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Property Litigation Update – Littlestone v MacLeish

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29th March 2016

Civil Procedure & Landlord & Tenant

Summary: The Court of Appeal has held that a Part 36 offer and a subsequent payment pursuant to a partial admission of liability, could not be aggregated to increase the value of a Part 36 offer. An admitted payment on account of a claim, following a Part 36 offer in a higher amount, had, in the absence of agreement to the contrary, to be taken as being made as much on account of the Part 36 offer as on account of the claim itself.

Facts: Mr MacLeish (M), as landlord, brought a claim against his colleagues in a solicitors’ partnership (L), as tenants, following the termination of lease of office premises in Snaresbrook, London. M sued for damages for breach of L’s repairing obligations in the sum of £74,820.93 plus interest.

M served his claim form on 30 January 2013. On 13 February 2013 L made an offer to settle pursuant to Part 36 on the basis L would pay M £35,000 in full and final settlement of the claim. On 1 March 2013 L served their defence in which they admitted liability in the aggregate amount of £17,504 which was subsequently paid to M.

In October 2013 M made a Part 36 offer to accept the sum of £54,000 inclusive of interest and VAT but less the £17,504 already paid on account. L suggested that this offer was only £1496 apart from their own Part 36 offer, it being implicit in their response to the claim that the £35,000 had been available for acceptance in full, without M having to give credit for the £17,504 already paid pursuant to the admissions.

After a full trial, M was awarded damages of £48,409.40 together with interest and agreed service charges, with an agreed small deduction for an agreed insurance premium rebate. The judge ordered L to pay M’s costs of the proceedings, on the standard basis. She rejected L’s argument

Mr MacLeish (M), as landlord, brought a claim against his colleagues in a solicitors’ partnership (L), as tenants, following the termination of lease of office premises in Snaresbrook, London. M sued for damages for breach of L’s repairing obligations in the sum of £74,820.93 plus interest.

M served his claim form on 30 January 2013. On 13 February 2013 L made an offer to settle pursuant to Part 36 on the basis L would pay M £35,000 in full and final settlement of the claim. On 1 March 2013 L served their defence in which they admitted liability in the aggregate amount of £17,504 which was subsequently paid to M.

In October 2013 M made a Part 36 offer to accept the sum of £54,000 inclusive of interest and VAT but less the £17,504 already paid on account. L suggested that this offer was only £1496 apart from their own Part 36 offer, it being implicit in their response to the claim that the £35,000 had been available for acceptance in full, without M having to give credit for the £17,504 already paid pursuant to the admissions.

After a full trial, M was awarded damages of £48,409.40 together with interest and agreed service charges, with an agreed small deduction for an agreed insurance premium rebate. The judge ordered L to pay M’s costs of the proceedings, on the standard basis. She rejected L’s argument

that their Part 36 offer should be aggregated with the £17,504 payment following admissions for the purpose of deciding whether one party had ‘beaten’ a Part 36 offer.

Both parties appealed in relation to points on costs. L appealed on the basis that the judge was wrong to award M his costs because he had failed to beat a Part 36 offer make within days of service of the claim form. M sought to uphold the judge’s decision on costs, but cross-appealed on the ground that the judge should have made the award on the indemnity basis, so as to reflect his contractual entitlement to an indemnity for costs incurred in the recovery of sums due from the defendants as tenants under a term of the lease.

Issues:

1. whether M had failed to beat L’s Part 36 offer and so L was entitled to their costs; and
2. if not, whether M ought to have been awarded his costs on the indemnity basis

Decision on Appeal:

1) In Briggs LJ’s judgment, the true analysis of the relationship between the Part 36 offer and the admissions payment is as follows:

• The Part 36 offer was merely an offer to settle the entirety of the claim for £35,000, no more and no less.
• The admissions payment was made and accepted on the basis it was a payment on account following admissions against the claimant’s entire claim. The claim did not cease to be a claim for damages merely because part of it was admitted, and payment had been made in accordance with those admissions. It would fall to be taken into account as a part payment of any larger sums awarded by way of damages.
• For the same reason, the admissions payment was liable to be taken into account as a part payment in advance of the £35,000 that would have been due and payable if M had accepted the offer. This logic does no violence to CPR 36.11(6) which is “plainly not intended to deprive the defendant of the benefit of a part-payment on account”.
• The judge was correct to award damages and interest in the full sum, treating the admissions payment as something to be taken into account, rather than as reducing the quantification of the damages payable.

It follows M had obtained a judgment more advantageous that the value of the Part 36 offer, within the meaning of CPR 36.14(1)(a), so the judge was correct to award M his costs.

2) The cross-appeal was allowed and M was awarded costs on an indemnity basis because Briggs LJ held that:

• It is well settled that when exercising a discretion as to the basis of assessment of costs under the CPR, the court should normally do so in a way which corresponds with any
• contractual entitlement agreed between the parties: Gomba Holding (UK) v Minories Finance (No 2) [1993] Ch 171 at 190-1 and 194-5.
• Although the relevant provision in the lease did not refer expressly to indemnity, it corresponds more closely with assessment being upon the indemnity basis than upon the standard basis because of the obligation to pay “all costs and expenses …which may be incurred”. L’s counsel could provide “no cogent reason for upholding the judge’s standard basis of assessment in the circumstances.

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