Costs – Claim dismissed and defendant’s counterclaim allowed – Parties accepting that defendant entitled to costs in principle – Whether grounds for disallowing certain items – Whether defendant entitled to part of costs on indemnity basis – Whether judgment rate of interest on costs to be deferred until after assessment – Judgment given accordingly
The claimant hotel owner brought a claim in trespass against the defendant, which owned the neighbouring hotel, in respect of its use of an access road on the claimant’s land. That claim was dismissed and the defendant’s counterclaim, asserting a prescriptive right of way over the road, was allowed with declaratory relief granted accordingly: see [2010] EWHC 2749 (Ch); [2010] 45 EG 92 (CS). Three issues arose as to the appropriate costs order consequent on that judgment.
By the first issue, the claimant accepted that the defendant, as the successful party, was in principle entitled to its costs but sought to have certain items disallowed. Those items concerned the costs occasioned by the defendant’s unsuccessful assertion that the claimant had been aware of a change in ownership of the defendant’s hotel and a further assertion, raised in an amended defence but subsequently abandoned, that a right had been established by a period of use prior to 1973, as opposed to the period after 1980 on which the finding of a right of way was reached.
As regards the second issue, the defendant sought to have its costs assessed on an indemnity basis in respect of two periods. One of those was the period during which the claimant had maintained an inflated claim for damages; the defendant contended that it had felt unable to leave any stone unturned in defending that claim, such that the assessment of costs should not be confined to those that were proportionate, as would be the case on a standard assessment. The other was a period following the claimant’s rejection of the defendant’s offer to settle, expressed to be made under CPR 36, on terms involving the payment of rent of £40,000 pa for a licence to use the road plus 10% of the claimant’s costs of the litigation.
The third issue concerned the claimant’s contention that interest on the costs should not run at the judgment rate from the date of the order for costs but only from the later date of assessment.
Held: Judgment was given accordingly.
(1) Where an issue in litigation could be isolated, on which one party was unsuccessful, the court could, in its discretion, make distinct provision for the costs referable to the issue, notwithstanding that that would be adverse to the successful party. No such order should be made in respect of the issue of actual knowledge because the claimant had introduced that issue into the case and it would be unjust to deprive the defendant of any costs incurred in responding to that issue. However, such an order was appropriate in respect of the costs expended on the issue of pre-1973 use of the road since they had been occasioned by a specific plea by the defendant, which it had maintained for 18 months and then abandoned. The defendant should not recover its costs on that issue but should reimburse the claimant for costs incurred solely by reason of that allegation.
(2) Although the presentation of an inflated claim could justify an award of indemnity costs in appropriate cases, no such award should be made in the instant case. The case had been hard fought and no expense had been spared despite the fact that the case had come to trial many months after the quantum of damages had been reduced to a more realistic level. Moreover, in so far as the defendant had spent more in conducting the case when it faced a large financial claim than it would otherwise have done, that could be taken into account in any argument concerning proportionality in the assessment of costs on the standard basis: see CPR 1.1(2)(c). Accordingly, even though the claimant recognised that its original basis of quantifying the claim was misconceived, and the exaggeration of claims was to be discouraged by the court, that was not sufficient in the circumstances to justify an award of indemnity costs.
Nor should costs be awarded on an indemnity basis for the period after the defendant’s offer to settle. Properly construed, that offer was not a Part 36 offer. Where a Part 36 offer was accepted, the claimant was entitled to its costs up to the date of acceptance. That was not a matter of discretion but resulted from the operation of the rules; the court had no discretion to disallow a proportion of those costs. Since the terms of the defendant’s offer purported to provide the claimant with only 10% of its costs, it incorporated a costs limitation that was inconsistent with CPR 36 and could not constitute a Part 36 offer. Although it fell for consideration by the court in deciding what order to make on costs, the parties’ conduct in respect of that offer did not take the case out of the norm so as to justify an order for indemnity costs: Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson (Costs) [2002] EWCA Civ 879 and Kiam v MGN Ltd (No 2) [2002] EWCA Civ 66; [2002] 2 All ER 242 applied. The settlement offer had been made close to the trial date and, in such a hard-fought case, it would not be appropriate to penalise the claimant by an order for indemnity costs on the basis of an offer of settlement made at such a late stage.
(3) Once a costs order was made, the liability to costs was payable as a judgment debt to which, in the absence of a contrary order, the judgment rate of 8% would apply. Given the fall in interest rates in recent years, that rate was significantly above the commercial rates charged or paid. Although it might be justified to maintain a rate under the Judgment Acts that substantially exceeds the commercial rate, in recognition of the fact that the payment of a judgment debt was not to be regarded as any other commercial debt, that reasoning did not apply before the amount to be paid was known. Until costs were assessed or agreed, the paying party did not know the amount that had to be paid. Since interest was intended to compensate the receiving party for being deprived of its money, interest at 8% on costs could provide it with a windfall. One solution was for the court to exercise its discretion, under CPR 40.8, to postpone the start of the judgment rate on costs until they had been assessed or agreed. Although it would be inappropriate to exercise that discretion as a matter of course, that did not preclude a limited postponement in a case where the costs were significant and there were potential issues of proportionality and reasonableness on taxation: Schlumberger Holdings Ltd v Electromagnetic Geoservices AS [2009] EWHC 773 (Pat) considered, Colour Quest Ltd v Total Downstream UK plc [2009] EWHC 823 (Comm); [2010] 2 Costs LR 140 and D Pride & Partners v institute for Animal Health [2009] EWHC 1617 (QB); [2009] 5 Costs LR 803 applied. In the instant case, where the overall costs were substantial, it would be unjust for the judgment rate to apply immediately. An interim payment of £400,000 would be ordered, with the application of the judgment rate to the unknown balance to be postponed for four months to enable the parties to obtain an assessment or reach agreement.
Jonathan Gaunt QC (instructed by Mishcon de Reya) appeared for the claimant; Nicholas Dowding QC and Stephen Jourdan QC (instructed by Payne Hicks Beach) appeared for the defendant.
Sally Dobson, barrister
