Landlord and tenant – Breach of covenant – Costs – Claimant landlord commencing proceedings for breach of repairing covenants – Defendant tenants refusing to mediate but making Part 36 offer to settle – Claimant accepting offer after expiry of time limit – Whether claimant entitled to costs from expiry of time limit up to date of acceptance – Application granted in part
On 10 January 2012, the day before the trial was due to start, the claimant accepted a Part 36 offer that had been made by the defendants on 11 April 2011 which brought the proceedings to an end, save for the question of costs. The claimant applied to the court for an order that the defendants pay its costs on a standard basis for the periods: (i) prior to 2 May 2011; and (ii) from 3 May 2011 to 9 January 2012. In respect of the first period (i.e. the expiry of the relevant 21 day period following the offer of 11 April), CPR. rule 36.10(5)(a) provided that the claimant was entitled to its costs and the court did not order otherwise.
However, the claimant maintained that it should also have its costs in respect of the second period because it was only on 10 January 2012 that it became aware that the defendants were going to contend that they were not liable for defects to the air conditioning system on the basis that the system was not part of the demised premises and therefore not subject to the repairing obligations. The claimant also relied upon the allegedly unreasonable refusal of the defendants to mediate.
The claimant contended that it was entitled to its costs because the demised premises argument raised late by the defendants was “information” within CPR, rule 36.14(4)(c) or CPR, rule 36.14(4)(d) which had not been available to the claimant when the Part 36 offer was made. Further, if the defendants had agreed to mediate, the argument would have arisen at that stage.
Held: The application was granted in part.
The court did not accept that, in the present context, the demised premises point was what CPR, rule 36.14(4)(c) and (d) were referring to in using the word “information”. It was understandable that the factual information that might be available to a party might affect its view of the merits of the case and therefore whether an offer should be accepted. However, the proper interpretation of a lease was not “information”. Whilst the defendants might be criticised for failing to put forward their argument as to the scope of the demised premises until the last moment, it had been available at all times to the claimant from a reading of the underleases. Since the underleases demised individual floors, the claimant would be expected to consider the nature and extent of the repairing obligation and the precise extent of the demised premises, particularly in relation to air conditioning which on any view was, at least in part, not physically within the demised premises. Accordingly, the defendants’ conduct in failing to plead the point was not relevant.
Further, there was no evidence or material to conclude that, but for the defendants’ alleged failure to plead the argument or to participate in mediation, at which point it was said the argument would have emerged, the Part 36 offer would have been accepted. In the absence of that causal link and taking the circumstances into account, the present case did not fall into the exceptional category which would render it unjust for the claimant to pay the defendants’ costs after expiry of the relevant period. Therefore it was not appropriate for the defendants to pay the claimant’s costs: Lumb v Hampsey [2011] EWHC 2808 (QB) applied.
(2) However, it had been unreasonable for the defendants not to respond to suggested mediation, and not to agree to mediate the dispute. The factors considered in Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576, making it unreasonable to refuse to take part in a mediation were present here, including the consideration that there was a reasonable prospect that the mediation would be successful. Whilst the burden of establishing a reasonable prospect of success rested on the claimant in this case, it was not unduly onerous given that it did not need to show that the mediation would have been successful, merely that it had a reasonable prospect of success. Whether or not the demised premises point subsequently raised by the defendants had emerged in the course of the mediation, there was a reasonable prospect that well advised commercial parties, such as these, with the benefit of experienced lawyers, would have been able to reach an accommodation.
(3) Accordingly, the claimant was entitled to its costs, incurred up to the expiry of the relevant period following the offer on 2 May 2011, on the standard basis. There would be no order for costs in respect of the period thereafter. Each party would bear their own costs of the current hearing.
Jonathan Seitler (instructed by Browne Jacobson LLP) appeared for the claimant; Guy Fetherstonhaugh (instructed by Kingsley Napley LLP) appeared for the defendants.
Eileen O’Grady, barrister
