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UPPER TRIBUNAL
(LANDS CHAMBER)
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UT Neutral citation number: [2012] UKUT 89 (LC)
UTLC
Case Number: ACQ/309/2009
TRIBUNALS,
COURTS AND ENFORCEMENT ACT 2007
COMPENSATION – costs – conduct
of the parties – no order for costs
IN
THE MATTER OF A NOTICE OF REFERENCE
BETWEEN REGINALD
CHARLES CHAPMAN
JANE
WINIFRED CHAPMAN Claimants
and
DWR
CYMRU WELSH WATER Compensating
Authority
Re: Hafod Wen,
Harlech,
Gwynedd,
LL46 2RA
Decision
on costs determined on written submissions following agreement on compensation
The following cases are referred to in this decision:
Purfleet Farms Ltd v Secretary of State for
Transport, Local Government and the Regions [2002] RVR 368
Bestley v North West Water [1998] 1 EGLR 187
Business Environment Bow Lane Ltd v Deanwater Estates [2008] 3 EGLR 105
DECISION
Introduction
1.
This is a decision on costs following settlement by agreement between
the claimants, Mr & Mrs R C Chapman and the compensating authority, Dwr
Cymru Welsh Water (“Welsh Water”) of a claim for compensation that had been
made under the provisions of sections 159 and 168 of the Water Industry Act
1991 (“the Act”) and, following a Notice of Reference dated 14 July 2009, had
been due to be heard before the Tribunal on 10/11 January 2012. Detailed
submissions on costs together with counter submissions and rebuttals have been
received from the solicitors representing the parties: Llanyon Bowdler
(formerly LG Solicitors) of Shrewsbury for the claimants and Hughes Griffiths
Partnership of Swansea for the compensating authority.
Background
2.
The claimants are the owners of Hafod Wen, Harlech, Gwynedd, a guest
house situated in 8 acres of grounds on the mid-Wales coast. On 19 March 2004, Welsh Water served notice to enter upon the land in the exercise of its
statutory powers under the Act in connection with the construction of the
Harlech to Llanbedr sewage transfer main. The works commenced in October 2004
and some 297 metres of sewage pipe were installed within the grounds of the
property, together with an automatic air valve. The claimants appointed Carter
Jonas, Chartered Surveyors, to act upon their behalf and pursue a claim for
compensation. On 10 January 2005, their Ms Gail Bleakley wrote to Welsh Water
suggesting that compensation to be assessed in accordance with the provisions
of Schedule 12 to the Act should be in the region of £23,000, and that the
principles applied in Bestley v North West Water [1998] 1 EGLR 187
supported that approach.
3.
A more detailed proposal was submitted to Welsh Water on 2 August 2005, adding a number of disturbance issues to the £23,000 for depreciation, and
totalling £34,495. A formal letter of claim was then submitted to Welsh Water
on 31 May 2006, and comprised:
Depreciation as previously
assessed £23,000
Loss of guest house profits
(closed 1 month Oct 2004) £ 5,261
Claimants’ time 145 hours @
£15ph £ 2,175
Loss of grazing income on part
of land £ 420
Use of unauthorised working
area £ 750
Damage to driveway £
1,000
Repairs/re-instatement to sand
dune area £ 900
Trespass £
500
Surface obstruction (valve
chamber) £ 250
Grassland re-instatement £
1,400
Total £35,656
Together with interest and
professional costs.
4.
Welsh Water responded by offering £2,409 for the loss of profit element
alone, and sought further information relating to other heads of claim. An
advance payment of £4,000 was made to the claimants on 27 September 2006. Following this, the claimants produced an amended “draft” statement of claim
on 21 May 2008 where the depreciation was reduced to £15,625, the loss of
profit claim was reduced to £4,907, the hours claim was changed to £2,012.50
being 80.5 hours @ £25 ph, and the claim for trespass was withdrawn. The
revised total was £26,514.50. The compensating authority again sought further
information, and on 17 November 2008 made an offer of £6,150 exclusive of items
where further information was awaited. A further revised proposal was
submitted by the claimants on 14 May 2009 (which Welsh Water say they did not
receive) amending the claim to £25,807.50.
5.
As the parties were no nearer reaching agreement, the notice of
reference was submitted on 14 July 2009. Welsh Water then made a without
prejudice offer of £17,460 on 1 September 2009 on the following basis:
Depreciation £
8,500
Loss of profit £
4,200
Claimants’ time £
1,610
Loss of grazing income £
250
Use of unauthorised working
area £ Nil
Damage to driveway £
750
Sand dune area £
900
Surface obstruction (valve
chamber) £ 250
Grassland re-instatement £
1,000
£17,460
Together with interest and
fees to be agreed.
6.
On 17 September 2009, the claimants produced a statement of case in
relation to the reference, claiming £30,902. Discussions between the parties
continued and there were various email exchanges in September and October
2009. It was acknowledged that on the basis of those discussions, the parties
appeared to be about £10,000 apart and in a telephone conversation between the
respective agents on 7 October 2009, the claimants’ agent suggested a
compromise whereby the compensating authority should increase its offer by
£5,000 making a total of £22,460. This was refused, and in an email of 15
October, Welsh Water withdrew all previous offers. By letters dated 3 and 16
December 2009, Carter Jonas advised Welsh Water that, without prejudice, and
save as to costs, the claimants would be prepared to accept £20,500. plus
costs.
7.
Welsh Water wrote to the claimants’ agent on 16 December 2009 confirming the withdrawal of all previous offers, “including that of 2 September 2009.” On 12 January 2010, following advice from the expert who had been
appointed to act for them in respect of the reference, Welsh Water submitted an
open offer of £7,000, less the £4,000 already paid to the claimants and £200 to
their accountant, plus interest, valuer’s fee and costs. Following a query as
to how that figure was made up, Welsh Water repeated the offer on 11 October
2011 and said that that, although it had been intended to be a global figure,
it could be taken as:
Depreciation £
1,000
Loss of profit £
2,750
Claimants’ time £
500
Loss of grazing income £
300
Damage to driveway £
500
Sand dune area £
600
Surface obstruction £
100
Grassland re-instatement £
750
“Rounding up figure” £
500
Total £
7,000
8.
On 9 December 2011, the claimants’ solicitors put forward an offer to
settle at £10,000 plus costs. On 14 December, Welsh Water responded with a
final offer of £8,500 together with valuer’s fees which they agreed at
£1,067.50 plus VAT, and a £3,000 contribution to legal costs. Shortly prior to
the hearing, the claimants accepted the £8,500, surveyor’s fees and a further
£200 accountant’s costs, but rejected the offer regarding legal fees.
Submissions
9.
It was submitted for the claimants that they should have all their legal
costs of £11,951.40 and disbursements of £5,577.50 which were “not
disproportionate when considering the value, complexity and importance of the
claim.” The agreed compensation of £8,500 exceeds the offer made by the
compensating authority on 12 January 2010. The claimants have therefore
succeeded in their claim and in accordance with general principles, should have
all their costs. When exercising its discretion, the Tribunal should consider
all the circumstances including the conduct of the parties. It was submitted
that the claimants’ conduct had been entirely reasonable throughout; they have
raised and pursued a reasonable claim and have done so in a proportionate and
appropriate manner. As to the earlier without prejudice offer of £17,460, it
was submitted that it had only been available for a very short period of time.
It was withdrawn by email on 15 October 2009, before it was in any event rejected
by the claimants on 3 December 2009, and was further confirmed by letter as
having been withdrawn on 16 December 2009. As such, that offer should provide
no basis for disentitling the claimants to their costs and should be
disregarded.
10.
In ten pages of further submissions, filed in response to the
compensating authority’s costs submissions (which were exchanged simultaneously),
the claimants refuted Welsh Water’s suggestion that the claimants behaviour had
been unreasonable, had prolonged the proceedings and had thus forced them to
incur unnecessary costs. The applications for further disclosure had, in many
respects, been unnecessary and there were a number of occasions when
documentation that had already been supplied had been sought. In any event,
the claimants had not taken issue in respect of the compensating authority’s
late production of documentation that they had sought, and it was not fair,
therefore, for them to complain in the manner that they had. The criticism of
the claimants’ application to amend their statement of case (which was approved
by the Tribunal) and that it was made late in the day was unjustified. The
authority had been put on notice that it was intended to update the claimants’
time costs, and none of the amendments that were made changed the substance of
the claim. Indeed, the authority themselves admitted that the amendments were
not significant. Welsh Water had also alleged that the claimants had not made
an offer to settle once these proceedings had commenced, but that was
incorrect. The offer to settle at £20,500 was made in December 2009. Such a
criticism was particularly inappropriate as correspondence from Welsh Water
during the negotiations had specifically said that they would not enter into
“horse-trading.”
11.
The authority’s claim for summary legal costs and disbursements of over
£35,000 excluding VAT, was, it was submitted, contrary to the claimants’ very
reasonable costs, and was wholly disproportionate and unjustified. The time
spent by Welsh Water’s solicitors had been excessive, and the expert’s fees are
nearly four times those incurred by the claimants. Many of the costs being
claimed were unnecessary and un-recoverable, for instance fees charged by their
expert in “dealing with issues outside his expertise”, costs of aerial
photographs that were never disclosed or produced, unknown Land Registry fees,
obtaining a copy of a structural survey report that had been carried out on the
property by the authority prior to the works being undertaken (no claim having
been made for structural damage) and a company search fee that seemed wholly
irrelevant. The fees claim was of such a level, and was so full of anomalies,
that if the Tribunal finds in Welsh Water’s favour on costs, any award should
not be by summary judgment, but subject to detailed assessment by the Registrar
if not agreed.
12.
The compensating authority sought a summary assessment of its costs in
the reference pursuant to Rule 10(5)(a) in the sum of £35,495.59 excluding VAT
on disbursements, and in doing so, submitted that regard should be had to the
initial offer made by Welsh Water in the sum of £17,640 on 2 September 2009,
which was rejected by the claimants. As to that offer, it had been made in an
attempt to settle this long outstanding dispute and in an effort to avoid
proceedings, and was substantially above the amount that their valuer had assessed
as being appropriate compensation.
13.
The Hughes Griffiths Partnership was only instructed by Welsh Water on 2 October 2009. On 7 October 2009, it was submitted, there was a telephone conversation
in which the claimants verbally rejected the offer of 2 September, and advised
that they would settle if another £5,000 was offered. The offer was withdrawn
by email on 15 October 2009, the authority having decided, in accordance with
its policy, that it was no longer willing to pay an inflated claim. The
claimants, having made a revised offer of £20,500 in December 2009, had not
revised that figure until shortly before the substantive hearing was due to
take place. They had not responded to Welsh Water’s open offer made in January
2010 other than to ask how it had been made up. At that date, legal costs were
still limited. From that point, it was said, the authority’s costs rose
significantly in preparation for the hearing of the reference. It was only in
December 2011 that serious and constructive negotiations took place, the
claimants’ then offer of £10,000 being more than 50% below their previous
proposal.
14.
In all the circumstances, it was submitted that, with the finally agreed
figure being only marginally above the £7,000 offer that remained open until
final agreement was reached, Welsh Water should have all of its legal costs.
In considering its discretion, the Tribunal should be mindful of the judgment
in Business Environment Bow Lane Ltd v Deanwater Estates [2008] 3 EGLR 105 in the context of costs incurred against benefit gained.
15.
As to why there was such a disparity between Welsh Water’s two offers,
it was stated that the authority has to deal with many hundreds of claims and,
as a regulated non-profit making entity it has a duty to its customers.
Whilst it will endeavour to resolve claims by making enhanced offers in order
to avoid the trouble and costs of proceedings, it had to weigh this up against
the potential disadvantages and costs of habitually making inflated payments.
If that became the norm, further inflated claims would be encouraged. It was
policy therefore, if enhanced offers are refused, and proceedings therefore
become inevitable, that the authority reverts to strictly applying Schedule 12
to the Act.
16.
It was submitted, at considerable length, that problems over disclosure
were a significant contributor to the escalation in the authority’s costs. Many
attempts had been made to extract relevant documentation from the claimants in
support of their contentions, and due to the lack of response, it had been
necessary for applications to be made to the Tribunal on two occasions for
extensions of time in submitting expert reports – those applications not having
been objected to. It was, of course, a duty of parties to make relevant
disclosure, and the lack of co-operation from the claimants had meant that
evidence to prove quantum under the various heads had not been forthcoming. Once
the claimants had appointed their own solicitors, exchange of lists did
eventually occur in March 2010 but the claimants only produced four documents,
one of which was an accountant’s report that had already been produced but did
not have the requisite supporting information, and another was a privileged
letter. It became necessary to apply to the Tribunal for an Order for
disclosure, which was consented to, but again the disclosure that was made on 29 April 2010 proved unsatisfactory in a number of respects, much of the documentation in
four ring binders being irrelevant or incomplete. For example, in respect of
the re-instatement of the grassland, the documentation produced was the
claimants’ own summary of events, and did not include any invoice for the
works. This was never forthcoming despite further requests. If it had been,
the matter could have been agreed, and the amount of the invoice reimbursed.
Similar criticisms were made in respect of the claimants’ allegations that they
lost bookings as a result of purportedly having to close the guest house whilst
the works were ongoing.
17.
Later in 2010, and in 2011 despite the production of further, mostly
irrelevant, documentation, it became clear that no complete disclosure would
ever be forthcoming, and the matter would be referred to in the substantive
hearing in connection with costs. In summary, it was submitted that the
claimants’ approach to the whole matter had been slapdash, resulting not just
in increased legal costs, but extra costs relating to the difficulties that had
also been encountered by the expert.
18.
Despite the authority having disclosed its own list to the claimants on
5 March 2009 (and against which no criticism or complaint had been
forthcoming), it was only a few weeks before the substantive hearing was due to
take place that the claimants raised the issue of the negotiated settlement
that had been agreed in respect of the neighbouring property. It was notable
that neither of the experts had sought to include settlement information in
their reports, this being particularly surprising as the same surveyor as was
acting for the claimants, acted for the neighbour. That settlement, which had
been agreed in January 2010, was, it was admitted, the result of a certain
amount of horse-trading, and it was considered that it was inappropriate for
the information sought to be produced. Dealing with this late request for
information had incurred additional and unnecessary legal costs.
19.
In its 11 pages of further submissions (with appendices) dated 2
February 2012, the compensating authority’s solicitors refuted many of the
statements made in the claimants’ costs submissions, and re-stated their
position at considerable length, re-asserting their stance that in all the
circumstances, due to the claimants having acted entirely unreasonably, the
claim for costs should be allowed, and that a summary costs order be made.
As all the costs have been provided to the Tribunal, they said that it has
sufficient information to make such an order and it would not be in the
interests of the parties to have to incur the further time and costs that would
follow in the event of a detailed assessment becoming necessary.
Conclusions
20.
Whilst it is abundantly clear from the chronology of events is that this
matter has dragged on for far longer than it need have done and, with the
benefit of hindsight, the claimants might have been well advised to accept the
offer made by Welsh Water in September 2009, I am mindful of the fact that that
offer was well below the amount being claimed at the time and that, not
unreasonably in my view, attempts were made by the claimants to “split the
difference” (initially suggesting £22,460). They also compromised further, in
December 2009, by suggesting £20,500. It was only when the compensating
authority received advice from its appointed valuation expert that the offer
was abruptly withdrawn and subsequently substantially reduced. It could be
said that the authority should have obtained that advice much sooner. If it
had done so, the offer of £17,460 might never have been made, but the fact
remains that it was, and it amounted to a sum which, at the time, Welsh Water
obviously thought was justified. The existence of that offer makes any
suggestion that the claims made by Mr & Mrs Chapman were exaggerated to an
unreasonable or unacceptable degree, significantly less sustainable than if the
offer had never been more than the £7,000 proposed later. I would observe
that, in my view, rather than being exaggerated or unreasonable (to the extent
that if found to be the case, I should not follow the normal regime on costs),
the claim would be better described, in terms of comparison with the initial
offer made, as “over optimistic”. I also accept the claimants’ observations
that the initial offer, which was without prejudice, was withdrawn after a
relatively short period, although, according to the authority, the offer was
rejected verbally almost straight away (that not being confirmed in writing
until some time later). On the basis of the submissions made, if I were to
exercise my discretion in favour of Welsh Water, on the basis sought, I would
be disinclined to see the date of the £17,460 offer as a trigger point entitling
it to its costs (whether assessed summarily or, failing agreement, by the
Registrar on a detailed assessment), from then on.
21.
The significant reduction, by over £10,000, in the amount they were
prepared to pay, and their apparent unwillingness to negotiate at all until the
finally revised offer of £8,500 was made and accepted promptly in January 2012,
leads me to the view that it would not be appropriate to conclude that it was
solely the actions of the claimants that led to delays and increased legal
costs – although I do acknowledge the concerns expressed by Welsh Water
regarding the disclosure issue and comment further on that below. In their submissions,
the authority criticised the length of time that passed from 12 January 2010,
when they made their open offer of £7,000 before a counter-offer was received,
and said that significant costs were incurred after that date. However, I
note that, in fact, Welsh Water did not respond to the claimants’ prompt
request for further information as to the basis of that offer until October
2011.
22.
The compensating authority referred to Business Environment Bow Lane
Ltd which was a case where costs were being considered under the provisions
of the CPR and related to a purported dilapidations claim approaching half a
million pounds. Costs were awarded against the appellant claimant where the
compensation had been determined at only just over £1,000. There were
circumstances in that case particularly regarding the integrity of the claim
which are wholly different from the circumstances here, and I attach no weight
to it.
23.
In this Tribunal, the CPR has no application (and this is also a case
were section 4 of the Land Compensation Act 1961 does not apply). In following its own procedures, as set out in its Practice
Directions, the Tribunal does nevertheless act in accordance with the
overriding objective upon which the CPR is founded. The principles relating to
the Tribunal’s discretion in compensation cases, whereby the costs of assessing
the claim are part of the loss that the claimants suffer, so they are entitled
to those costs unless they have behaved unreasonably, are stated in Purfleet
Farms Ltd v Secretary of State for Transport, Local Government and the Regions [2002] RVR 368. where Potter LJ said at para 40:
”Despite the
similarities in procedure, a compensation reference before the Lands Tribunal does not itself constitute ‘ordinary litigation’ and, for the present at least,
remains outside the purview of the CPR.”
That was a case relating to compensation for
compulsory purchase where section 4 did apply, but the above observation
relates equally, in my view, to a case such as the present. In the Lands
Tribunal case, which that appeal upheld, it had been ordered that the
respondent, despite having beaten a sealed offer made by the acquiring
authority, pay three-quarters, rather than all, of the claimant’s costs after
it had been determined that the claim had been made in a sum that “was
significantly higher than can be supported by reliable evidence…” (Para 122).
24.
It is clear to me that in the instant case, the claim was initially, as
I have said, “over optimistic”, but in all the circumstances and weighing up
all aspects of the parties’ conduct of the case over this very long period of
time, I have come to the conclusion firstly that it would certainly not be appropriate
for the claimants to have to pay any of the the costs of the compensating
authority. My views as to those costs, which have been assessed at over
£35,000, are set out below. As to the claimants’ costs, it is a fact that they
did “beat” the authority’s offer that had remained open from January 2010 at
the time a final compromise was reached, but in the light of all the arguments
that have been put before me, I do not think it would be right for the
claimants’ to have their costs. In my judgment, the fairest and most equitable
solution would be to make no order for costs, each party to bear their own, and
I so order.
25.
Turning now to the authority’s costs, notwithstanding the chain of
events, I do agree with the claimants that they seem to be wholly
disproportionate, and whilst I am in no doubt that many of Hughes Griffiths’
criticisms of the claimants’ conduct of the matter are justified, it does seem
to me that Welsh Water are not beyond reproach. There is no doubt in my mind
that, had the relevant and appropriate disclosure been made, with evidence that
could support the claimants’ constantly varying claims, considerable costs
would have been saved, and the whole matter could probably have been settled by
agreement long before now. Nevertheless, whilst it is clear that, since their
appointment, the authority’s solicitors have done everything absolutely “by the
book”, it seems to me that the question of proportionality has been totally
disregarded. This, it seems to me, is a prime example of where an adequate
eye has not been kept on escalating costs and, particularly bearing in mind
Welsh Water’s apparent willingness to do a horse-deal both initially in this
case and with the owner of the neighbouring property (the details of which have
not been disclosed, and in any event are not in my view relevant), I would have
thought that there could well have been an opportunity for the dispute to be
compromised very much earlier. As an example of how costs appear to have been
allowed to escalate out of all proportion to the amount at stake, the
authority’s rebuttal of the claimants’ costs submissions included several
further pages of explanation dedicated to the dispute over grazing land
re-instatement – amount claimed £1,400 and amount finally offered £750;
air-valve (surface obstruction) – amount sought £250, amount offered £100.
The differences are, in terms, small, and do not justify, in my view, the
amount of additional time and effort that has been expended by Hughes Griffiths
in seeking to justify their costs in dealing with the issues.
26.
In their further submissions, Hughes Griffiths said (at paragraph 21),
in refuting the assertion made by the claimants that their settlement proposal
could not be reviewed because of Welsh Water’s policy of not engaging in
horse-trading, said that the authority was well aware of its duty to negotiate,
“failing which there are costs consequences”. However, it would not be
prepared to pay a sum that was significantly in excess of its assessed
liability. They then went on to suggest that the claimants’ costs are
disproportionate to the amount claimed. I have to say that I find this
assertion truly incredible in the light of the amount being claimed in respect
of the authority’s legal costs.
27.
In the light of my views on the costs incurred by Welsh Water, had I
been inclined to find that the claimants should be bound to pay them, a summary
assessment on the basis sought would most certainly not be have been
appropriate, and any such award would have been drastically limited.
28.
This determines the issue before me, and I confirm that there shall be
no order as to costs.
DATED 15 March
2012
P R Francis
FRICS
