Breaches of dilapidations pre-action protocol considered by court in claim by landlord agaisnt tenant for indemnity costs.
In Courtwell Properties Limited v Greencore PF (UK) Limited (04/02/14), the Claimant landlord made a Part 36 Offer to accept £800,000 from the Defendant tenant in relation to its claim for damages for dilapidations re 3 industrial Units in Salford previously let to the Defendant. This Offer was made shortly before trial and accepted by the Defendant but the Claimant then applied for indemnity costs, rather than costs on the standard basis, because of the Defendant’s alleged unreasonable conduct.
The total costs of the Application for indemnity costs of both sides came to about £100,000 inclusive of VAT, and it failed. The costs incurred on the Application probably exceeded the amount actually in issue as indemnity costs are usually not that much more than standard costs. The major benefits of having costs assessed on an indemnity basis are that they do not have to be proportionate and the onus of proof as to their reasonableness falls on the paying party. The Claimant relied on 3 substantial witness statements and considerable documentation in support of the Application.
The basis of the Application was fourfold, namely:
- A failure by the Defendant to comply with the Dilapidations Pre-Action Protocol.
- A failure by the Defendant to mediate.
- A complete denial of any liability for damages by the Defendant.
- The conduct of the Defendant’s experts.
The Court only had a discretion to determine the costs basis as the Part 36 Offer was made within 21 days of the trial. But, as the Court made clear, it was very difficult for it to determine any unreasonable conduct when there has been no trial and, accordingly, no examination of the claim and the defence.
As set out in the Judgment, indemnity costs are only appropriate where the paying party’s conduct is particularly unreasonable. It must be conduct out of the norm. Indemnity costs can be appropriate where a party pursues or defends a hopeless claim, but not just a weak one.
It was particularly difficult for the Court to determine if the Defendant’s experts had behaved badly as claimed as they were entitled to discuss matters on a without prejudice basis with their counterparts and not to expect everything they said or did, or things they did not say or do, to be scrutinised thereafter. The Court, in fact, was somewhat critical of the Claimant’s expert surveyor for being too hectoring and uncompromising and thinking he was invariably right.
The Court also noted that the Claimant did not follow the Protocol. It did not serve its Schedule and Quantified Demand within 56 days of Lease expiry and delayed substantially in this respect. Although there was fault on both sides in complying with the Protocol’s deadlines, and a lack of co-operation, this stemmed from the experts on each side having fallen out and the Court held that Defendant could not be penalised in costs because of its delays or conduct.
The Claimant offered to mediate when serving the proceedings but the Defendant wanted to first see documentation relating to the future intentions for the 3 Units as this was directly relevant to their diminution in value. Their solicitors also did suggest expert determination instead and the Defendant also made a Part 36 Offer so it did take steps to try to settle out of Court. Given that the experts had such a bad relationship, the Court doubted a mediation would have succeeded anyway.
With regard to the Defendant denying there was any loss at all from the disrepair, the Court did not think this was so unusual in a dilapidations case. Given the Claimant had not made disclosure of documents till late, and there were real issues over supersession and loss as the Units had been sub-let and the sub-tenants had not vacated when their sub-leases ended, the Defendant’s stance was not so unreasonable, particularly as the Defendant relied on advice from not only its surveyor and valuation experts, but Counsel as well.
Accordingly, the claim for indemnity costs failed resoundingly. Moreover, the Court made clear that parties must act in a proportionate way at all stages of litigation and there should be very few, if any, Applications of this sort.