Business Environment Bow Lane Ltd v Deanwater Estates Ltd

Where a claim is compromised but the parties cannot agree costs, the court must account for the compromise and should ordinarily make no order unless the facts provide a proper basis for identifying a successful party. The general rule that the unsuccessful party pays costs remains a starting point, but conduct, partial success and exaggeration may justify a different order. A claimant who presents and maintains a substantially exaggerated or unsustainable claim may be treated as the losing party. Indemnity costs require conduct or circumstances taking the case outside the norm, including significant unreasonableness in pre-action dealings or litigation conduct.

The claim concerned alleged breaches of repairing covenants in a lease. Following preliminary litigation about collateral contract and promissory estoppel, the claimant’s appeal succeeded and the claim proceeded in the Technology and Construction Court. The substantive claim was compromised when the defendant agreed to pay £1,073.50 in full and final settlement, leaving only costs to be determined.

The claimant sought its costs, while the defendant contended that it was the successful party and sought indemnity costs because the claim had been grossly exaggerated and maintained on an unsustainable basis.

1. Costs after compromise. Applying the guidance in BCT Software Solutions Ltd v Brewer [2003] EWCA Civ 939, the court had to take full account of the compromise. It would normally be impossible to identify a winner or loser, leading to no order as to costs, unless agreed or determined facts provided a proper basis for another order.
2. Successful party. CPR Part 44.3 gives the court a discretion, with the unsuccessful party normally paying the successful party’s costs. The court must consider all the circumstances, including conduct and whether a successful claimant exaggerated its claim. The claimant’s schedules and pleadings substantially overstated the dilapidations claim, including works not referable to dilapidations and external works not carried out. The claimant therefore lost on the central issue and the defendant was the clear successful party.
3. Effect of exaggeration. Exaggeration may prevent realistic early negotiations, mediation or an appropriate Part 36 offer, particularly where the claimant alone can initially evaluate its loss.
4. Indemnity costs. Under CPR Part 44.4, indemnity costs require significant unreasonableness or otherwise inappropriate conduct taking the case outside the norm. The claimant had represented before and during the litigation that it had a substantial genuine dilapidations claim, and the statements of truth and later schedule were unsustainable. That conduct justified indemnity costs.
5. The claimant was ordered to pay the defendant’s costs, apart from costs already dealt with by the Court of Appeal, on an indemnity basis.

• Court of Appeal: Allowed the claimant’s appeal from Briggs J’s judgment on the preliminary issues and dealt with the costs of that issue.
• High Court (Technology and Construction Court): The remaining claim was compromised for £1,073.50. The court determined the outstanding costs issue and ordered the claimant to pay the defendant’s costs on an indemnity basis, excluding costs covered by the Court of Appeal’s order.