Nelson's Yard Management Company & Ors v Eziefula

When a claimant discontinues proceedings, the defendant is presumptively entitled to costs under CPR Part 38.6(1). The claimant must provide cogent reasons for a different order, usually involving unreasonable conduct by the defendant.

The court must distinguish an assessment of conduct from an impermissible determination of disputed merits without a trial. An undisputed failure to respond to pre-action correspondence may constitute unreasonable conduct, particularly where it reasonably leaves the claimant with little choice but to issue proceedings. Pre-action protocols are applied reasonably and in accordance with their spirit, rather than slavishly. The resulting costs order may be limited to the period during which the defendant's conduct caused costs to be incurred.

The claimants owned freehold or leasehold interests in premises adjoining the defendant's property. Concerned that excavation work endangered their wall and foundations, they sent four unanswered letters seeking access and raising the defendant's alleged failure to comply with the Party Wall etc Act 1996. They commenced proceedings for injunctive relief and damages, but later discontinued after access, professional involvement and a Party Wall Award.

Mr Recorder Stephen Hockman QC applied the default costs rule in CPR Part 38.6(1) and ordered the claimants to pay the defendant's costs. The claimants appealed, contending principally that the Recorder had failed properly to assess the defendant's undisputed failure to answer the pre-action correspondence. The central question was whether that conduct provided good reason to depart from the default rule without determining disputed issues going to the merits.

1. Appeal allowed. The Recorder's order was set aside. The defendant was ordered under CPR Part 44.3(6)(c) to pay the claimants' costs up to 3 May 2008, when the defence was served. There was no order for costs thereafter.

2. A claimant who discontinues must show a good reason for departing from the presumption in CPR Part 38.6(1). Cogent reasons are required, and departure is unlikely outside unusual circumstances. The court considers all the circumstances under CPR Part 44.3 within that framework, including the parties' conduct before and during proceedings.

3. Once there will be no trial, the costs court should not determine whether the discontinued claim would have succeeded. Disputed allegations which require findings of fact cannot ordinarily be resolved through the costs application. The allegations concerning the Party Wall Notice, access, planning permission and responsibility for the contractors' work therefore could not justify departure from the default rule, despite the apparent strength of the claimants' case.

4. The undisputed failure to answer the four pre-action letters was different. Assessing its consequences did not require the court to pre-empt the merits. The letters clearly communicated concern about danger to the claimants' wall and foundations, requested access and raised the defendant's alleged statutory non-compliance. Pre-action protocols are to be followed reasonably, not slavishly. Non-compliance with their spirit may affect costs even where the correspondence does not satisfy every formal requirement.

5. The Recorder erred in treating consideration of the unanswered correspondence as involving an assessment of the merits, or alternatively failed to take that relevant consideration into account. The reasonable perception of danger, the complete absence of a response and the defendant's subsequent provision in substance of what had been requested amounted to unreasonable conduct. It left the claimants with little choice but to issue proceedings and justified disapplying the default rule.

6. Once the defence disclosed the defendant's position, the claimants could have sought strike-out or summary judgment if they regarded it as spurious. Their decision not to do so made it inappropriate to require the defendant to pay costs beyond service of the defence. Ryder J and Arden LJ agreed with Beatson LJ.

1. Court of Appeal (Civil Division): In [2013] EWCA Civ 235, the court unanimously allowed the claimants' appeal, set aside the Recorder's costs order and substituted an order requiring the defendant to pay the claimants' costs up to service of the defence, with no order thereafter.
2. Central London Civil Justice Centre: Mr Recorder Stephen Hockman QC rejected the claimants' application to depart from the default costs rule following discontinuance and ordered them to pay the defendant's costs.