NJ Rickard Ltd -v- Holloway (CA 03/11/2015) (Lawtel note of extempore judgment only so far)

Sometimes winning isn’t enough… A cautionary tale, in all sorts of ways.

This was a Court of Appeal hearing on an appeal on costs. The original case was the landlord’s claim for rent arrears of some £6,000 and interest. The landlord also claimed for physical damage to the property by the tenant amounting to some £20,000 and consequential loss of rent. The tenant agreed some £6,000 in rent arrears, but denied the property damage. The tenant counterclaimed for failure to repair the property and breach of quiet enjoyment. The tenant also challenged the landlord’s identity as landlord and the interest rate claimed.

The landlord had made an offer, supposedly under Part 36, for a ‘drop hands’ settlement, with each party bearing their own costs.

At first instance trial, the Judge found for landlord for rent arrears and interest amounting to £16,000 but dismissed the claims for physical damage and loss of rent. On the tenant’s counterclaim/defence, the Judge found there was breach of quiet enjoyment, but only attracting nominal damages, and there was a breach of repairing obligations, with notice. On these, damages of £7,000 were awarded. The tenant’s challenges to the landlord’s identity and interest failed. Finding that the tenant’s counterclaim was effectively a defence, the Judge found that the landlord had won.

The first instance Judge then went on to find that the landlord’s offer was a part 36 offer and awarded costs to the landlord on the standard basis until the expiry of the offer period and indemnity rate with 8% interest thereafter.

The tenant appealed. The issues were:
(i) whether the offer had been valid under Pt 36 when it had not strictly complied with r.36.2(2)(c);
(ii) whether the judge had been wrong to make the costs order;
(iii) the appropriate cost order under r.44.2 if Pt 36 did not apply.

The landlord’s offer was expressed to be an offer under Part 36, however, it did not comply with r.36.2(2)(c), which was a mandatory requirement that the offer specify a period within which the defendant would be liable for the claimant’s costs. Instead the offer (for each party to bear their own costs) had just specified a 21 day period for acceptance. Accordingly, it could not be a Part 36 offer and the automatic costs consequences did not apply.

The Judge should therefore have considered the general rule 44.2 under which the presumption was that the loser paid the winners costs.

However, while ‘issue-based costs orders were not to be encouraged and an appellate court would be slow to interfere with costs orders made by judges who were best placed to have a feel for the case’, this was an unusual case. The trial judge had started from the wrong position.

If a party had taken much time by unsuccessfully taking many points, the court could give less weight to the fact that they had in the end been the successful party. There had been many points beside the amount of equitable set-off against the rent arrears. The landlord had claimed for substantial damages on the property damage and consequential rent loss issue and failed, for example. The tenant had won his claim for disrepair, even if the damages were small, and had won on points, like notice, that had taken substantial time.

The judge had therefore inadequately considered the parties’ conduct and relative successes – CPR 44.2(4) & (5).

The landlord’s offer had been realistic and the tenant should have considered it more, however, the tenant had repeatedly requested mediation and received no response. Silence towards an offer of alternative dispute resolution was itself unreasonable and no dispute was too intractable for mediation. PGF II SA v OMFS Co 1 Ltd [2013] EWCA Civ 1288.

Overall, the tenant had won more issues than the landlord, even if the landlord had won overall on amounts. A fair and balanced approach was no order as to costs.

The Court of Appeal noted landlord’s costs of £85,000 and tenant’s costs of £100,000 and added that these circumstances made a very strong case that there should be some form of limitation on costs recoverable in these cases.

Comment

The headline points? You can’t make a Part 36 offer for ‘drop hands’, no order as to costs (and you can’t make a Part 36 offer including a specified costs figure either, but that is another story).

Do not, ever, remain silent in the face of a proposal for ADR. There may well be good reasons for not wanting to go the ADR route, but, you know – explain them.

And do not run every point you think you can find, no matter how iffy. They will take up time and if you lose those points, as you probably will, the harder you have fought them, the less likely you are to get costs for them. Likewise, do not barricade yourself into an unattractive position and stay there. Do not over-plead, do not add in heads of claim (or defence/counterclaim) that can’t be adequately supported in evidence. And explain to clients why this is the sensible course of action unless they actively want to end up owing far more in costs than they will ever recover from the other side.

This was an unusual case, but some of the issues raised by the Court of Appeal here are floating around more generally. Not just proportionality, whatever that might mean, but responsible, practical litigation. By both parties. Just beware what that might mean if imposed from above…