London Tara Hotel Ltd v Kensington Close Hotel Ltd

Successful parties generally recover their costs, but the court may make separate provision for costs caused by an abandoned or unsuccessful issue. Indemnity costs require conduct or circumstances taking the case outside the norm. A grossly exaggerated claim will not automatically justify indemnity costs, particularly where it caused no material additional costs. A settlement proposal that limits the claimant’s costs is incompatible with the mandatory Part 36 regime, although it may still be considered under the general costs discretion. Interest at the judgment rate will ordinarily run from the costs order, but may be postponed for a limited period where substantial costs remain unassessed and genuine proportionality or reasonableness issues arise.

The judgment concerned consequential costs issues following the court’s earlier judgment, [2010] EWHC 2749 (Ch), which dismissed the claim by London Tara Hotel Ltd and upheld Kensington Close Hotel Ltd’s counterclaim for a declaration concerning a right of way.

The court considered whether the defendant’s costs should be reduced for an abandoned historical-user allegation, whether indemnity costs were justified by an exaggerated damages claim or an unaccepted settlement offer, and when judgment-rate interest should begin on the costs.

1. Costs attributable to a discrete issue. Although the defendant was the successful party, the court had discretion to make separate provision for costs relating to an issue on which it had been unsuccessful. The actual-knowledge issue had been introduced by the claimant and was reasonably answered by the defendant. The defendant therefore remained entitled to the costs incurred on that issue. By contrast, the allegation that the right had been acquired by use before January 1973 had been introduced and maintained by the defendant for about 18 months before being abandoned. The defendant was ordered not to recover costs caused solely by that allegation and to pay the claimant’s costs caused solely by it.

2. Indemnity costs. Under CPR rules 44.3 and 44.4, indemnity costs are justified where conduct or circumstances take the case outside the norm. The claimant’s damages claim had been grossly exaggerated, but the trial had been split so that quantum was not initially in issue, and the defendant had not incurred material costs dealing with quantum. The exaggeration therefore did not justify indemnity costs. Proportionality could be addressed on the standard basis.

3. Part 36. The defendant’s letter was not a valid Part 36 offer. It offered only 10 per cent of the claimant’s costs, whereas acceptance of a Part 36 offer would ordinarily entitle the claimant to its costs under the rules. The offer also failed to satisfy the prescribed requirements concerning the relevant period. It could nevertheless be considered under CPR rule 44.3. The late offer and the claimant’s counter-proposal did not make the case exceptional, so indemnity costs were refused.

4. Interest on costs. Judgment-rate interest ordinarily runs from the costs order. The court agreed that postponement should not be routine, but held that a limited postponement was permissible where costs were substantial and real proportionality or reasonableness issues might arise on assessment. Judgment-rate interest on the balance above the agreed £400,000 interim payment was postponed for four months; interest meanwhile ran at base rate plus 1.15 per cent.

The judgment records that the court’s earlier judgment, [2010] EWHC 2749 (Ch), dismissed the claim and upheld the counterclaim. No appeal history is stated.