PGF II SA & Anor v Royal & Sun Alliance Insurance Plc & Anor

This Judgment relates to the contested costs of the action on which I gave Judgment on 13 July 2010 ([2010] EWHC 1459 (TCC) ); . The action concerns a Claim for Dilapidations made by the Landlord Claimants against the First Defendant as tenant and the Second Defendant as sub-tenant of No.34-36 Lime Street EC3 in the heart of London’s financial district close to the Lloyd’s Building.

For reasons set out in the Judgment, the Claimants obtained Judgment for £735,749.40 against the First Defendant and £122,570.51 against the Second Defendant.

The Judgment dealt with a number of issues:

The Defendants agreed that, having reached agreement between themselves, I do not need to address the claim for Third Party Costs. Further I do not need to differentiate between the positions of the First and Second Defendants in the course of the Judgment although it is agreed that there is a small difference in the final result.

The Claimants seek a) all their costs against the Second Defendant (some on an indemnity basis) and b) jointly against the First and Second Defendants, all their costs except the costs of the reinstatement claim against the Second Defendant, which were no more than 10% of the total costs. The Claimants contend that they were successful in the litigation and that the Defendants Part 36 offers were ineffective. They also claim that a late offer to settle entitles them to indemnity costs against the Second Defendant in relation to a small part of the total costs of the litigation relating to the reinstatement claim.

The Defendants say that there should be no order as to costs on the main claim and that the Claimants should only receive 50% of the costs of the reinstatement claim. In his skeleton argument, Mr Hutchings bases this submission on the following points.

The Defendants won on the cladding issue in that their expert Mr Plough’s scheme was preferred to that of the Claimants’ expert Mr Josey.

The claim was exaggerated and this amounted to unreasonable conduct which the Court should take into account. This contention was responded to by the Claimants in a supplemental skeleton and the Defendants abandoned this contention in the course of oral submissions.

The Defendant succeeded to a substantial extent on the lost rent claim.

Offers to settle were hampered by a lack of realism on the part of the Claimant.

Put tentatively in the skeleton argument, but relied on at the oral hearing, the Defendants argue that the Claimants failed to comply with the relevant Pre-action Protocol.

The CPR Part 44 sets out the general rule on costs as follows:

“44.3(1) The Court has a discretion as to –

a)

Whether costs are payable by one party to another;

b)

The amount of these costs;

c)

When they are to be paid

(2). If the Court decides to make an Order about costs -

a)

The general rule is that the unsuccessful party must pay the costs of the successful party; but

b)

The Court may make a different Order

(4)

In deciding what Order (if any) to make about costs, the Court must have regard to all the circumstances, including –

a)

The conduct of all the parties;

b)

Whether a party has been successful on part of his case even if he has not been wholly successful;

c)

Any payment into court or admissible offer to settle made by a party which is drawn to the court’s attention and which is not an offer to which cost consequences under Part 36 apply.”

Under Part 44.3(5) in relation to the conduct of the parties, the Court should take into account, conduct before as well as during the proceedings and in particular:

“a)

the extent to which the parties followed the Practice Direction (Pre-Action Conduct) or any relevant Pre-Action Protocol.

b)

Whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

c)

The manner in which a party has pursued or defended a particular allegation or issue;

d)

Whether a Claimant who has succeeded in his claim in whole or in part has exaggerated his claim.”

It is agreed by the parties that if I was to make an Order reflecting a degree of success for the Defendants in their submissions it should be in the form that they should pay a proportion of the Claimants costs (Part 44.3 (6) (a) and/or that they should only pay the Claimants costs from a particular date (Part 44.3 (6) (c)

In the course of submissions I was referred to three out of the very many authorities on costs. In Verrechia trading as Freight Master Commercials v Commissioner of Police for the Metropolis and Others [2002] EWCA civ 605 Lord Phillips MR, giving the Judgment of the Court, emphasised that the question of what cost order is appropriate is primarily a matter for the discretion of the Trial Judge. He went on to say that “The Court now has wide powers under the CPR to make orders for costs which reflect, not just the ultimate victory, but the extent to which a party raised issues on which it did not succeed.” (Para.113) The Court said that where a Judge concluded that a party had won half its case and lost on the other half it was open to the Judge to conclude that there should be no order as to costs.

In Business Environment Bow Lane v Deanwater Estates HT 07-278, Judgment 31 July 2008, I addressed the issue of a party exaggerating its claim in the general context of a party being unable realistically to evaluate a claim at an early stage and either negotiate a settlement or safeguard its costs position by an appropriate offer.

I said (Para 104)

“… If a case is not merely exaggerated but is put on a wholly unsustainable basis, it may prevent an early settlement. It may also prevent a Defendant from being able to assess realistically the value of the Claimant’s case and make an appropriate Part 36 offer. This will be particularly the case when only the Claimant is able in the first instance to evaluate its own losses. In appropriate cases a Defendant should not be left at such a disadvantage. The situation may, of course, be different if the Defendant is in a position at an early stage fully to evaluate the Claimant’s case.”

In Widlake v BAA [2009] EWCA civ 1256, a Personal Injury Case, the Court of Appeal endorsed the approach that a party who is to pay money to the other is normally to be regarded as “The winner” and that this is the starting point in Orders for Costs. However in relation to the appropriate order, the Court in that case took into account under CPR Part 44.3 (5) (b) that it was unreasonable for the Claimant to pursue her allegation (held to be unfounded) that she had suffered such pain a) that it justified her case that she had a pre-existing condition that was accelerated by five years and b) that the pain was of the severity which she described in support of her claim for pain and suffering. An alternative way of considering the same conduct would have been to consider it under Part 44.3 (5) (d) that she had exaggerated her claim. In that case the Court of Appeal concluded that the appropriate order was No Order as to Costs.

I conclude therefore that (a) the appropriate order for costs is primarily a matter for the Trial Judge; (b) the Costs Order must accord with the justice of the case; (c) the starting point is to decide which party has been successful; (d) the Judge must have regard to all the circumstances of the case in accordance with CPR Part 44 (e) in appropriate cases an important consideration will be whether the factual basis of an issue was within the knowledge of only one party or whether the parties had an equal opportunity to evaluate the claim and (f) whether a party has been prejudiced by not being in a position to negotiate a settlement or safeguard its costs position.

The Part 36 procedure concerns formal offers to settle. These are somewhat draconian provisions. Part 36.2 therefore requires offers to be in writing, to state on the face of the offer that it is a Part 36 offer and to specify a period of not less than 21 days within which the Defendant will be liable for the Claimants’ costs if the offer is accepted.

By Part 36.14(3) where a Claimant fails to obtain a Judgment more advantageous than a Defendant’s Part 36 offer, unless it is unjust to do so, the Court should award interest on the whole or part of any sum of money (excluding interest) at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired, indemnity costs and interest on those costs at a rate not exceeding 10% above base rate.

By Part 36.14(6) this Rule does not apply to a Part 36 offer made less that 21 days before trial unless the Court has abridged the relevant period.

Complaint is made by both parties that the other party did not follow the Pre-Action Protocol. This case was a transfer in to this Court so the TCC Protocol does not apply specifically. The Dilapidations Protocol (Third Edition 12 May 2008) sets out an extraordinarily detailed procedure to be undertaken before litigation can be commenced.

The specific point, taken by the Defendants is that the Claimants should be penalised in costs because they failed to follow Paragraph 3.6 of the Protocol which requires that the Dilapidation Schedule

“should include an endorsement by the surveyor preparing it. The surveyor’s endorsement should confirm that, in the opinion of the surveyor, all the works set out in the Schedule are reasonably required in order to put the premises in the physical state referred to…that full account has been taken of the landlord’s intentions for the property at or shortly after the termination of the tenancy; and that the costs if any quoted for such works are reasonable.” In oral submissions the Second Defendant made a wider ranging criticism of the Claimant in relation to the Pre-Action Protocol.

The Practice Direction – Pre-Action Conduct describes the test of assessment of compliance of Pre-Action Protocols as follows:

“1.

Whether the parties have complied in substance with the relevant principles and requirements;

2.

The proportionality of the steps taken compared to the size and importance of the matter;

3.

The urgency of the matter.

Among the sanctions for non-compliance is “4.6(2) an order that the party at fault pays the costs or part of the costs of the other party or parties…”

I have now seen relevant correspondence in relation to the costs issues which has been provided by the parties. It includes a clip of documents which I received at a late stage in the oral hearing on costs.

It is clear that the procedure relating to dilapidations at the end of the Lease was started by the Claimants’ predecessors, Kleinwort Benson. Malcolm Hollis LLP, surveyors, (Hollis) sent a letter to the First Defendant dated the 28^th September 2006 enclosing a provisional Schedule of Dilapidations dated 31^st August 2006. They received a holding response on behalf of the First Defendant from Davis Brown, surveyors,(Mr Moon) dated 10^th November 2006 and a response dated 10^th July 2007 which consisted of the Landlord’s Schedule annotated with Mr Moon’s observations.

On 8^th January 2008 Mr Moon arranged for Mr Saunders (the Second Defendant’s surveyor) to inspect the cladding on behalf of both defendants.

On 9^th January 2008 Mr Woolhouse of Hollis sent Mr Moon an email saying that he had instructions from the Claimants (Grainmarket) as the new landlords to continue the dialogue in relation to dilapidations. He enclosed a Scott Schedule and a portfolio of photographs which he sent to demonstrate the alleged defects which had been identified before the Claimants assumed ownership. The photographs related to opening up works which had been carried out.

On 6^th February 2008 the Claimants served a revised Schedule of Dilapidations.

On 9^th April 2008 Mr Moon replied that he hoped to respond to the Schedule within a few days.

On 23^rd April 2008 Mr Moon returned the Schedule (in its Scott Schedule format) marked with his comments. He did not comment on the costings. At about the same time in April 2008 the Claimants requested entry into the premises to investigate the cladding. For whatever reason, entry was not gained before the termination of the lease on 24^th June 2008. In my Judgment I found that no blame was to be attached to the Claimant for this.

On 10^th June 2008 Mr Dawes of Hollis wrote to Mr Moon to say that the access cradle was no longer operational and that the investigative process had been delayed. A meeting was planned on 23^rd June 2008 to carry out the investigative works.

There was clearly continuing contact between the professionals. On 28^th August 2008 Mr Moon wrote to Hollis to say that he had not yet received the revised Schedule of Dilapidations.

The cladding investigations were more time consuming and protracted than anticipated and were not completed until early September 2008.

By a letter dated 29^th October 2008 (served on 3^rd November 2008) the Claimants’ solicitors served a Pre-Action Protocol letter on the First Defendant enclosing a revised Schedule of Dilapidations. The total sum claimed was £3,477,190.27 including vat. Of this £1,756,361.74 related to the cost of remedial work.

The Claimants’ solicitor received no formal reply to this letter. On 11^th November 2008 Mr Moon acknowledged to Hollis that he had received “a letter of claim by CKFT,” the Claimants’ solicitor.

Discussions between the professionals continued. On 15^th December 2008 Mr Moon responded that he was in the process of updating his schedule.

It is clear from Mr Audsley’s (Hollis) letter dated 15^th December 2008 to Mr Moon that work was being carried out on the refurbishment which in fact took place and that estimated costings in the Dilapidations Schedule were being replaced by actual costings e.g. for scaffolding.

By a letter dated 30^th December 2008 marked “without prejudice”, Mr Moon questioned the basis on which the claim was being made saying that the works in progress amounted to a comprehensive refurbishment and improvement programme. This letter was in the last clip of documents disclosed and is a first indication, in the papers, of the defence which has been advanced in this litigation that the internal finishes and the cladding works would have been superseded by the extensive refurbishment. I can see no reason why this letter should have been marked “without prejudice”. No pleading to this effect was made until the Defendants amended their pleading in January 2010 to plead the second limb of S18 of the Landlord and Tenant Act 1927(the 1927 Act)

It would appear from Mr Moon’s letter to Hollis dated 29^th January 2009, again expressed to be “without prejudice” that there were further variations in the schedule which took account of work in progress.

By an email dated 2^nd February 2009 from Mr Audsley, it is clear that the Second Defendant had been served with the earlier Schedule of Dilapidations on the 13^th May 2008 but had made no response.

On 5^th March 2009 Mr Moon wrote to Mr Audsley to discuss various parts of the claim. The letter noted that there was no detailed claim for loss of rent and that the cladding system was “a major topic”.

On 10^th March 2009 the Claimant’s solicitors wrote to both defendants. They noted that they had not received a response to their Pre-Action Protocol letter from the First Defendant. Their letter to the Second Defendant was a formal Pre-Action letter. The letter noted that there had been discussions between the First and Second Defendants and that the Second Defendant had met with the Claimants’ surveyor.

On 17^th March 2009 the Claimants’ solicitors served proceedings on the First and Second Defendants. By then the Claimants had also served a further revised Schedule of Dilapidations to reflect up to date costings.

On 1^st April 2009 Maples Teesdale, on behalf of the First Defendant, wrote asking for an extension of time for filing the defence until 12^th May 2009. On 2^nd April 2009 IBB, on behalf of the Second Defendant, asked for a similar extension of time. In their respective letters each seemed to accept that the next stage was for the Defendants to serve their defences.

On 23^rd April 2009 IBB wrote to the Claimant’s solicitors (CKFT) claiming that the Claimants had failed to comply with the Pre-Action Protocol in that the revised schedule served in the Autumn of 2008 represented a major revision from the Pre-Action Schedule which had previously been served and that the claim document did not include copies of any documents in support (including copies of any receipted invoices or other evidence of cost or losses). The letter complained in addition that the Claimants had not said in their Pre-Action letter that they would attend a meeting or meetings to try to resolve the dispute or specify a date by which the tenant should respond.

The letter went on to require the Claimants to produce all documents generated since June 2006 in relation to repair and reinstatement of the premises, refurbishment of the premises, redevelopment of the premises and re-letting of the premises. It required these documents within 7 days. IBB considered that these documents were essential in order that a comprehensive defence could be filed.

On about the 30^th June 2009 the proceedings were transferred to this Court. A first Case Management Conference was held on 30^th July 2009. I then ordered that the Claimants should provide a schedule of documents relating to quantum and an updated Scott Schedule, Schedule of Reinstatement and ancillary documentation. I also required the parties to exchange the names of experts. This information was provided by 4^th September 2009.

On the 23^rd September 2009 Maples Teesdale made a formal Part 36 offer on behalf of the First Defendant in the sum of £490,000 inclusive of interest.

There were various disclosure requests and on 10 December 2009 a mediation took place.

On 14^th December 2009 CKFT wrote to Maples Teesdale to say that they inferred from Maples Teesdale’s letter dated 11^th December 2009 that the First Defendant now wished to raise what is known as the second limb of Section 18 (1) of the Landlord and Tenant Act 1927 namely that the landlords at or shortly after the termination of the tenancy carried out such structural alterations as would render valueless the repairs required under the lease. CKFT noted that the Defence had been amended as recently as 9^th October 2009.

On 7th January 2010 the First Defendant’s solicitors wrote to the Claimants’ solicitors enclosing a draft amended defence to take account of the point and requesting that the matter should be dealt with at the Pre-Trial Review on 15^th January 2010. On 14^th January 2010 the Claimants indicated that they were minded to consent to the application.

On 18^th January 2010 the Second Defendant made a Part 36 offer to the First Defendant to settle the disrepair claim in the sum of £550,000 inclusive of interest and costs.

On 18^th January 2010 the Second Defendant also made a Part 36 offer to the Claimants in the sum of £90,000 inclusive of interest, in relation to the separate reinstatement claim.

Also on 18^th January 2010 the Second Defendant made a Part 36 offer to the First Defendant to provide it with an indemnity for the Claimants’ costs to the date of the Part 36 offer.

On 21^st January 2010 the First Defendant increased its Part 36 offer to £550,000.

On 28^th January 2010 the Claimants, in response, made a Part 36 offer to settle the claim against the First Defendant in the sum of £1,750,000. On the same day the Claimants made an offer to settle the reinstatement claim against the Second Defendant in the sum of £136,801.31 plus interest at 8% to the date on which payment was received.

On 2^nd February 2010 (the trial date being the 23^rd February 2010) the Claimants wrote to the Second Defendant that if the Second Defendant was minded to accept the Part 36 offer, the Claimants would be prepared to abandon its reinstatement claim against the First Defendant on the basis that the First Defendant agreed not to pursue any claim for costs in respect of this part of the claim. This letter was only referred to at the end of the oral hearing. Mr Small QC then explained to me that the reinstatement claim against the First Defendant had by then been agreed at £34,585.56 and that the offer to the Second Defendant was that it should pay £102,215.75 to settle the reinstatement claim against it. The Claimants contend that this offer should have been accepted before the trial opened and that costs consequences follow.

On 19^th February 2010, in a letter not expressed to be a Part 36 offer, and in relation to which the words “Part 36” are not mentioned, the Claimants offered to settle the reinstatement claim at £110,000. The letter states: “We understand that your client’s surveyor says, at least on a without prejudice basis, that he agrees that the claim rests at £110,000…” I have seen no response to this letter.

The Claimants emphasise that under the various leases the Defendants were under an obligation to put the premises into repair before the termination of the lease. In breach of their obligations they failed to do so and this litigation is a consequence of their breaches.

The Claimants note that they recovered substantial damages in the sum of £735,749.40 against the First Defendant (in relation to which the First Defendant had an indemnity from the Second Defendant) and £122,570.51 against the Second Defendant. These, they say, are substantial sums.

They note that the First Defendant only amended its defence to plead the second limb of Section 18 of the 1927 Act after the hearing on 15^th January 2010. The Claimants contend that this necessitated a further statement from Mr Crader which runs to thirty five pages and substantial additional work including additional disclosure and documents for the trial bundles.

Further, the Defendants employed two valuation experts (Mr Austen and Mr Manders) and two surveyors (Mr Moon and Mr Saunders).This added substantially to the cost of the Claimants’ experts in dealing with two counterparts in the course of lengthy and detailed negotiations.

If the Defendants had adopted the position which they now take, namely that the Second Defendant agreed to indemnify the First Defendant, they would have needed only to have employed one team of experts and one team of lawyers.

The first time on which the Second Defendant sought to make a formal offer was on the 18^th January 2010, five weeks before trial.

On 2nd February 2010 the Claimants made the offer of settlement to the Second Defendant set out in Paragraph 55 above and now seek indemnity costs against the Second Defendant from that date in relation to the reinstatement claim although they concede that the costs would only amount to 10% of the residual costs.

In their written submissions the Defendants say that there should be no order as to costs because:

In relation to the cladding, the Defendants emphasised that the Scheme which all parties had to cost was a notional scheme which was extremely difficult to value. In this regard, the Claimants’ figure rose from £175,530 in the Schedule of Dilapidations on 6^th February 2008 (excluding the cost of scaffolding) to £713,926 in the September 2009 Schedule (again excluding the cost of scaffolding).

Further, it is claimed that the Josey Scheme, rejected by the Court, increased ancillary claims in relation to asbestos and scaffolding.

At the oral hearing the formal contention that the claim was deliberately exaggerated was withdrawn but the Defendants maintain a general allegation that the Claimants did not deal with the claim realistically in accordance with the Pre-Action Protocol although they had to concede in oral submissions that Paragraph 3.6 of the Dilapidations Protocol had been substantially complied with.

The Defendants contend that other major items were substantially reduced by negotiation or as a result of the Judgment – internal decorations £86,600.65 claimed reduced to £38,887.08; carpets £130,158.66 claimed £50,000 recovered and engineering services claimed at £133,350 but agreed at £62,041.19.

In relation to the cradle, the Defendants claim that they were successful in relation to the contentious items which took a disproportionate amount of time to litigate.

Further the Defendants say, in relation to the lost rent claim that they were successful in contesting the claim that the existing tenants would have remained in occupation while the Claimants carried out minor works of refurbishment.

Without providing any substantiation for the point other than the matters which I have set out, the Defendants argued that I should infer that if the Claimants had taken “a more realistic” attitude, a settlement would have resulted and that this should be reflected in my Order as to Costs.

Further in relation to the reinstatement claim, the Second Defendant claims that there was no reason for the Claimants to bring a separate reinstatement claim against the Second Defendant. The Claimant’s offer of £110,000 on 19^th February 2010 was made too close to trial and should be disregarded. When the point was raised by the Claimants in reply in the oral argument, the Second Defendant made a similar point in relation to the Claimants’ letter dated 2 February 2010. This occurred at the end of the oral argument. The point was not raised in the Claimants skeletons.

In its written response the Claimants refute the allegation that they exaggerated their claim. They note that the surveyors were able to compromise most of the figures in dispute. For example, in relation to the carpets all the figures were agreed.

They also emphasise that all the figures in the Dilapidations Schedules were the result of discussion. Mr Moon for the First Defendant on some occasions agreed figures and then resiled from them. There were also arguments over the cap.

They also contend that the figures quoted by the Defendants do not tell the whole story. For example, the Claim for internal decorations was indeed reduced from £86,600.65 to an agreed figure of £38,887.18. What the Defendants fail to mention is that in the October 2009 Scott Schedule the Second Defendants’ surveyor costed the internal decorations at £10,000 while Mr Moon made no attempt to cost the works.

In relation to the Pre-Action Protocol the Claimants contend that any refinement of the Claimants’ position made no difference to the Defendants. The First Defendant did not make a Part 36 offer until 23^rd September 2009 and the Second Defendant did not make one until 18^th January 2010.

Finally after I had given Judgment the Second Defendant attempted to argue that the reinstatement claim should be reduced because it was capped at £105,000. This was not argued before me during the substantive hearing. I do not in any event understand the basis of the claim. As I understand it, the cap only applies to Section 18 Repairing Covenants and not to Reinstatement Covenants. In any event this matter was not argued before me at the appropriate time and the Claimants did not have a proper opportunity to deal with it.

I conclude, as the Defendants have inevitably agreed, that the Claimants were successful in the litigation. As a result the general rule is that the Defendants must pay the Claimants costs, but I may make a different Order if it seems to me to be just to do so.

In reaching my conclusions I must take into account the considerations spelt out in CPR Rule 44.3(4) and (5). This includes conduct before or as well as during the proceedings and the extent to which the parties followed the Practice Directions and the relevant Pre-Action Protocol.

If I conclude that some deduction is to be made, the parties are agreed, in accordance with the CPR, that I shall either order costs to be payable from a particular date or that the Claimants should receive a percentage of their costs or (as the Defendants contend) that the appropriate order is “No Order as to Costs”.

I first consider the conduct of the Claimants as they approached the dilapidations issue at the end of the term of the lease. On the 28^th September 2006 the previous landlords sent a letter to the First Defendant, under two years before the termination of the lease, enclosing a Provisional Schedule of Dilapidations. It was nearly ten months later before they received a detailed response from Mr Moon acting for the First Defendant.

In January 2008 Hollis sent an email to Mr Moon that the landlords wished to have discussions over the dilapidations claim. These discussions were no doubt hampered by the Claimants’ ability to gain access to the premises to inspect the cladding. Nevertheless on 6^th February 2008 they were able to serve a revised Schedule of Dilapidations.

There was no attempt by the tenants to accelerate the process of working through the dilapidations claim before the termination of the lease. Indeed there is nothing to suggest that the tenants ever intended to carry out the significant work needed to be done to put the premises into repair.

On 3^rd November 2008 the Claimants’ solicitors served a Pre-Action Protocol letter which was seen by Mr Moon, surveyor for the First Defendant and Mr Saunders, surveyor for the Second Defendant. It was not responded to formally by the Defendants even to the extent of saying that it was thought to be inadequate or that the Defendants required more information. It is not surprising that the figures changed in the Scott Schedule because the Claimants needed to carry out the work and were able to replace estimated figures with actual figures.

The surveyors continued to meet but did not make sufficient progress in resolving the claim. As they were entitled to do, the Claimants’ solicitors wrote to both Defendants on 10^th March 2009. They sent a further Pre-Action letter to the First Defendant and a Pre-Action letter to the Second Defendant. The First Defendant was in clear breach of the Protocol in failing to respond to the Claimants’ solicitors letter dated 3 November 2009. Although not technically in breach, I should also have expected a response from the Second Defendant.

In relation to the Second Defendant, the Claimants’ solicitors on 23^rd April 2009, received a letter which although it included some appropriate requests was designed not to further the continuing discussions between professionals and assist in settling the dispute but rather to ask for the most extensive disclosure, the purpose of which was to put the Claimants to disproportionate expense before they were able to bring a claim. This is the type of letter which has brought the Pre-Action Protocol Procedure into disrepute. There is no such similar procedure in relation to other forms of adjudicative dispute resolution. It may be unjust if a party is required to engage in litigation (or arbitration or adjudication) without understanding clearly the nature of the dispute. It is equally unjust if a Claimant is not permitted to bring its claim before the Court without undergoing an unnecessary and disproportionately expensive procedure.

I note that, except for the point which I deal with below, the Defendants did not rely at the hearing on the detail of the letter of 23^rd April 2009 as indicating default on the part of the Claimants in carrying out the Pre-Action Protocol Procedure. They were right not to do so.

Instead they rely on the rather technical point that the Schedule served prior to the term date did not contain the endorsement set out in Paragraph 3.6 of the Protocol although Mr Hutchings had to concede in his oral submissions that the later Schedule did carry the endorsement. In my view this is a technicality. It is suggested that the failure “naturally arouses any reasonable tenant’s suspicions about the accuracy of the Schedule and or its costings”. There is no suggestion in the correspondence that this was the case here. The surveyors seem to me to be entirely respectable and competent surveyors trying to grapple with the difficult problem of trying to value a complicated notional scheme. There is no suggestion that the Claimants’ surveyor was unwilling on behalf of the Claimants to meet with the Defendants to try to resolve the claim.

I note the wording of Paragraph 3.6 of the Protocol. It appears to me to be misleading in so far as it suggests that the relevant date to ascertain the landlord’s intentions is at or shortly after the termination of the tenancy. For the reasons set out in my Judgment the date on which the landlord’s intentions are to be ascertained is the date of the termination of the tenancy. What is referred to as the second limb of S18 of the Act applies where, at the date of the termination of the tenancy, the landlord intends that, at that date(or before)or shortly thereafter, the premises will or have been pulled down or such structural alterations made therein as would render valueless the repairs covered by the covenant or agreement.

On the wider point, I do not find that the Claimants or (Hollis on their behalf) acted unreasonably in the way they approached the Dilapidations Claim. The issue was, of course, complicated by the fact that Mr Crader had not been able to make a decision on the cladding because he had been unable to carry out the investigations necessary for him to make a decision to refurbish or replace the cladding.

The next major point is whether the Claimants should suffer a penalty in costs because I preferred Mr Plough’s evidence to that of Mr Josey. CPR 44.3(2) relates to the ultimate result. Under Part 44.3 (5)b) and c), the Court must consider specifically in relation to conduct whether it was reasonable for a party to raise, pursue and contest a particular allegation and to consider the manner in which the party has pursued or contested the allegation. If a party acts unreasonably it may be penalised in costs even if it has been successful in the litigation.

I conclude that the Claimants acted entirely reasonably in raising and contesting the issues on the basis of Mr Josey’s report and that these matters were pursued in a manner which was entirely appropriate. In the course of the litigation, and indeed in the course of the trial, Mr Josey and Mr Plough were able to reach agreement on a number of matters which were of considerable assistance to the Court. This is an indication that the discussions were carried out in a proper and professional manner.

I conclude therefore that, subject to any findings with regard to the Part 36 offers or their equivalent, and my overall assessment of what is fair and reasonable, there should be no specific discount against the Claimants by reason of the fact that Mr Plough’s evidence was preferred to that of Mr Josey or that the Claimants recovered less on other items than they had claimed.

I come now to the Part 36 offers. I do not find that the Claimants’ costs should be reduced by reason of the fact that they recovered very significantly less than their Part 36 offer or the Defendant’s Part 36 offers were closer to the final result. I can find no precedent or justification for this.

The Claimants contend that their revised offer, in their letter to the Second Defendants’ solicitor dated 2 February 2010 should be treated as a Part 36 offer or, at the very least, as a Calderbank offer entitling them to indemnity costs on 10% of the total costs still to be incurred, that being the extent of the impact of the reinstatement claim on the overall costs. I note that this point was not even argued by Mr Small until his reply at the oral hearing, when the meaning of the letter was explained to me. In my view any such offer, if it is to have adverse cost consequences to the other party, must be clear on its face. This was not. It would not be just in the circumstances to penalise the Second Defendant by awarding indemnity costs particularly since this point was only raised at a stage when the Defendants did not have a proper opportunity to deal with it in detail.

Standing back and looking at matters overall, and taking into account all the circumstances of this surprisingly complicated litigation, I have reached the conclusion that the Claimants, having been successful, should recover their reasonable costs against the Second Defendants on the standard basis to be subject to a detailed assessment if not agreed, and against the First Defendants 90% of their costs similarly on the standard basis and also subject to detailed assessment if not agreed.