Johnsey Estates (1990) Limited v Secretary of State for the Environment

In exercising a costs discretion, the starting point is that costs follow the event. The court may make separate issue-based orders where that fairly reflects success and failure, but it must first identify the party who was successful in the litigation during the relevant period.

A payment into court which materially underestimates the claimant’s accrued entitlement does not displace that starting point. A court should not determine costs by speculating about whether unmade settlement offers would have been accepted. Formal offers and payments provide the appropriate objective means of costs protection. An appellate court may interfere only where the trial judge’s discretion was flawed in principle or otherwise legally defective.

Johnsey Estates (1990) Limited, the landlord of commercial premises, claimed damages from its former tenant for breaches of repairing covenants. The claim was subject to the cap in section 18(1) of the Landlord and Tenant Act 1927. The tenant made payments into court which the landlord did not accept.

His Honour Judge Moseley QC, sitting in the Technology and Construction Court at Cardiff, awarded damages of £200,000 with interest. In a later costs order dated 11 November 1999, he ordered the parties to bear their own costs of the common-law claims between the first and second payments into court, and ordered the landlord to pay the tenant’s valuation-issue costs for that period.

The landlord appealed those elements of the costs order. The central issue was whether it had been the successful party before the second payment into court and, if so, what issue-based qualifications to its costs entitlement were justified.

1. Appeal allowed unanimously. Lord Justice Chadwick, with whom Lady Justice Arden and Lord Justice Schiemann agreed, held that the judge’s costs analysis was flawed. Paragraphs 2 and 3 of the order of 11 November 1999 were set aside.

2. Costs are discretionary under section 51 of the Supreme Court Act 1981. Costs normally follow the event, but the court may make distinct orders for discrete issues. A generally successful party may be deprived of costs, or ordered to pay costs, on an issue unsuccessfully or unreasonably pursued. This reflected the approach in Phonographic Performance Limited v AEI Rediffusion Music Limited [1999] 2 All ER 299.

3. An appellate court must exercise restraint in reviewing a costs discretion. It may intervene where the judge erred in principle, considered irrelevant matters, omitted relevant matters, or reached a perverse result: Alltrans Express Limited v CVA Holdings Limited [1984] 1 WLR 394. Once that threshold was met, this court had to re-exercise the discretion.

4. The first payment into court was materially below the landlord’s entitlement, including accrued interest. The landlord was therefore the successful party throughout the period before the second payment. It had needed to establish both the diminution in value and, until formally admitted, that repair costs were at least that amount. Section 18(1) of the Landlord and Tenant Act 1927 imposed a cap; it did not make diminution in value the automatic measure of recovery.

5. The court rejected the tenant’s invitation to speculate whether the landlord would have accepted a different settlement offer. Formal payments, Calderbank offers and CPR Part 36 offers provide objective mechanisms for costs protection. Retrospective speculation would be ill-informed and disproportionate.

6. The tenant was ordered to pay the landlord’s relevant costs from 26 September 1996 to 19 February 1999, except costs solely attributable after 15 October 1998 to proving repair costs and the costs of the landlord’s section 146 notice claim. The landlord was ordered to pay the tenant’s costs of defending that notice claim. The appeal costs were fixed at £16,000.

• Court of Appeal (Civil Division): Allowed the landlord’s appeal and set aside paragraphs 2 and 3 of the costs order. [2001] EWCA Civ 535
• Technology and Construction Court, Cardiff District Registry: His Honour Judge Moseley QC awarded damages of £200,000 with interest and, by an order dated 11 November 1999, made issue-based costs orders. The order was varied on appeal.