PGF II SA v OMFS Company and Another
| Jurisdiction | England & Wales |
| Judge | Mr Recorder Furst QC |
| Judgment Date | 27 January 2012 |
| Neutral Citation | [2012] EWHC 83 (TCC) |
| Court | Queen's Bench Division (Technology and Construction Court) |
| Docket Number | Case No: HT11–159;11–161;11–162 |
| Date | 27 January 2012 |
[2012] EWHC 83 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Recorder Furst QC
Sitting as a Deputy Judge of the High Court
Case No: HT11–159;11–161;11–162
Jonathan Seitler QC and Tom Roscoe (instructed by Browne Jacobson LLP) for the Claimants
Guy Fetherstonhaugh QC (instructed by Kingsley Napley LLP) for the Defendants
Hearing date: 11 th January 2012
Introduction
These proceedings concern claims for dilapidations arising out of alleged breaches of the repairing covenants of underleases relating to three floors of the building at 33 Lombard Street, London EC3. On 10 th January 2012, the day before the trial was due to start, the Claimant accepted a Part 36 offer that had been made by the Defendant on 11 th April 2011. That brought the proceedings to an end, save for the question of costs.
The application before the Court is for an order that the Defendant pay the Claimant's costs on a standard basis:
2.1 for the period prior to 2 nd May 2011; and
2.2 for the period from 3 rd May 2011 to 9 th January 2012.
In respect of the period to 2 nd May 2011 (i.e. the expiry of the relevant period of 21 days following the offer of 11 th April) CPR Rule 36.10(5)(a) provides that the Claimant is entitled to its costs, unless the court orders otherwise. There has been no suggestion by the Defendant that the Claimant should not have its costs in respect of this period and it is therefore sufficient to indicate that the Court does not otherwise order.
The only issue arises in relation to the second period, from 3 rd May 2011 to 9 th January 2012. In summary the Claimant maintains that it should have its costs in respect of this period because it was only on 10 th January 2012 that it became aware that the Defendant was going to contend that the Defendant was not liable for defects to the air conditioning system on the basis that the system was not within or part of the demised premises and therefore not subject to the repairing obligations. The Claimant also relies upon, what it alleges, was the unreasonable refusal of the Defendant to mediate both in connection with its primary contention and, in the event that the Court is against that contention, in support of a submission that the Claimant should not have to pay the Defendant's costs in relation to this period.
The Law
CPR Rule 36.10 (4) and (5) provide:
"(4) Where –
a) a Part 36 offer that was made less than 21 days before the start of trial is accepted; or
b) a Part 36 offer is accepted after expiry of the relevant period, if the parties do not agree the liability for costs, the court will make an order as to costs.
(5) Where paragraph (4)(b) applies, unless the court orders otherwise –
a) the claimant will be entitled to the costs of the proceedings up to the date on which the relevant period expired; and
b) the offeree will be liable for the offeror's costs for the period from the date of expiry of the relevant period to the date of acceptance."
Thus, unless the court makes the order as requested by the Claimant, it will be liable for the Defendant's costs for the period in question. In Lumb v Hampsey [2011] EWHC 2808 (QB) the court had to consider how it should exercise its discretion under CPR Rule 36.10(5)(b). It concluded that the test to be applied under the Rule is whether the usual order should be departed from because it would be unjust for the Claimant to pay the Defendant's costs after the expiry of the period; such a departure would be the exception rather than the rule. The court also concluded that CPR Rule 36.14(4) gave some guidance as to the matters that the court should take into account in considering whether the usual order as to costs would be unjust. Insofar as relevant in this case those matters include:
(c) the information available to the parties at the time when the Part 36 offer was made; and
(d) the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer to be made or evaluated.
An example of such an exceptional case is Kunaka v Barclays Bank plc [2010] EWCA Civ 1035. In that case the litigant in person did not accept the offer made by the Bank within the relevant period. Following the expiry of the relevant period the Bank wrote to the Claimant pointing out that the Part 36 offer remained open for acceptance but it said nothing about the costs consequences of acceptance at that stage. In the circumstances the Court of Appeal held that it would be unjust for the Claimant to be liable for the Bank's costs following the expiry of the relevant period.
Whilst bearing in mind that I have a general discretion as to costs I respectfully agree with the analysis in Lumb and propose to adopt that approach. However it is to be noted that in this case the Claimant not only resists paying the Defendant's costs after the expiry of the relevant period, it goes further and seeks an order that the Defendant pays its costs in respect of this period.
The Facts
In order to understand that parties' arguments it is necessary to set out the facts but since I do not have to come to a concluded view on the issues in these actions it is sufficient to summarise the relevant matters.
The whole of the building was let by the freeholder, Equitable Life Assurance, under a head lease to Guinness Peat Financial Services Ltd ("Guinness") for a term expiring on 23 rd June 2009. Guinness then underlet the various floors of the building including the first, second and fourth floors. These underleases expired on 19 th June 2009, save for the fourth floor which expired on 18 th January 2009. The Defendant purchased the leasehold interests in relation to these underleases on 4 th February 2005 and the Claimant acquired the freehold interest on 16 th February 2007 and procured the surrender of the head lease on 24 th December 2008. Thus, as from that date, the Claimant was the direct landlord of the Defendant as tenant of the three floors in question.
Licences were granted to the tenant and undertenant to carry out alterations in relation to these three floors. Part of those alterations consisted in the replacement of the pre-existing variable air volume system and induction units with full air conditioning provided by fan coil units fed from two new chillers on the roof.
On 29 th August 2008 a notice to reinstate the alterations made to the fourth floor premises pursuant to the licences was served on the Defendant and similar notices were served on 10 th November 2008 in relation to the first and second floors.
Schedules of Dilapidations were served on the Defendant on the expiry of the underleases on 12 th January 2009, in the case of the fourth floor, and on 2 nd July 2009 in relation to the first and second floors. The schedules distinguished between alleged breaches of reinstatement obligations and repairing obligations. Matters relating to the air conditioning appeared as breaches of the reinstatement obligations by reference to clause 3(9) of the underleases, at least in the case of the first and second floors.
On 15 th October 2010 the Claimant issued the present proceedings, separate actions being commenced in relation to each of the three floors. In each case the Claimant contended that there were "breaches of repair, redecoration, yielding up and reinstatement covenants, which caused the Claimant Landlord to suffer loss and damage." The Particulars of Claim recited various terms of the underleases, referred to the Schedules of Dilapidations and to letters dated 29 th October 2009 and 4 th June 2010, as particularising the claims for breaches of the various covenants. No reference was made to the terms of the licences in the Particulars of Claim and no breach of those licences was pleaded. The letters of the 4 th June 2010 in turn referred to the letters sent by the landlord in 2008 requiring the Defendant to reinstate the works carried out pursuant to the licences, but made no allegation of any breach of those licences.
The Defendant filed its Defences on 26 th January 2011. The only positive averment put forward was that certain of the works carried out by the Claimant were not necessitated by any breach of covenant on the part of the Defendant.
The various alleged defects were set out and pleaded to in a Scott Schedule with iterative comments from the Claimant and Defendant. At some stage in this process the principal allegations in relation to the air conditioning were moved from the part of the Schedule dealing with breaches of reinstatement obligations to that part detailing breaches of the repairing obligations. As regards the air conditioning the Defendant responded by way of comments but only on issues of fact. By contrast, in relation to allegations concerning the windows, the Defendant contended that the windows were not within the demise.
The total value of the claim as pleaded was about £555,000 in relation to the first floor, a slightly higher figure for the second floor and approximately £377,000 in respect of the fourth floor. The direct costs relating to the air conditioning amounted to about £100,000 in relation to each of the first and second floors, however this figure would increase taking into account indirect costs (for example consequential works to the ceilings) and the various additions such as professional fees and loss of rent and service charge. In the event it was not...
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