Contractreal Ltd v Davies & Anor

A lease covenant allowing recovery of costs incurred of and incidental to specified steps is construed narrowly. It does not make the costs of statutory proceedings to determine disputed service charges recoverable on an indemnity basis as costs of recovering rent, future rent proceedings, or a notice which was not required.

A summary assessment is discretionary and an appellate court will intervene only for legal error, material factual misapprehension, or an outcome outside the generous ambit of reasonable disagreement. Proportionality is not a mechanical comparison between costs and the sum recovered. It also requires regard to the importance and complexity of the litigation and other relevant circumstances.

The landlord brought county court proceedings under Housing Act 1996 section 81 to determine service charges payable under a long lease, under which service charges were reserved as further rent. At trial the parties agreed the service-charge liability. The county court judge summarily assessed the landlord’s remaining costs at £1,000, in addition to £750 thrown away by an earlier application.

The landlord appealed. It contended that its lease covenant required an indemnity assessment, or that the summary assessment was wrongly conducted. The central issues were whether the covenant covered the statutory proceedings and whether the judge’s discretionary costs assessment could stand.

1. Appeal allowed unanimously. Arden LJ, with whom Wright J agreed, held that the lease covenant did not entitle the landlord to indemnity costs. The section 81 proceedings determined the amount of disputed service charges as a precondition to re-entry or forfeiture. They were not proceedings for recovery of rent.

2. The words of and incidental to in the covenant had a limited meaning. They covered subordinate costs connected with preparing and serving the specified proceedings or notice. They could not transform the substantial costs of the section 81 action into costs incidental to possible future rent-recovery proceedings. Nor could the covenant apply through a section 146 notice under the Law of Property Act 1925, because such a notice was unnecessary for non-payment of rent.

3. The county court was entitled, despite the case’s duration and complexity, to choose summary assessment. Appellate intervention was nevertheless justified because the judge materially misunderstood the amount in issue and treated the claim as one that could have been pursued as a small claim. He also failed to distinguish costs incurred before 26 April 1999 from those subject to the proportionality regime introduced by the Civil Procedure Rules 1998.

4. Although proportionality was important, it required more than comparing a £21,000 bill with the amount recovered. The importance of the lease, the issues, complexity and necessary work also mattered. The award left an implausibly low sum for solicitors’ and counsel’s costs and was outside the generous ambit identified in [1985] 1 WLR 647.

5. The costs of the action and of the appeal were referred for detailed assessment on the standard basis. The respondents’ notice was dismissed.

• Court of Appeal (Civil Division): Allowed the landlord’s appeal and replaced the county court’s summary costs assessment with a detailed assessment on the standard basis.

• Canterbury County Court (HHJ Poulton): On 25 July 2000, recorded the parties’ agreed service-charge liability and summarily assessed most of the landlord’s costs at £1,000, with £750 for costs thrown away by an earlier application.