N J Rickard Limited v Holloway & Anor

Part 36 is a self-contained code. An offer attracts its special costs consequences only if it satisfies the mandatory requirements of the Civil Procedure Rules 1998. An offer which does not specify a period during which the defendant will be liable for the claimant’s costs cannot attract the Part 36 consequences. Costs must instead be determined under Part 44.2, having regard to all the circumstances, including partial success, conduct, exaggerated claims, settlement offers and failure to engage in alternative dispute resolution. A party’s financial advantage does not necessarily make it the successful party where substantial claims have failed.

The landlord claimed rent arrears and damages for alleged damage to let property. The tenants counterclaimed for breach of the covenant for quiet enjoyment and disrepair under section 11(1) of the Landlord and Tenant Act 1985. After a three-day trial, the District Judge awarded the landlord the net balance of the rent claim after setting off damages awarded to the tenants, and ordered the tenants to pay the landlord’s costs, including indemnity costs following a purported Part 36 drop-hands offer.

The tenants appealed the costs orders. The central issues were whether the offer complied with Part 36 and, if not, how the costs of the claim and counterclaim should be allocated under Part 44.2.

Lord Justice Vos delivered the judgment, with Tomlinson LJ and the Lord Chief Justice agreeing. The appeal was allowed.

1. Further evidence. The tenants were permitted to amend their grounds but refused permission to adduce further evidence because the conditions in Ladd v Marshall were not satisfied.
2. Part 36. The drop-hands offer was not a valid Part 36 offer. CPR Part 36.2(2)(c) required the offer to specify a period during which the defendant would be liable for the claimant’s costs in accordance with rule 36.10. The offer contained no such provision. The consequences in Part 36.14, now Part 36.17, therefore could not arise. Following F&C Alternative Investment (Holdings) Limited v Barthelemy (No.3), Part 36 was treated as a self-contained code, and indemnity costs could not be awarded by analogy with it. The approach in Procter & Gamble Company v Svenska Cellulosa Aktiebolaget SCA was not followed on this point, although the court endorsed its observation that Part 36 had been drafted precisely and carefully.
3. Part 44.2. The general rule that the unsuccessful party pays the successful party’s costs was only the starting point. The court had to consider all the circumstances, including partial success, conduct, the reasonableness and manner of pursuing issues, exaggerated claims and settlement offers. The landlord’s substantial damage claim had wholly failed, while much of the tenants’ disrepair case succeeded. The judge had therefore given insufficient weight to the parties’ respective success and the issues occupying time and expense.
4. Mediation and final order. The tenants’ realistic early offer had to be balanced against the landlord’s failure to respond to repeated invitations to mediate. Applying the guidance in PGN II SA v OMFS Company 1 Limited, silence in the face of an invitation to ADR was generally unreasonable. The proper order was no order as to costs between the landlord and tenants. The tenants remained liable for the personal costs of Mr Rickard and Mr Flamank, assessed at £1,000 each, with Mr Rickard given liberty to apply.

1. Court of Appeal (Civil Division): In [2015] EWCA Civ 1631, the court allowed the appeal, replaced the costs orders between the landlord and tenants with no order as to costs, and assessed the personal defendants’ costs at £1,000 each.
2. Truro County Court: District Judge Mitchell awarded the landlord the net balance of the rent claim and ordered the tenants to pay the landlord’s costs on the standard basis up to the expiry of the offer period and on the indemnity basis thereafter.