Crestfort Ltd & Ors v Tesco Stores Ltd & Anor

I gave judgment in this action on the 25^th May 2005 in favour of the Claimants (“the Landlords”) granting them an injunction requiring the surrender by the Defendants of a sublease granted by the First Defendant (“Tesco”) to the Second Defendant (“Magspeed”) in breach of covenant and directing an inquiry as to damages and I dismissed Tesco’s counterclaim for a declaration that there was no such breach. I stood over issues as to costs, permission to appeal, the effect of the injunction on proposed future arrangements between Defendants and a stay of execution. Sensibly the parties have settled all outstanding issues save those as to the effect of the injunction and costs. The parties have today agreed directions for the trial of the issue as to the effect of the injunction, and the only live issue before me is as to the costs of the action and counterclaim.

The full facts are set out in my judgment. The Claimants are landlords and Tesco is the tenant under a lease which imposed covenants on Tesco in respect of repairs and insurance and which prohibited any grant of an underlease. Tesco committed breaches of all these covenants and in particular wrongfully granted a sublease to Magspeed. In the action the Claimants sought orders: (1) that the Defendants effect a surrender of the sublease on the ground that to their knowledge it was granted in breach of an absolute covenant prohibiting such a grant; and (2) the award of damages. Tesco counterclaimed for a declaration that the covenant merely prohibited the grant of the sublease without the Claimants’ consent, such consent not to be unreasonably withheld, and that such consent had been unreasonably withheld. I held that the covenant was absolute, and that Tesco in granting the sublease knew that it was acting in breach of covenant and that Magspeed in accepting it knew that this was so. I accordingly held that, the Claimants were entitled to the mandatory orders sought for the surrender of the sublease and an inquiry as to damages against both Defendants. I also held that, even if the covenant merely prohibited Tesco from subletting without the consent of the Claimants such consent not to be unreasonably withheld, the Claimants were reasonably entitled to refuse consent by reason of Tesco’s breaches of covenant. In the course of my judgment I had occasion to express in the strongest terms my disapproval of the conduct of Tesco, most particularly (but not exclusively) in respect of the period leading up to the commencement of these proceedings. I stated that it was Tesco’s arrogant disregard for its insurance and repairing covenants which brought about this dispute and litigation; that its conduct was deplorable; I referred to its arrogant persistence in deliberate breaches of covenant which included its failure to disclose insurance policy documents until immediately before trial; and I added that Tesco took a calculated gamble that the Landlords would be unable to obtain any effective remedy for breach of covenant which did not pay off.

By a consent order made today the parties agreed that in settlement of the Claimants’ claim for damages against both Defendants pursuant to the judgment and upon the Defendants agreeing not to appeal all or any part of the judgment Tesco should pay the Claimants by way of damages £77,000 and interest.

Deferment of Decision

The first question raised is whether I should defer trying the issue as to costs until after trial of the issue as to the effect of the injunction on the freedom of the Defendants to enter into an arrangement for sharing occupation of part of the demised premises because the judgment on this issue may affect the commercial outcome of the litigation for the Defendants. I do not think that this consideration affords any (let alone sufficient) basis for deferment. The freedom of the Defendants to enter into any such arrangement (if upheld) cannot alter the incidence of costs of the trial of the legality of the actual arrangement the subject of the trial.

Incidence of Costs

The relevant considerations on the issues of costs are the following:

Interest

There is and could be no dispute that the Claimants are entitled to interest from the time that costs were paid pursuant to CPR 44.3(6)(g) at the commercial rate of 1% above base rate.

Indemnity Costs

In my judgment, the Claimants are entitled as against Tesco under CPR 36.21(3) to assessment of their costs on an indemnity basis as from the 5^th October 2004, which was the latest date for acceptance of the offer made on the 14^th September 2004. It is quite plain that the Defendants have been held liable for more than the amount offered or that the judgment is more advantageous to the Claimants as required in the rule. The Claimants throughout wanted the injunction and the surrender of the sublease, but expressed willingness in their offer to forego the surrender for the sum of £100,000, a sum which exceeded by a relatively small amount the sum awarded in addition to the injunction. It is irrelevant that the offer sought rights of entry to which the Claimants were not entitled under the Lease, for they were sought in lieu of the surrender which was the Claimants first choice and to which they were entitled. Justice requires that the Claimants should not be out of pocket from an action triggered by the unlawful bullying actions of Tesco.

I did not have in mind when I circulated a copy of the draft judgment the provisions of CPR 36.21(4) or that the Defendants were seeking an order for interest under it. I must rectify that error. The Claimants are also entitled against Tesco to interest on the costs assessed on an indemnity basis under that rule. The court is required to order to pay interest on those costs at a rate not exceeding 10% above base rate unless it considers it unjust to do so. I do not consider that it is unjust to do so and I accordingly order Tesco to pay interest on the indemnity costs from the 5^th October 2004 at the rate of 4% above base rate.

There should be an immediate payment by the Defendants on account of £100,000. There can be no realistic possibility that the Claimants’ assessed costs (including the costs to be assessed on an indemnity basis) will not exceed this figure by a substantial margin.