Phyllis Trading Limited v 86 Lordship Road Limited

When exercising a discretionary costs jurisdiction on an appeal concerning enfranchisement valuation, the tribunal must take proper account of a reasonable Calderbank offer. An offer to pay a specified price for the freehold may be sufficiently certain even if it makes no express provision for costs. Its effect is ordinarily that the proceedings determine costs, with neither party entitled to costs, unless the terms or circumstances indicate otherwise.

A recipient who considers an offer unclear should seek clarification rather than reject it summarily. In low-value enfranchisement appeals, the costs discretion should encourage settlement and prevent a landlord obtaining substantial costs after securing only a small increase in valuation. The appellate court may substitute its own discretion where the tribunal has acted on an error of law.

The nominee purchaser and freeholder were engaged in collective enfranchisement proceedings under the Leasehold Reform and Urban Development Act 1993. The leasehold valuation tribunal determined the price at £3,300 and made no costs order. On the landlord’s appeal, the Lands Tribunal increased the price to £3,610 and ordered the purchaser to pay the landlord’s costs.

Before the Lands Tribunal hearing, the purchaser had offered £4,000 for the freehold, reserving the right to refer to the offer on costs. The landlord rejected the offer and later sought substantial costs. The central issue was whether the Lands Tribunal had lawfully exercised its costs discretion, particularly in failing to give proper effect to the Calderbank offer.

1. Appeal allowed. The Lands Tribunal had erred in law in treating the purchaser’s letter of 6 October 1999 as too uncertain to constitute an offer capable of acceptance. Properly construed, it offered £4,000 for the freehold, with the costs of the Lands Tribunal proceedings to be determined by that tribunal and neither party entitled to costs under the offer.
2. Even if the offer had been regarded as unclear, the landlord should not have rejected it without seeking clarification. The Lands Tribunal should have considered that failure when exercising its costs discretion.
3. The offer exceeded the eventual valuation by £390, nearly 10 per cent, and left a significant margin to cover costs incurred before the offer. Rejecting it without proper consideration was unreasonable. A reasonable early offer should ordinarily be accepted even though it does not expressly provide for costs. Different considerations may arise where substantial preparation costs have already been incurred.
4. The costs jurisdiction under rule 52(1) of the Lands Tribunal Rules 1996 should be exercised to encourage settlement. The statutory scheme, under which the leasehold valuation tribunal had no power to award costs, would be frustrated if a landlord could reject a reasonable offer, obtain only a small valuation increase and recover substantial costs.
5. The Court of Appeal could substitute its own discretion because the Lands Tribunal’s decision was legally flawed. There should be no order as to costs below up to 20 October 1999, after which the landlord was to pay the purchaser’s costs. The appeal was allowed with costs assessed at £4,000.

1. Lands Tribunal: increased the enfranchisement price from £3,300 to £3,610 and ordered the purchaser to pay the landlord’s costs.
2. Court of Appeal (Civil Division): allowed the appeal, substituted its own costs discretion and ordered no costs up to 20 October 1999, with the landlord paying the purchaser’s costs thereafter.