Landlord and tenant – Costs – Basis of assessment – Court holding defendant tenants of commercial building failing to discharge burden of proving claimant landlord’s apportionment of service charge unfair – Issue arising as to basis of assessment of costs – Whether costs properly assessed on standard or indemnity basis – Judgment for claimant
In a case concerning the apportionment of service charges, the court held that the defendant tenants of part of commercial building had failed to discharge the burden of proving that the claimant landlord’s apportionment of service charges was unfair: [2021] EWHC 216 (Ch); [2021] PLSCS 31. It was accepted by the defendants that in principle they should pay the costs of the claimant. However, an issue arose concerning the basis of assessment.
In relation to the basis of assessment, the claimant argued that it was entitled to costs on the indemnity basis as a matter of contract. Under various clauses in the lease, the underlease and the further lease, the first defendant had covenanted to pay all the lawyers’ costs of proceedings to recover arrears of service charge. Those clauses contained covenants to pay such costs and expenses but used slightly different terminology. In relation to the underlease and the further lease, the reference was to expenses “properly incurred” by the landlord. In relation to the supplemental lease, there was no limitation to expenses “properly” incurred. Instead, the covenant was to pay “all costs, charges and expenses which the landlord may from time to time incur …”. But the supplemental lease was for a term of only a little more than six months, so the sums claimed in the present proceedings attributable to that lease would be modest.
The claimant also relied on the conduct of the defendants, which they said took the matter out of the norm for the purposes of the indemnity costs basis. The defendants denied that there was any contract to pay indemnity costs, and that there was any other basis upon which indemnity costs could be ordered.
Held: Judgment was given for the claimant.
(1) The principal difference between the standard basis and the indemnity basis was that, on the standard basis, costs were recoverable only if proportionately incurred and proportionate in amount, whereas the indemnity basis was not concerned with proportionality and nor was the contract. By virtue of CPR 44.3(1), costs would not be allowed if they were unreasonably incurred or unreasonable in amount, whether the court was assessing them on the standard or the indemnity basis. Where the court assessed costs which were payable by the paying party to the receiving party under the terms of a contract, CPR 44.5(1) provided, subject to certain exceptions, that the costs payable under those terms were, unless the contract expressly provided otherwise, to be presumed to have been reasonably incurred, and were reasonable in amount.
The defendants had argued that the wording in this case was indistinguishable from that in Primeridge Ltd v Jean Muir Ltd [1992] EGLR 273, where the judge held that costs should be awarded on the standard basis, because of the presence of the adjective “proper” in relation to costs. They said that the words “properly incurred” in the present covenants effectively meant the same as the “proper costs” in Primeridge. However, that case was decided on the basis of the Rules of the Supreme Court 1965, as amended. The present case was governed by the new procedural code in the Civil Procedure Rules 1998, as amended. The terms of the functionally equivalent rules were not the same, nor was the context in which those rules existed and were applied. The phrase “proper costs” was not the same as “costs properly incurred”. Something might be a “proper cost”, in the sense that it would be appropriate in some circumstances to incur it, and yet not “properly incurred”, in the sense that the circumstances pertaining were not such as to make it appropriate to incur it: Primeridge not followed.
The contract here was consistent with an indemnity costs award. The thing which mattered was proportionality, which was the main difference between standard and indemnity basis costs. In the present lease there was nothing restricting costs to what was proportionate. The terms of the lease were such that an award on the indemnity basis would best reflect the contract between the parties. That was not conclusive, but there was nothing to justify a departure from the contract. Therefore, the court would award indemnity costs: Macleish v Littlestone [2016] EGLR 32 and Alafco Irish Aircraft Leasing Sixteen Ltd v Hong Kong Airlines Ltd [2019] EWHC 3668 (Comm) followed.
(2) If that was wrong and the matter was to be considered on the basis that Primeridge should be applied to preclude an indemnity costs award based merely on the contract, the fact remained that there was a contract between the parties that certain costs would be paid by the tenant to the landlord. It was a factor to be taken into account in considering whether, in the exercise of the court’s discretion, there should be an order for costs on the indemnity basis. Under CPR 44.3(4), the court had to take into account, amongst other things, the parties’ conduct and any admissible offer to settle the proceedings.
The conduct of the defendants which was said to take the case out of the norm included an unrealistic perception of the strength of the defence, the abandonment of some issues at trial and the alleged weaknesses of the defendants’ case on the four issues on which they fought and lost. In addition, there was a time-limited Part 36 offer which the defendants did not accept and the defendants had not even raised a prima facie case to justify the allegation that the claimant’s apportionment was unfair. The weaknesses of the defendants’ case did not in themselves justify an award of indemnity costs, because by themselves they did not take the case out of the norm. It could not be right to order losing defendants to pay indemnity costs merely because they had lost. On the other hand, the conduct of the defendants’ case demonstrated failings in the conduct of the litigation. By themselves they would not be enough to justify indemnity costs but, taken together, in the exercise of the court’s discretion, it would overall have been appropriate to award indemnity costs against the defendants.
Nicholas Trompeter and Alice Hawker (instructed by Simkins LLP) appeared for the claimant; Stephen Jourdan QC and Philip Sissons (instructed by CMS Cameron McKenna Nabarro Olswang LLP) appeared for the defendants.
Eileen O’Grady, barrister
