Macleish v Littlestone and others

Costs – Assessment – Part 36 offer – of repairing covenants in lease – Appellant tenants making Part 36 offer to settle claim of respondent landlord for breach of repairing covenants in lease – Appellants also making payment on account of admitted items of disrepair – Judgment given for a respondent following full trial in sum larger than that set out in CPR offer – Appropriate order for costs – Whether sum set out in Part 36 offer to be aggregated with amount of admissions payment so that exceeding judgment sum overall – Whether costs properly assessed on standard or indemnity basis – Appeal dismissed – Cross appeal allowed Following the termination of a lease of office premises in Snaresbrook, London E11, the respondent landlord brought a claim against the appellant tenants, who were his colleagues in a solicitors’ partnership, for damages for breach of repairing covenants in the lease. The claim was original quantified at £74,820.93, plus interest, by reference to a schedule of dilapidations which the respondent had served on the defendants and to the sums invoiced by his builders, following remedial works, for making good each alleged item of disrepair. The appellants served the respondent with an offer, under CPR 36, to pay £35,000 in full and final settlement of the claim. The offer specified a relevant period of 28 days from the date of service within which the appellants would be liable to pay the respondent’s costs in accordance with CPR 36.10 if the offer were accepted; that period expired in mid-March 2013. A few days later, the appellants served a defence in which they admitted liability for certain items of disrepair in the aggregate amount of £17,504, which they duly paid to the respondent. After a full trial, the judge awarded damages of £48,409.40, together with interest, and ordered the appellants to pay the respondent’s costs of the proceedings on the standard basis. The appellants appealed against the order for costs. They contended that the respondent had failed to achieve a judgment more advantageous than their Part 36 offer, with the result that the appellants should accordingly be awarded their costs from mid-March 2013. That argument was based on the submission, rejected by the county court judge, that the amount of the Part 36 offer should be aggregated with the sum paid after admissions, so that overall it exceeded the judgment sum. In the alternative, they argued that the admissions payment effectively reduced the amount of the claimant’s claim, so that the respondent had in fact obtained judgment for only £33,997.30, being the judgment sum less the admissions payment. By a cross-appeal, the respondent contended that he should have been awarded his costs on the indemnity basis by reference to his contractual entitlement under the lease; the relevant clause required the respondent to pay “all costs and expenses (including legal costs and fees payable to a surveyor) which may be incurred by the Lessor in… the recovery or attempted recovery of arrears of rent or other sums due from the Lessee”.   Held: The appeal was dismissed; the cross-appeal was allowed. (1) The appellants’ Part 36 offer was, from start to finish, an offer to settle the entirety of the claimant’s claim for £35,000, no more and no less. The subsequent admissions payment was made and accepted on the basis that it was a payment on account, following admissions, against the claimant’s entire claim. The claim did not cease to be the same claim for damages for dilapidations and interest which had originally been pleaded merely because part of it was admitted and a payment made in accordance with those admissions. The admissions payment therefore fell to be taken into account as a part payment of any larger sum awarded by way of damages. The judge had been correct to award damages and interest in the larger sum, treating the admissions payment as something to be taken into account, rather than as reducing the quantification of the damages payable. For the same reasons, the admissions payment was liable to be taken into account as a part payment in advance of the £35,000 that would have been due and payable to the respondent if, thereafter, he accepted the Part 36 offer. An admitted payment on account of a claim, following a Part 36 offer in a higher amount, should, in the absence of any agreement to the contrary, be taken as being made as much on account of the Part 36 offer to settle the claim as it was made on account of the claim itself. Accordingly, had the claimant accepted the Part 36 offer on or after the relevant date, the net sum payable would only have been £17,496. On that analysis, the respondent had obtained a judgment more advantageous than the value of the Part 36 offer, within the meaning of CPR 36.14(1)(a), with the result that the judge was correct to award the respondent’s costs of the proceedings. The general thrust of the CPR, and of Part 36 in particular, was both to encourage parties to make sensible offers to settle the claim and also to take sensible steps to limit the issues between them. Those were separate objectives, with Part 36 serving the first and admissions payments serving the second. There was nothing inconsistent in a defendant both wishing to encourage settlement by making an offer to settle the whole claim, then making one or more smaller payments outright pursuant to admissions, while leaving the Part 36 offer open for acceptance throughout. The continuing offer encouraged settlement while the admissions payment narrowed the issues. There was no reason why the admissions payment should be intended to improve the value of the offer to settle the whole claim since it was made for a different purpose: Gibbon v Manchester City Council [2010] EWCA Civ 726; [2010] 1 WLR 2081; 2010] 3 EGLR 85 distinguished. (2) The court should normally exercise its discretion over the basis of costs assessment under the CPR in a way that corresponded with any contractual entitlement agreed between the parties: Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) [1993] Ch 171 applied. While the relevant clause in the lease did not refer expressly to an indemnity, it corresponded more closely with assessment on the indemnity basis than on the standard basis so far as it required the respondent to pay “all costs and expenses… which may be incurred”. 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 44.5(1), the costs would nonetheless be restricted to costs which had been reasonably incurred and were reasonable in amount. The judge should therefore have awarded the respondent’s costs on the indemnity basis. Edward Pepperall QC and Alan Tunkel (instructed by Prettys) appeared for the appellants; Nicholas Bacon QC and Adam Walker (instructed by Edwards Duthie Solicitors) appeared for the respondent. Sally Dobson, barrister Read a transcript of Macleish v Littlewood and others here