The recent decision in Courtwell Properties Limited v Greencore PF (UK) Limited gives interesting guidance as to the type of behaviour and conduct which the Court will consider when using their discretion as to whether to award Standard Costs (costs assessed on a reasonable basis) or the more punitive Indemnity Costs following the acceptance of a Part 36 Offer in a Dilapidations Claim.  The facts of the case are considered below, however the following principles arise:

  •  The Court concluded that the conduct/behaviour of an expert can lead to an Order for Indemnity Costs.  Therefore, it is sensible for all parties to a claim to ensure that they are mindful both before and after the issue of proceedings that embarrassing written exchanges (even on a without prejudice basis) may be examined by the Court at a later date.
  • A party's failure to comply with the Dilapidations Protocol (the Protocol) can be the basis for an Order for Indemnity Costs.  However, both parties' compliance with the Protocol will be examined and if both parties have failed to comply an Order for Indemnity Costs is unlikely to follow.
  • A claim/defence without obvious merit will not automatically give rise to a claim for Indemnity Costs.  The Court will consider the facts that are available when the claim/defence was made and if at that time the claim/defence seemed plausible it is unlikely to be appropriate to make on Order for Indemnity Costs.
  • A party seeking an Order for Indemnity Costs should think carefully about the costs involved in so doing and the proportionality of seeking that Order in the context of the overall costs claim.
  • Failure to mediate will not automatically give rise to a claim for Indemnity Costs, the circumstances surrounding the failure to mediate will be considered.

Facts

Courtwell Properties Limited (Courtwell) were Greencore PF (UK) Limited's (Greencore) Landlord pursuant to a Lease.  The whole demise was sublet an undertenant.  Before Lease termination Courtwell served on Greencore three Schedules of Dilapidations relating to the state of the Demise. The total claim was £1,774,000.

Greencores' surveyors contended that Courtwell had not suffered any capital depreciation  as a result of undertenant's continued occupation of the demise.  It was however later accepted (after the issue of proceedings) that there was at least some capital depreciation.

Courtwell did not serve a Letter of Claim pursuant to the Dilapidations Protocol until sometime after Lease determination and certainly not within the 56 days laid out in the Protocol.  Thereafter followed a multitude of failures to comply with the Protocol by both parties, (in particular there was no meeting onsite and no formal response to the Dilapidations Schedule).

Eventually proceedings were issued and were settled by Greencore accepting Courtwell's Part 36 Offer. Whilst mediation was proposed it did not take place, due to a variety of factors including Courtwell's failure to provide early disclosure of the undertenant's intentions.

Throughout the Pre-action period and after proceedings were issued there was a great deal of correspondence between experts (which was analysed by the court). The relationship between the agents was clearly fraught with one expert referring to the contents of a previous email as "utter rot…"

It was later alleged in the costs application that both sides experts had "behaved badly, discourteously, incompetently or without sufficient regard to the professional standards applicable to their respective professional disciplines".

Following disposal of the principal claim Courtwell applied to the Court for an Order that Greencore pay their costs on an Indemnity Basis (which was at the Court's discretion) for the following reasons:

  1.  Failure on the part of Greencore to comply with the Dilapidations Pre-action Protocol.
  2. Failure on the part of Greencore to mediate.
  3. The maintaining of positive denial of there being no loss to Courtwell; and
  4. The conduct of Greencore's experts.

Decision

Courtwell's Application for Indemnity Costs was refused for the following reasons:

The Court was not satisfied that Courtwell had established that there had been such poor conduct on the part of Greencore's experts so as to justify an award of Indemnity Costs.

Both parties had not complied with the Protocol and hence it would be wrong to consider the failure in deciding whether to award costs. Given the surrounding circumstances and (in particular) the animosity between experts the failure to mediate was not to be taken in to account in deciding whether to make an Order for Indemnity Costs. The Defence of "no loss" put forward was not so implausible as to merit an Order for Indemnity Costs.

Further the court commented that even had the claim for Indemnity Costs been successful, the claim for costs in the application may have been significantly reduced to reflect serious concerns as to the costs of the application, which totalled some £42,000 (exc VAT).

A Cautionary Tale

Whilst in this case the claim for Indemity Costs was unsuccessful it is a stark warning as to what the Court will take into account in deciding such claims. In particular, parties and their experts should take care as to the tone and content of written exchanges, even if written on a without prejudice basis. Failure to do so could result in those exchanges being made public in court and adverse costs consequences following. In addition it is clear that it remains important to follow the Protocol (and the spirit of the Protocol), consider mediation and the overall proportionality of long arguments as to costs.