PGF II SA & Anor v Royal & Sun Alliance Insurance Plc & Anor

The successful party is the usual starting point for a costs order, but the court retains a broad discretion to make an order that reflects the justice of the case. Relevant considerations include success on individual issues, conduct before and during proceedings, compliance with pre-action procedures, the parties’ ability to assess the claim, and whether unreasonable conduct prejudiced settlement or costs protection.

A technical failure to comply with a pre-action requirement will not justify a costs penalty without consequential unfairness. Part 36 consequences require a qualifying offer, and any alternative settlement offer must be clear on its face and made sufficiently early to allow proper consideration.

This was a costs judgment following the court’s substantive dilapidations judgment, [2010] EWHC 1459 (TCC). The landlord claimants had recovered substantial damages against the tenant and sub-tenant in respect of premises in Lime Street, London.

The claimants sought their costs, including indemnity costs for part of a reinstatement claim. The defendants sought no order as to costs, or a substantial reduction, relying on their success concerning the cladding scheme, reductions in other heads of claim, alleged pre-action non-compliance, and the parties’ settlement offers. The central issues were the appropriate costs discretion under CPR Part 44, the effect of the Part 36 offers, and whether the parties’ pre-action conduct justified a different order.

1. The claimants were the successful parties. The general rule under CPR Part 44 was therefore that the defendants should pay their costs, subject to the court’s discretion to make a different order.

2. The court adopted the approach in Verrechia trading as Freight Master Commercials v Commissioner of Police for the Metropolis and Others [2002] EWCA civ 605 and Widlake v BAA [2009] EWCA civ 1256: costs are primarily a matter for the trial judge; success is the starting point; and conduct, issue-based success and exaggeration may justify adjustment.

3. No deduction was justified for the claimants’ failure on the cladding evidence or for recovering less than claimed. The parties had equal opportunities to assess the competing expert schemes and protect their costs positions. The claimants had acted reasonably in pursuing the issues.

4. The pre-action complaints did not justify a penalty. The later schedule contained the required endorsement under paragraph 3.6 of the Dilapidations Protocol. The earlier omission was a technicality, and the defendants had not shown that it caused practical prejudice. The defendants’ own extensive disclosure demand was disproportionate.

5. The claimants’ 2 February settlement proposal was unclear and could not attract indemnity-cost consequences. The 19 February offer was too late to give the second defendant a reasonable opportunity to consider it. The Part 36 offers did not otherwise justify reducing the claimants’ costs.

6. The claimants were awarded their reasonable costs against the second defendant on the standard basis. They were awarded 90 per cent of their reasonable costs against the first defendant, in each case subject to detailed assessment if not agreed.

This was a first-instance costs judgment following the substantive judgment in the same litigation, [2010] EWHC 1459 (TCC).