Lease – Termination – Dilapidations – Settlement of action – Claimant seeking damages for terminal dilapidations – Claim reduced to fraction of original sum – Judge exercising discretion in respect of costs of action – Whether judge in position to assess costs – Whether defendant entitled to costs – Whether claimant acting in way to justify indemnity costs order – Costs order made
In 2001, the defendant was the lessee and the claimant’s predecessor in title was the lessor under a business lease of the basement, ground and four upper floors of a building for the residue of a term of 25 years from 1980.
In January 2002, the old lease was surrendered and a new lease was granted. The defendant covenanted to keep the property in good and tenantable repair and condition and to deliver it up in the same condition at the expiry or earlier determination of the term. The lease also provided the claimant with a right of entry and inspection. This included a proviso that “any action taken by the lessors upon entering the said premises will not result in the lessors serving an interim or final schedule of dilapidations”.
In 2005, the claimant acquired its predecessor’s interest in the building and became entitled, by assignment, to the benefit of the repairing covenants and the right to enforce them against the defendant. It commenced proceedings against the defendant in respect of dilapidations to a value of £416,632.
The defendant claimed that the claimant was precluded from enforcing the repairing covenants in the new lease by a collateral contract and/or a promissory estoppel leading up to and concluding with the execution of the new lease. The High Court decided as a preliminary issue that those contentions afforded a defence to the claimant’s claim and dismissed the action: see [2006] EWHC 3363 (Ch); [2007] 2 EGLR 37; [2007] 19 EG 166. The Court of Appeal allowed the claimant’s appeal against that decision: see [2007] EWCA Civ 622; [2007] 2 EGLR 51; [2007] 32 EG 90.
The claimant maintained its large claim for dilapidations, which was substantially reduced when it became clear that the claim had been grossly exaggerated. The action was largely compromised. In the absence of agreement, the court was asked to determine the issue of costs.
Held: A costs order was made.
The appropriate order was that the claimant should pay the defendant’s costs on an indemnity basis.
In determining costs in respect of cases that had settled, the court had to take into account the fact that the action had been compromised. It would normally not be possible to say, in the light of the compromise, that one or other party had been successful and, in those cases, an order as to costs would not be made. The court should not depart from the normal order, that the unsuccessful party should pay the costs of the successful party, unless it was in a clear position to do so on a proper basis of agreed or determined facts that enabled it to decide what other order should be made: BCT Software Solutions Ltd v C Brewer & Sons Ltd [2003] EWCA Civ 939 and AEI Rediffusion Music Ltd v Phonographic Performance Ltd (Costs) [1999] 1 WLR 1507 considered.
The effect of exaggerating a claim might be to prevent parties from having realistic discussions at an early stage in order to resolve a dispute or prevent a successful mediation and prevent a defendant from being able to assess realistically the value of the claimant’s case and make an appropriate CPR 36 offer. In appropriate cases, the defendant should not be left at such a disadvantage.
CPR 44.4(1)(b) permitted a court to award indemnity costs where the facts of the case and/or the conduct of the parties was such as to take the case out of the norm. Before such an order could be made, there should normally be a significant level of unreasonableness or otherwise inappropriate conduct in a party’s pre-litigation dealings or in respect of the institution and conduct of the litigation: Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hamer Aspden & Johnson (Costs) [2002] EWCA Civ 879 considered.
In the instant case, the claimant’s conduct had taken the case outside the norm. It had represented to the defendant both before and after the beginning of the litigation that it had a very substantial dilapidations claim and that the work claimed for had been carried out when it had not been carried out. Any proper investigation of that claim would have revealed that the claim was not genuine.
Mark Warwick (instructed by Howard Kennedy) appeared for the claimant; Jonathan Ferris (instructed by Michael Conn Goldsobel) appeared for the defendant.
Eileen O’Grady, barrister
