Business Environment Bow Lane Ltd v Deanwater Estates Ltd (Rev 1)

A costs assessment must give effect to an earlier costs order according to its proper construction. Costs awarded for a discrete interim issue are ordinarily assessed by reference to what was reasonable and proper in that issue. The later failure or exaggeration of the substantive claim does not, by itself, make those costs unreasonably incurred. A costs judge cannot use assessment to achieve, in substance, the variation or reversal of the earlier order.

Business Environment brought substantial dilapidations proceedings against Deanwater. Deanwater pursued a preliminary issue concerning an alleged collateral contract or promissory estoppel defence, lost at first instance and on appeal, and was ordered to pay the costs of the appeal and the hearing below.

The substantive claim was later compromised for £1,073.50. The trial judge ordered Business Environment to pay Deanwater’s remaining costs on an indemnity basis after finding that the claim had been grossly exaggerated. On assessment of the preliminary-issue costs, the Master disallowed all of them. The issue before Mann J was whether the later outcome justified that approach.

1. Appeal allowed. The Master’s determination was set aside and the matter was remitted for assessment on the correct basis.
2. The Court of Appeal’s costs order was a discrete and self-contained order. It required Deanwater to pay the preliminary-issue costs irrespective of the eventual outcome of the substantive action. Those costs had to be assessed by reference to their reasonableness and propriety within that issue.
3. CPR 44.5 required consideration of the circumstances and the parties’ conduct, but also required effect to be given to orders already made. It did not authorise the Master to characterise the preliminary-issue costs as unreasonable solely because the substantive claim later failed badly or had been exaggerated.
4. A costs judge may disallow whole sections of a bill where the relevant expenditure was unreasonable. However, that power does not permit an earlier contested costs order to be reopened indirectly. Booth v Britannia Hotels Ltd and Lahey v Pirelli Tyres Ltd concerned costs which remained open for assessment after final disposition, whereas this order followed a contested determination of the preliminary issue.
5. The fact that the action might not have been brought, or the preliminary issue might not have been tried, had the claim been properly presented was insufficient. Deanwater chose to pursue the preliminary issue, lost it and incurred the ordered costs.
6. CPR 3.1(7) might provide a route to variation or revocation where there had been a material change of circumstances or the earlier order was made on a materially false factual basis. That possibility was not determined.

• High Court (Chancery Division): Appeal from Master Gordon-Saker’s decision of 16 March 2009. Appeal allowed and assessment remitted.
• Court of Appeal: Deanwater’s appeal was allowed on 27 June 2007, with an order that it pay Business Environment’s costs of the appeal and the hearing below. An application to reopen that appeal under CPR 52.17 was refused on 3 March 2009.
• Technology and Construction Court: The substantive claim was compromised for £1,073.50. HHJ Toulmin QC ordered Business Environment to pay Deanwater’s remaining costs on an indemnity basis in a judgment cited as [2007] EWHC 2003 (TCC).