England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM TECHNOLOGY & CONSTRUCTION COURT
HIS HONOUR JUDGE COLIN REESE QC (Sitting as a Deputy High Court Judge)

		Royal Courts of Justice Strand London WC2 Monday, 25th June 2001

Monday, 25th June 2001

1. LORD JUSTICE SCHIEMANN: Before the court is an appeal by a successful claimant against a costs order made after a trial in the Technology & Construction Court. The claim with which we are concerned was for damages payable by a tenant in respect of delapidations on the conclusion of his lease. The action was started in the Technology & Construction Court on 20th August 1999 and at its conclusion the claimant recovered £53,695.25 in damages following a four-day trial which took place between 20th March and 24th March 2000.
2. The crucial dates are these. On 17th December 1999 the defendants paid £35,000 into court. On 1st March 2000 the claimants made a Part 36 offer of £135,000. Thereafter the defendants paid a further £15,000 into court on 10th March, some ten days before the date fixed for trial. So the end result was that the judgment sum exceeded the payment in by something in excess of £3,500. The trial judge, however, awarded the claimant only 33.1/3% of its costs up to the date of the second payment in which was 10th March, and only 15 per cent thereafter.
3. This result is at first blush surprising, though it is right to point out that the judge was giving judgment at a time when the CPR rules were relatively new, and since that time there have been two decisions of this court dealing with costs which set out some useful general principles. The first is Amber v Stacey. This court, consisting of Simon Brown LJ and Sir Anthony Evans gave its decision on 15th November. I do not think that has been fully reported anywhere. The same can be said of a second case, Johnsey Estates (1990) Ltd v Secretary of State for the Environment [2001] EWCA CIV 535, a court consisting of myself, Chadwick and Arden LLJ on 11th April of this year.
4. From those cases it is clear that it is manifestly desirable that the outcome of litigation, including the outcome as to costs, should be reasonably predictable. Yet the facts of cases vary infinitely and the rule maker cannot make provision for every eventuality. The rules therefore leave the judge a measure of discretion in an attempt to produce justice in line with principle; and so as long as the judge acts in accordance with principle, this court, which lacks the advantage of having seen the case develop, will not interfere with the decision of the judge. Another way of putting it is to say the court will not interfere unless the judge is plainly wrong.
5. The Civil Procedure Rules set out the relevant guidelines, in CPR 44.3, and I do not need to set them out in detail, save to remind myself that the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party, but the court may make a different order; amongst the relevant factors for the court to take into account is payment in or an offer to settle; the conduct of the parties; and in particular whether a particular issue has been decided against one party who, nevertheless, managed to win overall.
6. What is important and is relevant to the present case is what was said by Chadwick LJ in Johnsey and agreed with by the remainder of the court in paragraph 32 of the judgment. He said this:

"It seems to me that a court should resist invitations to speculate whether offers to settle litigation which were not in fact made might or might not have been accepted if they had been made. There are, I think, at least two reasons why a court should not allow itself to be led down that road. First, the rules of court provide the means by which a party who thinks that his opponent is not open to reason can protect himself from costs. He can make a payment in; he can make a Calderbank offer; now, under the Civil Procedure Rules 1998, he can make a payment or an offer under CPR Pt 36. The advantage of the courses open under the rules is that they remove speculation. The court can see what offer was made, when it was made, and whether it was accepted. Second, speculation is likely to be a most unsatisfactory tool by which to determine questions of costs at the end of a trial."

7. Without knowing the detailed advice received by each party at each stage of its claim - and it was not suggested in that case, and I do not think it is in the present case, that this should have been available - the speculation of the court would be hopelessly ill-informed.
8. The matter was put slightly differently by Simon Brown LJ in Amber v Stacey where he said this in paragraph 39 and following:

"There are to my mind compelling reasons of principle and policy why those prepared to make genuine offers of monetary settlement should do so by way of Part 36 payments. That way lies clarity and certainty, or at any rate greater clarity and certainty than in the case of written offers."

9. He goes on to say:

"Payments into court have advantages. They at least answer all questions as to (a) genuineness, (b) the offeror's ability to pay, (c) whether the offer is open or without prejudice, and (d) the terms on which the dispute can be settled. They are clearly to be encouraged, and written offers, although obviously relevant, should not be treated as precise equivalents."

10. But Simon-Brown LJ draws attention in paragraph 40 to a possibly important consideration, that a party may be able to establish that it was their opponent's unreasonable conduct which prevented them making a properly informed decision about their prospects in the litigation and thus avoid what would be the usual costs order. That is an important consideration to bear in mind because manifestly the court is concerned that each party should be able to assess its case realistically with a view to being able to make a sensible offer; and it is a fair point to make that in the present case the parties were a long way apart. In many ways the judge came down much closer to the defendant's side than to the claimant's side and it is a fair point to make that the claimant indicated that it really was not interested in talking at the level at which the defendant was talking; but nonetheless the end position was that the claimant beat both payments in.
11. What then did the judge say? He indicated that Firle, who had claimed some £385,000 worth of delapidations, was represented by Mr Hutchins, who has also helpfully addressed us. According to the judge (page 14):

"Mr Hutchins submitted that this was a case where the full repairing cost was the correct measure of damages (because the refurbishment works in fact carried out in 1999 had not been inevitable; they were the result of Datapoint's breaches of contract...) For reasons which will become apparent, in my Judgment, this claim cannot succeed. In the alternative, and much more realistically, basing himself on [his expert's] views in respect of his preferred hypothetical purchaser... Mr Hutchins submitted that the diminution in the value of the reversion owing to the breach of the repairing covenant was £185,000 (a figure which reduced as a result of continuing discussions between expert witnesses during the course of the trial)."

12. Datapoint, the defence, admitted the generality of the allegations that the premises were delivered up in such a state that the repairing covenants had been breached; but the extent of the breaches was disputed. Datapoint (the tenants in this case) deny that Firle (the claimants) had suffered any loss and alternatively relied on each limb of section 18(1) of the Landlord and Tenant Act. Although its pleaded position in relation to the first limb of section 18(1) was to deny any diminution in value the case moved on during the course of the trial. By the time that Miss McAllister, who appeared for the tenants, came to make her closing speech, the essence of its defence can, said the judge: "I think fairly be summarised in this way..." - and he divides it into dealing with the second limb of section 18 and the first limb. Under the second limb of the case, he says:

"By the autumn of 1998 Inforex House was a "dated" building. Even if the premises had been left in good and tenantable repair at the end of the term they would not have been marketable in that condition because of numerous shortcomings in the facilities offered. Being a knowledgeable and astute commercial landlord, Firle had been well aware of the position during the final years of the tenancy. It was considering and planning for the necessary substantial refurbishment works prior to 28th September 1998 [when the tenancy came to an end]. Although the works were not begun for some months after the expiration of the term the necessary intention existed at the date when the lease expired, the works were in fact done 'shortly after' and the nature/extent of the works was such that all or substantially all of the repairs covered by the covenant would have been rendered valueless."

13. Then dealing with the first limb case the judge goes on to say that the claimant's surveyor's opinion was that works to the value of just over £97,000 would have survived the refurbishment; whereas the defendant was contending for some £15,000; and the judge, in a long and very careful judgment, sets out the various contentions on either party and in substance finds that there was no intention to pull down the whole building but that quite a lot of the decorations and other things would not have survived the refurbishment.
14. Turning to the costs part of the judgment the judge says this:

"In this case, Firle has succeeded in establishing an entitlement to damages but when compared to its pleaded aspirations the degree of success is modest. Firle's failure to acknowledge the reality of the intended refurbishment (both before and during the litigation) made the case more complex than it needed to be. The valuation evidence was, to my mind, far more complicated than necessary."

15. Fourth, on 10th March 2000:

"Datapoint made what should clearly have been regarded as a realistic settlement offer which, in my view, deserved to receive a constructive and conciliatory reaction."

16. Turning to the other side's point of view the judge says that Datapoint's persistence with the second limb defence and its failure to acknowledge that there were legitimate claims for the costs of a section 146 Notice and until March 10th 2000 for damages of the order (when interest was added) of £50,000, seemed to the judge factors to be borne in mind. He says that Datapoint can also be criticised for producing valuation evidence that was far more complicated than necessary.
17. Having listened to the very helpful submissions by the parties it seems to me that the judge was clearly in error in relation to the period up to 10th March 2000. The claimant succeeded by a substantial amount so far as the offers which were on the table were concerned. The defendant could have made a payment in and therefore in principle the claimant is entitled to its costs. This is not a case where there were clear separate issues on some of which the claimant won and others lost if issues be taken as matters which had to be proved by one side or the other in detail for the points to succeed. As it seems to me up to 10th March the position ought to be that the claimant gets its costs in full as opposed merely to one-third of its costs which was the view of the judge. That difference, as it seems to me, is such as entitles this court to interfere.
18. The position, thereafter, is a little bit more difficult. That is because the judge points out in the course of his long judgments various matters in which the claimant persisted right until the end in asserting as regards its intentions which it should not have persisted in asserting. No one now knows precisely what effect that had on the trial. It is not suggested that that as such determined the defendant's attitude as to payment in, but it undoubtedly will have lengthened the trial. Further, the claimant's actions as revealed in its correspondence undoubtedly were, one might almost say, such as to warn the defendant off the course and make it seem most unlikely that further negotiations could be pursued. For my part I would regard that latter point as a relatively small point although in principle it must be right that this court will encourage parties to negotiate without putting their own positions in an extreme manner. As I say for my part I am not persuaded entirely that the attitude adopted by Mr Hutchins' clients in respect to some matters was an attitude which was unreasonable for them to adopt even though the judge did not, in the event, accept that part of the evidence. It is often the case that in a case there will be a hundred or more sub-issues on some of which one party does less well than he hoped, and the other party does less well than he hoped.
19. However the various factors which the judge did indicate were ones in the investigation of which time was taken at the trial, which do, as it seems to me, given that that is the view that the judge formed, entitle the defendants to say that the claimants should not have all their costs in relation to the period after 10th March. I do not claim to have approached this in anything like a scientific way, but it seems to me that the figure adopted by the learned judge of 15 per cent is quite wrong in principle, but if one acknowledges that there is some force in some of the points that he make, a figure which entitles the claimants to recover 70 per cent of their costs is closer to the sort of thing that ought to have been ordered. For my part I would vary the judge's order so as to produce that result.
20. LORD JUSTICE KAY: I agree with the conclusions of my Lord's judgment. I would perhaps have taken a stronger view about the claimant's unhelpful attitude to negotiation, but in the end it seems to me at that I arrive at much the same conclusion as to the proper deduction as my Lord, and I therefore agree with his judgment.
21. SIR MURRAY STUART-SMITH: I also agree.
(Appeal allowed with costs; costs awarded to the claimant up to and including 10th March, and 70 per cent thereafter).