Chaplair Ltd v Kumari

A contractual right to recover litigation costs remains enforceable where proceedings have been allocated to the small claims track. The costs restrictions in the Civil Procedure Rules 1998 govern procedural costs awards. They do not override a contractual indemnity.

The court retains a discretion over costs, but should ordinarily exercise it to reflect the contractual right. It may disallow costs which were not reasonably incurred or where another good reason justifies departure from the agreement.

A tribunal decision preventing costs from being added to a service charge does not determine a separate contractual claim for payment. Nor does abuse-of-process estoppel bar a claim which the tribunal lacked jurisdiction to determine.

A landlord brought County Court proceedings against a tenant for unpaid rent and service charges. Service-charge issues were transferred to a leasehold valuation tribunal, where the landlord succeeded overall. The tribunal made no costs order, and the landlord accepted that its costs could not be added to the service charge.

The County Court proceedings had been allocated by agreement to the small claims track. District Judge Watson consequently limited costs under the Civil Procedure Rules 1998. On appeal, HHJ Wulwik held that the lease conferred a contractual costs indemnity. He ordered the tenant to pay specified proportions of the tribunal and County Court costs, subject to detailed assessment on the indemnity basis.

The tenant appealed concerning the tribunal costs and sought permission to appeal concerning the County Court costs. The central questions were whether the tribunal proceedings barred the contractual claim and whether the small-claims costs limit overrode that claim.

1. Disposition. The appeal concerning the leasehold valuation tribunal costs was dismissed. Permission to appeal concerning the small-claims costs was refused because the judge had applied well-established law. Patten LJ agreed and added supporting reasons. Christopher Clarke LJ agreed with both judgments.

2. The tribunal's treatment of costs created neither res judicata nor an estoppel. Its decision and the landlord's concession established only that the tribunal costs could not be added to the service charge under section 20 C of the Housing Act 1985. They did not determine the landlord's pleaded contractual claim for payment. The tribunal lacked jurisdiction to award costs under the lease, so the landlord could not have been required to advance that claim there. Bringing it in the County Court was therefore no misuse or abuse of process.

3. Where a successful litigant has a contractual right to recover properly incurred costs, that right is highly relevant to the court's costs discretion. The discretion should ordinarily be exercised to reflect the contract unless good reason exists to depart from it. The court may scrutinise the expenses and disallow unreasonable costs. A contract cannot entitle a landlord to more than the costs actually and reasonably incurred. The principles in Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) [1993] Ch 171, as applied beyond mortgage cases in Church Commissioners v Ibrahim [1997] EGLR 13, governed the claim.

4. Rule 27.14 of the Civil Procedure Rules 1998 limits costs awarded under the procedural rules on the small claims track. It does not extinguish or cap an independent contractual costs indemnity. Rule 44.5 provides machinery for assessing contractual costs and is not excluded from the small-claims regime by rule 27.2. The rule-making power could not exclude or override the contractual entitlement.

5. The County Court therefore had jurisdiction to assess the tribunal and County Court costs without the rule 27.14 cap. Its discretion was not at large: it was ordinarily to be exercised consistently with the lease. The costs remained subject to assessment, including scrutiny of whether they were reasonable.

1. Court of Appeal (Civil Division): The tenant's appeal concerning the leasehold valuation tribunal costs was dismissed. Permission to appeal concerning the costs of the small-claims proceedings was refused: [2015] EWCA Civ 798.

2. Romford County Court, HHJ Wulwik: Allowed the landlord's appeal from District Judge Watson. The judge ordered the tenant to pay specified proportions of the tribunal and County Court costs under the contractual indemnity, subject to detailed assessment on the indemnity basis.

3. Romford County Court, District Judge Watson: Held that allocation to the small claims track restricted recoverable costs under rule 27.14 of the Civil Procedure Rules 1998.