the experts had not helped but it would be wrong to take that into account in deciding whether to award indemnity costs. The claimant had not established that there had been such poor conduct on the part of the defendant’s experts as to begin to justify an indemnity costs order, largely because the court was unable to decide on clearly disputed versions of events and numerous meetings that they had behaved badly. Further, it was doubtful whether mediation would have succeeded. In light of the history of the matter, the failure to mediate was not a factor to justify the award of indemnity costs. Furthermore, the defendant’s denial of loss had not been such as to be described as out of the norm in a way which justified an order for indemnity costs, looked at in the context of proceedings which had been rushed into by the claimant following their non-compliance with the protocol.
Stephanie Barwise QC (instructed by Shulmans LLP, of Leeds) appeared for the claimant; Joanne Wicks QC (instructed by WH Lawrence Solicitors) appeared for the defendant.
Eileen O’Grady, barrister
