Littlestone & Ors v Macleish

A payment made on account of a damages claim after a defendant has offered to settle the whole claim under Part 36 ordinarily counts towards the offered sum. It does not increase the offer's value unless the parties agree otherwise. The judgment and offer must be compared on a like-for-like basis.

When exercising its discretion over the basis of costs assessment, the court should normally reflect the parties' contractual allocation of costs. A covenant requiring payment of all costs and expenses incurred in recovering sums due corresponds more closely to indemnity assessment because it contains no proportionality limitation.

A landlord recovered damages and interest for breaches of repairing obligations under a lease. Before trial, the tenants had made a £35,000 Part 36 offer and subsequently paid £17,504 following admissions. The County Court held that the payment did not increase the offer's value and awarded the landlord costs on the standard basis.

The tenants appealed, contending that the offer and payment should be aggregated when compared with the judgment. The landlord cross-appealed, relying on a lease covenant requiring the tenants to pay all costs and expenses incurred in recovering sums due. The issues were the proper treatment of the admissions payment and whether the contractual covenant required indemnity-basis costs.

1. The tenants' appeal was dismissed. The £35,000 Part 36 offer was an offer to settle the whole claim. The later £17,504 payment was made and accepted on account of that same claim. Had the landlord subsequently accepted the offer, the payment would have counted towards the £35,000, leaving £17,496 payable. Rule 36.11(6) did not deprive the tenants of credit for a part-payment made on account of the claim: paras [19]–[23].

2. The admissions payment did not reduce the amount of damages and interest for which judgment should be entered. It was instead taken into account as a payment against that judgment. Comparing like with like, the landlord's judgment was therefore more advantageous than the unenhanced Part 36 offer under rule 36.14(1)(a): para [22].

3. The observations in Gibbon v Manchester City Council; L G Blower Specialist Bricklayer Ltd v Reeves [2010] 1WLR 2081 concerning a later payment's enhancement of a Part 36 offer were obiter and arose from a materially different debt claim. If necessary, the court would have declined to accept that analysis. Part 36's status as a self-contained statutory code did not preclude a common-sense analysis of the nature and effect of a later admissions payment: paras [31]–[35].

4. The landlord's cross-appeal was allowed. A court exercising its costs discretion should normally select a basis of assessment corresponding to the parties' contractual entitlement. The lease required the tenants to pay all costs and expenses incurred in recovering sums due. That obligation corresponded more closely to indemnity assessment because, unlike standard assessment, neither the covenant nor indemnity assessment imposed a proportionality requirement: paras [38]–[43].

5. Reasonableness did not justify standard-basis assessment. Under rules 44.3(1) and 44.5(1), unreasonable costs remain irrecoverable on either basis, while costs payable under a contract are ordinarily presumed reasonably incurred and reasonable in amount: para [42]. Gloster and Black LJJ agreed with Briggs LJ.

1. Court of Appeal (Civil Division): The tenants' appeal against the costs order was dismissed. The landlord's cross-appeal was allowed, and indemnity-basis assessment was substituted for standard-basis assessment: [2016] EWCA Civ 127.
2. County Court at Central London: HHJ Deborah Taylor awarded the landlord damages and interest and ordered the tenants to pay the landlord's costs on the standard basis.