Case No:HT-11-209
Neutral Citation Number: [2013] EWHC 2227 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 24/07/2013

Before :

THE HON MR JUSTICE RAMSEY
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Between :

	Hammersmatch Properties (Welwyn) Limited	Claimant	
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	(1)	Saint-Gobain Ceramics and Plastics Limited
(2)	Saint-Gobain Abrasives Inc	Defendants	

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Judith Jackson QC (instructed by Thomas Eggar LLP) for the Claimant
Nicholas Dowding QC & Elizabeth Fitzgerald (instructed by Shulmans LLP) for the Defendants

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Judgment
Judgment Number 2
Mr Justice Ramsey : 
Introduction
1.	These proceedings involve a claim for dilapidations by the Claimant (“Hammersmatch”) against the First Defendants (“Saint-Gobain”) on the termination of a lease of the Norton Building in Welwyn Garden City. 

2.	In my previous judgment I awarded Hammersmatch £900,000 as damages which were limited by s.18(1) of the Landlord and Tenant Act 1927 (“the 1927 Act”) to the value of the diminution of the reversion. In addition I awarded Hammersmatch the agreed cost of schedules of £20,320.40. Together with interest the total sum awarded was £1,058,768.00. 

3.	In this judgment I now deal with the questions of costs arising out of that judgment.

Effect of Saint-Gobain’s second Part 36 offer
4.	It is common ground that there is no offer under CPR Part 36 which has any automatic costs consequences. Saint-Gobain did however make a Part 36 offer by letter dated 23 December 2011 in the sum of £1,000,000. If interest is added to the sum of £900,000 and £20,320.40 up to 13 January 2012, the last date of acceptance of the Part 36 offer, the sum awarded to Hammersmatch exceeds Saint-Gobain’s Part 36 offer by £3,637.90, which represents a very small percentage of the sum offered.

5.	Under CPR 36.14, as amended on 1 October 2011 by the insertion of CPR 36.14(1)(A), Hammersmatch has not failed to obtain a judgment more advantageous than Saint-Gobain’s Part 36 offer and therefore Rule 36.14 does not apply. The provisions of CPR36.14(1A) state

“(1A) For the purposes of paragraph (1), in relation to any money claim or money element of a claim “more advantageous” means better in money terms by any amount, however small and “at least as advantageous” shall be construed accordingly.” 

6.	In Carver v BAA Plc [2008] EWCA Civ 412 the Court of Appeal considered a case where there had been a Part 36 payment into court of effectively £4,520. By making allowance for interest the judgment exceeded the payment in by £51. The judge at first instance held that the monetary judgment was not “more advantageous” than the Part 36 payment and this was upheld by the Court of Appeal. Ward LJ giving the judgment with which the other members of the court agreed said at [30] that the words more advantageous permitted “a more wide-ranging review of all the facts and circumstances of the case in deciding whether the judgment, which is the fruit of the litigation, was worth the fight.”

7.	In the Final Report of the Review of Civil Litigation by Lord Justice Jackson he said this at paragraph 2.9 of Chapter 41 by way of a conclusion:

“I confirm my provisional view expressed in the Preliminary Report that Carver introduces an unwelcome degree of uncertainty into the Part 36 regime and also that it tends to depress the level of settlements. I recommend that the effect of Carver should be reversed either judicially (if an early opportunity arises) or by rule change. It should be made clear that in any purely monetary case “more advantageous” in rule 36.14(1)(a) means better in financial terms by any amount, however small.
 
8.	That led to recommendation 93 in the Final Report. The amendment in CPR36.14(1A) was implemented to give effect to that recommendation. This means that there are no automatic costs consequences in this case. However offers are also relevant to the question of whether a court should depart from the general rule that “the unsuccessful party will be ordered to pay the costs of the successful party under CPR44.2(2)(a) and make “a different order” under CPR44.2(2)(b). It is therefore necessary for me to consider the effect of the Part 36 offer in that context. 

9.	Under CPR 44.2(4), in deciding what order to make the court has to have regard to all the circumstances including:

“(a) the conduct of all the parties;
(b) whether a party has succeeded on part of its case, even if that party has not been wholly successful; and
(c) any admissible offer to settle made by a party which is drawn to the court's attention, and which is not an offer to which costs consequences under Part 36 apply.”

10.	 I therefore turn to consider the matters relied upon by the parties in this case, including Saint-Gobain’s second Part 36 offer.
 
Summary of submissions
11.	On behalf of Hammersmatch Ms Judith Jackson QC submits that Saint-Gobain’s conduct it to be criticised. She submits that Saint-Gobain failed to respond properly to Hammersmatch’s case under the Protocol on Dilapidations which represented best practice at the time. She says that Saint-Gobain failed to articulate its case on diminution in value until some two months before trial or to respond to the schedule of dilapidations until late 2011 or early 2012. She submits that there was no exaggeration in the claim by Hammersmatch but rather that the finding as to the value of diminution in value fell between the values contended for by the parties.

12.	She submits that whilst the second Part 36 offer by Saint-Gobain was close to the figure awarded, it was made at a time when Hammersmatch could not properly assess Saint-Gobain’s case because of the failures of Saint-Gobain properly to articulate its case. 

13.	On this basis she submits that there is no basis for departing from the general rule and that therefore Hammersmatch should be entitled to its costs in full against Saint-Gobain. 

14.	On behalf of Saint-Gobain Mr Nicholas Dowding QC, who appears with Ms Elizabeth Fitzgerald, submits that Hammersmatch’s claims were exaggerated from the start in terms of the cost of works in the schedule of dilapidations which Hammersmatch said was the appropriate measure of damages for this dilapidations claim. He also says that Hammersmatch’s claim for diminution value was exaggerated and in excess of the sum ultimately awarded.

15.	He also submits that Hammersmatch pursued a claim for loss of rent and insurance and that it was only at a late stage that Hammersmatch accepted that these sums were covered by the cap on damages under s.18 of the 1927 Act. He says Hammersmatch also continued to assert an intention to carry out works and that this issue led to unnecessary evidence and submissions which added to the cost. He also refers to the costs which were incurred by Mr Ansell, the building surveyor instructed by Hammersmatch, in preparing a late supplementary report on windows and contends that the costs related to this report should not, in any event, form part of the costs of the case. 

16.	He submits that Saint-Gobain succeeded and Hammersmatch did not succeed on a number of important issues including the cost of works, whether the cap under s.18 of the 1927 Act applied, the proper value of diminution in value and the claim for loss of rent and insurance.

17.	In addition he submits that the court ought to take account of the Part 36 offer. He submits that a costs award which properly meets the justice of the case, whilst at the same time respecting the fact that the amount awarded exceeded Saint-Gobain’s Part 36 offer, would be that Hammersmatch should pay 40% of Saint-Gobain’s costs of the litigation. 

18.	He submits that when Hammersmatch served its first schedule of dilapidations on 23 December 2008 it claimed £7,676,476.50. That reduced by the time of Hammersmatch’s pre-action letter on 11 January 2010 to £6,800,408.36 and then when proceedings were commenced on 2 June 2011 the Claim was for £4,418,500 plus continuing loss of rent and insurance rent at a combined annual rate of £752,498.40. He submits that Saint-Gobain had made a first Part 36 offer of £500,000 in November 2011 before it made the second Part 36 offer in the sum of £1,000,000 and that it was met much later and before trial by a Part 36 offer from Hammersmatch of £3,200,000. He submits that Saint-Gobain’s Part 36 offers were rejected by Hammersmatch without making any attempts to negotiate and that the Part 36 offer made by Hammersmatch of £3,200,000 was quite unrealistic in the circumstances and reflected Hammersmatch’s unreasonable and inflated view of the value of its claim which, he says, has characterised its approach throughout the dispute.

19.	He submits that although the automatic cost rule under Part 36 does not apply, the reality is that Hammersmatch, by rejecting the Part 36 offer and pressing ahead without making any realistic counter offer,is no better off than it would have been if it had accepted that offer. He submits that carrying on the litigation after the Part 36 offer was wholly disproportionate and a waste of time and resources.

20.	I now turn to consider those submissions.

Decision
21.	I must first consider the appropriate way to treat the Part 36 offer which was made by Saint-Gobain in the sum of £1,000,000. 

22.	In Multiplex Construction (UK) v Cleveland Bridge UK [2008] EWHC 2280 (TCC) Jackson J, as he then was, reviewed a number of authorities and derived eight principles including the following at [72]: 

“(vi) In considering the circumstances of the case the judge will have regard not only to any part 36 offers made but also to each party's approach to negotiations (insofar as admissible) and general conduct of the litigation.
(vii) If (a) one party makes an offer under part 36 or an admissible offer within rule 44.3(4)(c) which is nearly but not quite sufficient, and (b) the other party rejects that offer outright without any attempt to negotiate, then it might be appropriate to penalise the second party in costs.”

23.	In relation to Part 36 offers and negotiation, Jackson J referred at [49] to [51] to the decision of the Court of Appeal in Johnsey Estates (1990) Limited v Secretary of State for the Environment, Transport and the Regions [2001] EWCA Civ 535 in which the Court of Appeal considered  the relevant costs order in a  dilapidations claim. In that case the tenant had made a payment into court of £200,000 followed by a second payment into court to make a total of £450,000. The judge held that the diminution in value was £200,000. When interest was added to the sum of £200,000 up until the date of first payment into court, the sum awarded by the judge amounted to £36,000 more that the sum of £200,000 paid into court at that time. The judge ordered that the landlord was entitled to its costs up to the date of the first payment-in and made various orders in relation to costs up to the date of the second payment-in (19 February 1999) and then ordered the landlord to pay the tenant’s costs from that date. The landlord appealed on the basis that it had recovered more than the first payment into court and should have all its costs to the date of the second payment-in. 

24.	At [29] Chadwick, LJ, with whom the other members of the Court of Appeal agreed, considered the judge’s approach to the award of costs between the date of the first payment-in and the second payment-in. At [29] he said that

“It follows, in my view, that the judge's approach was flawed. He ought to have recognised that, in relation to costs incurred before February 19, 1999, the landlord was the successful party; and that, accordingly, the starting point from which to approach the exercise of discretion in which he was engaged was that the landlord should have its costs down to that date. I accept, of course, that a party who has been successful overall may, nevertheless, be deprived of his costs—and may be ordered to pay the costs of the other party—in respect of issues which he has fought unsuccessfully. But an exercise of discretion on that basis cannot lead, in the present case, to an order that the claimant pay the defendant's costs of the diminution in value issue in respect of any period prior to February 11, 1999 (the date of the exchange of revised expert's reports); nor to an order that the claimant should be deprived of its costs of that issue prior to that date.”

25.	At [31] he then dealt with a submission by counsel for the tenant that the landlord should be deprived of all of its costs between the dates of the first and second payments-in. He said this at [31] and [32], in passages referred to by Jackson J in Multiplex at [51]:

“31. His submission, in effect, was that the landlord was, throughout, seeking damages in amounts which were far in excess of the amount to which it was ultimately held entitled; and that it was the landlord's inflated and unrealistic valuation of its claims which had made it impossible to dispose of the action by agreement in 1996. He accepted, of course, that the amount of the first payment in turned out to be less than the amount to which the landlord was entitled; but he submitted that that was irrelevant; when the Secretary of State increased the amount notionally in court to £450,000, the landlord would not accept it. The action went on because the landlord was not interested in any reasonable offer; and, in those circumstances, the landlord must bear its own costs.

32. The submission has some superficial attraction on the facts of the present case; but, for my part, I would reject it. It seems to me that a court should resist invitations to speculate whether offers to settle litigation which were not in fact made might or might not have been accepted if they had been made. There are, I think, at least two reasons why a court should not allow itself to be led down that road. First, the rules of court provide the means by which a party who thinks that his opponent is not open to reason can protect himself from costs. He can make a payment in; he can make a Calderbank offer; now, under the Civil Procedure Rules 1998, he can make a payment or an offer under CPR Part 36. The advantage of the courses open under the rules is that they remove speculation. The court can see what offer was made, when it was made, and whether it was accepted. Secondly, speculation is likely to be a most unsatisfactory tool by which to determine questions of costs at the end of a trial. It is not, I think, suggested that each party would be required to disclose, at that stage, what advice it had received, from time to time, as to the strengths and weaknesses of its claim or defence. But without knowing that—and without a detailed knowledge of the financial and other pressures to which each party was subject from time to time—speculation would be hopelessly ill-informed. If Mr Gaunt's submission were to be accepted generally, there would, I think, be a serious danger that, at the end of each trial, the court (in order to decide what order for costs it should make) would be led into another, potentially lengthy, inquiry on incomplete material into "what would have happened if .. ?" I am not persuaded that that could be compatible with the overriding objective to deal with cases justly.”

26.	The Part 36 offer made in this case could be said, in principle, to come within the wording of CPR44.2(4)(c). It is an admissible offer to settle and is not an offer to which costs consequences under Part 36 apply. However I do not consider, even in a case such as this, where Hammersmatch has only received a very small amount more that the sum which Saint-Gobain offered in its Part 36 offer, the court should approach CPR 44.2(4)(c) on the basis that this could lead to an order that a claimant should pay the defendants’ costs. In my judgment, to do so would be to seek to use the provisions of CPR44.2(4)(c) to give a similar effect to a Part 36 offer and thereby introduce the same uncertainty into Part 36 offers which are near to but below the sum awarded, as led to the criticism of Carver and the subsequent amendment introduced in CPR 36.14(1A). 

27.	This case could be said to come within the principle in subparagraph (vii) in [72] of the judgment of Jackson J in Multiplex because there is an offer under Part 36 which is nearly but not quite sufficient. In that paragraph Jackson J said that if the other party rejected that offer outright without any attempt to negotiate then it might be appropriate to penalise the second party in costs.

28.	The principle in subparagraph (vii) was evidently taken from Carver, as made clear from the reference to that case in Multiplex at [67] to [71].  The Court of Appeal decision in Johnsey does not establish that principle and, if anything, suggests the contrary. In that case the first payment-in was not sufficient and it was said that the landlord, would not have accepted a payment of £236,000 which would have been sufficient or, indeed £450,000 which was the second payment in and was not accepted. In the present case it could be said that, although £1,003,637.90 was not offered in Saint-Gobain’s second offer, if it had been offered it would not have been accepted by Hammersmatch given the sum in the Part 36 offer which it ultimately made. 

29.	Whilst in this case, standing back with the benefit of hindsight, Saint-Gobain should have offered a very small amount more and Hammersmatch should have reasonably accepted that offer if made, I consider that, as Chadwick LJ said in Johnsey, the court should resist invitations to speculate whether offers to settle litigation which are not in fact made might or might not have been accepted if they had been made. 

30.	In reality where a Part 36 offer is not sufficient to give rise to the automatic cost consequences of Part 36, an argument can always be made that if the parties had negotiated the matter could have been resolved. However that presumes that, for instance, in this case, Saint-Gobain would have offered a little more and Hammersmatch would have accepted it. Of course, if the parties had known the outcome, they would have made and accepted such an offer. However the negotiations would have been carried out without that knowledge. In those circumstances, it is mere speculation what Saint-Gobain would have done. A party who has made an offer frequently stands on the offer when the other party seeks to negotiate. Equally, while it might be argued that, given the sum in Hammersmatch’s Part 36 offer, Hammersmatch would never have accepted any sum near Saint-Gobain’s Part 36 offer, that superficially attractive argument was rejected in Johnsey. The reasoning in that case, referred to above, applies equally here: “a court should resist invitations to speculate whether offers to settle litigation which were not in fact made might or might not have been accepted if they had been made.”        

31.	Further whilst a failure to negotiate argument has a superficial attraction in a situation where an offer is a “near miss”, experience shows that this is a dangerous path to tread. First, most negotiations are conducted on a without prejudice basis and therefore are not admissible in relation to costs. Supposing in this case there had been without prejudice negotiations where Hammersmatch came down to a much lower level but Saint-Gobain offered £1,000,000 on a take it or leave it basis, should the fact that such negotiations have taken place, without the court knowing the detail of the negotiations have an effect on the court’s discretion as to costs any more than a situation where the court is told there were no negotiations.

32.	Secondly, in this case it is evident that the sum awarded was much closer to the figure offered by Saint-Gobain than to the sum which Hammersmatch offered to take. If there are no negotiations how should the court assess the position? Is the court to conclude that the party whose position was further away from the target should be deemed to be an unreasonable negotiator? If so, a claimant who made an offer would be worse off than a claimant who made no offer. This would discourage claimants from making such offers. 

33.	Thirdly, this is a case in which the parties held a mediation in September 2010 in which they were unable to reach a settlement. Neither party can refer to what happened in that mediation. The court can at least conclude that no party unreasonably refused to mediate or to negotiate.

34.	I do not consider it desirable that the court should in a case like this seek to attribute a particular consequence to a failure to negotiate when necessarily the court does not have the full information of any negotiations which did take place and both parties have sought costs protection under Part 36 by making offers, neither of which, in the event was sufficient to lead to the automatic costs consequences under Part 36.

35.	Whilst CPR 44.2 (4)(c) will clearly have application where there is an open offer made for more than is recovered or an offer purportedly under Part 36 for a sum in excess of the sum recovered but where, for some reason it does not have the Part 36 costs consequences, I do not consider that it should alter the costs consequences in a case such as this. Here Saint-Gobain made a Part 36 offer which was too low. There was a mediation indicating, on its face, that there was no unreasonable refusal to negotiate. In the event, neither party sought to negotiate after Saint-Gobain’s second Part 36 offer.

36.	In my judgment the principle in sub-paragraph (vii) of [72] in Multiplex, derived as it was from Carver, is no longer a principle which applies to Part 36 and should not be applied as a special “near miss” rule through CPR44.2(4)(c). If there is an unreasonable refusal to negotiate then that is a matter which comes within the circumstances which the court can take into account under CPR44.2(4) and sub-paragraph (a) in particular. I am doubtful that, on analysis, a “near miss” offer can generally add anything to what otherwise would be conduct in the form of unreasonable refusal to negotiate. To do so would raise the difficulties in Johnsey and seek to base an exercise in discretion on offers which neither party made at the time but which, with the benefit of hindsight, one party should have made and the other party should have accepted. 

37.	In any event in the present case I conclude that subject to the consideration of conduct and particular issues under CPR44.2(4)(a) and (b), this is not a case where the fact that Saint-Gobain made an offer under Part 36 which was inadequate, albeit by a very small margin, and that the parties did not thereafter negotiate and reach an agreement or put in Part 36 offers which were effective should mean that I should depart from the general principle in CPR44.2(2)(a). That conclusion is reinforced by my conclusion, set out below, that Saint-Gobain had not articulated its case on important matters when it made the second Part 36 offer so that Hammersmatch could not, at that stage, properly assess the position.   

Conduct
38.	As stated above, Ms Jackson refers to the fact that, at the time these proceedings were commenced there was no Pre-Action Protocol for claims for damages in relation to the physical state of commercial property at termination of a tenancy, now referred to as the Dilapidations Protocol which came into force in January 2012. Ms Jackson submits, however, that as a matter of good practice the dilapidations protocol produced by the Property Litigation Association (3rd Edition, 12 May 2008) was regarded as best practice by the Property Litigation Association and by the RICS. She submits that the purpose of that Pre-Action Protocol was to obtain a response from the tenant to the schedule of dilapidations and to encourage negotiations particularly in an attempt to agree the schedule of dilapidations. In addition where a tenant relied on the cap under s.18 of the 1927 Act, it encouraged the tenant to provide a diminution in value at an early stage.

39.	Ms Jackson submits that in this case Hammersmatch served the schedule of dilapidations in December 2008 but it was not until 2011 that there was a first meeting of experts. In the end it was only after the start of the trial that there was substantial agreement of the cost of remedial works. 

40.	In relation to diminution in value Ms Jackson refers to paragraph 20(7) of the Defence which pleaded the case of diminution in value without stating what sum that was but said that full particulars would be provided in due course by way of an expert valuer’s report. She points out that this was only provided when Mr Marland served his report in 2012 contending for a diminution in value figure of £100,000.

41.	Ms Jackson therefore submits that Saint-Gobain’s failure to articulate its case on the schedule of dilapidations and in relation to diminution in value at an early stage are matters of conduct which should weigh in Hammersmatch’s favour. She says that to the extent that the argument based upon Saint-Gobain’s second Part 36 offer would lead the court to any other conclusion, the failure of Saint-Gobain to articulate its case until a late stage should counter that argument. She says that Hammersmatch was not in a position to assess Saint-Gobain’s case at that stage because of the failure to articulate its case.

42.	Mr Dowding submits that Hammersmatch’s claim, whether for the cost of the works, loss of rent or diminution in value was unrealistic and exaggerated from the beginning and remained so throughout the proceedings. He submits that the alleged cost of works in the schedule of dilapidations served in December 2008 was £5.3 million which had reduced to £3.2 million by the time of the issue of proceedings. By the time of the exchange of experts’ reports Hammersmatch’s figure was £3.176 million and Saint-Gobain’s figure was £2.270 million and that the total cost of the works was found by the court to be £2.399 million including the sum of £2.22 million, which had been agreed during the course of the trial. He submits that the sum finally awarded represented only 45% of the figure in the original schedule of dilapidations and was much closer to the sum put forward by Saint-Gobain’s experts than the sum put forward by Hammersmatch’s experts. 

43.	In relation to the diminution in value Mr Dowding submits that Hammersmatch’s case was always that the cost of the works was the relevant measure and Hammersmatch’s expert Mr Gould produced valuations showing a diminution in value in excess of the cost of the works. He refers to the figures of £6.7 million, £4.55 million and £4.095 million in Mr Gould’s three reports. Mr Dowding points to the fact that the court held that the diminution in value was £900,000 and whilst he accepts that Saint-Gobain’s diminution in value figure was £100,000 he submits that this was arrived at by the correct approach and was much closer in financial terms to the sum awarded than the sum put forward by Hammersmatch.

44.	He submits that overall the sum recovered by Hammersmatch, exclusive of interest was some 12% of their initial claim and 21% of its pleaded claim.

45.	Mr Dowding also refers to the fact that, from the start, Hammersmatch asserted that it was entitled to loss of rent and insurance rent in addition to the cost of the works and claimed a combined annual rate of over £750,000 which led to a very substantial figures. He says that Hammersmatch maintained this claim in opening and only in closing submissions did it accept that the cap under s.18 of the 1927 Act applied to loss of rent and insurance rent. In the event he says that because of the s.18 cap the claim for rent and insurance rent failed in its entirety.

46.	Mr Dowding also refers to Hammersmatch’s asserted intention to repair and reinstate the premises by carrying out the works in the schedule of dilapidations. He submits that the purpose of this was to persuade Saint-Gobain to settle the proceedings at an inflated figure on the basis that the diminution in value was at least equal to the cost of the works. He submits that from March 2011 it was clear that Hammersmatch would not carry out the works and the evidence both in the documents and at the hearing came nowhere near supporting an intention to carry out the works. In such circumstances he submits that it was entirely unreasonable for the Claimant to raise or pursue this contention. He says that this had substantial costs consequences in terms of the cross- examination of Mr David Payne and Mr Graham Payne, the consideration of the documentary evidence and the need to obtain and deal with disclosure of relevant documents. 

47.	He also refers to the fact that on the first day of trial Mr Ansell, Hammersmatch’s expert surveyor, produced a supplemental report with a more detailed window survey which showed increased costs. He says that Mr Shaw, Saint-Gobain’s expert, had neither been notified of any inspection nor invited to attend an inspection of windows. This led to a further joint inspection where a figure was agreed in respect of window repairs. He submits that Hammersmatch ought to bear the costs of Mr Ansell’s window survey, in any event.

Decision
48.	In relation to Ms Jackson’s submissions as to pre-action conduct by Saint-Gobain, it is evident that Saint-Gobain did not, until proceedings were far advanced, properly engage in the detail of the schedule of dilapidations or in relation to the quantum of its case on diminution in value. It is clear from the correspondence that Hammersmatch’s Solicitors were seeking to obtain this information. 

49.	Equally I consider that at the time of Saint-Gobain’s second Part 36 offer, the information which had been provided by Saint-Gobain to Hammersmatch, particularly in relation to diminution in value, made it difficult to assess Saint-Gobain’s case. It was not until later when expert reports were served that Saint-Gobain’s position became clear. In such circumstances the absence of that information makes it unrealistic to suggest that in the circumstances of this case there was an obligation on Hammersmatch to negotiate on receipt of that Part 36 offer.
 
50.	In relation to Saint-Gobain’s pre-action conduct, I therefore consider that this would reinforce the case for an order for costs against Saint-Gobain.

51.	I now turn the matters relied upon by Saint-Gobain. One of the particular matters of conduct under 44.2(5)(d) is whether a claimant who has succeeded in the claim, in whole or in part, exaggerated its claim. Saint-Gobain says that Hammersmatch exaggerated its claim in a number of ways.  I do not consider that there is any exaggeration of the claim, in the sense of unreasonable conduct or that this is a case where the fact that Hammersmatch recovered less than it claimed should give rise to particular cost consequences. Had there been any exaggeration I consider that this would have had to be viewed against the background where in the pre-action period Saint-Gobain did not provide Hammersmatch with details of their case on dilapidations or diminution in value so that Hammersmatch could take account of that in formulating their claim.

52.	In relation to Hammersmatch’s case on diminution in value the sum I awarded fell between the sums contended for by the parties. Apart from concluding that the figure of £900,000 fell between Hammersmatch’s figure of £4m and Saint-Gobain’s figure of £100,000 and that each party’s expert was wide of the value I found by a large percentage, I do not consider that the conduct of either party in pursuing the case properly supported by its expert can be said to be unreasonable conduct.       

53.	Nor do I consider that Hammersmatch’s claim based on the schedule of dilapidations was exaggerated. In the end, by a process of negotiation and determination, the court came to a figure closer to that put forward by Saint-Gobain. However that does not mean that Hammersmatch exaggerated the claim. Even if the sum in Hammersmatch’s original schedule of dilapidations was too high, then this is a case where Saint-Gobain did not, until later, engage in the process of seeking to agree the schedule as would be expected as a matter of best practice in the pre-action phase. This meant that much of the agreement only took place shortly before and at trial. Again whilst the value finally agreed and determined for the schedule of dilapidations was closer to that of Saint-Gobain, this is not a case where there was unreasonable conduct either in terms of items included in the schedule or the valuation of that schedule. Each party pursued the case properly supported by its experts.
 
54.	However, in relation to the issue of Hammersmatch’s intention to carry out the remedial works, I do consider that additional costs were incurred because of Hammersmatch’s approach. Hammersmatch sought to rely on an intention to carry out the works to support its case when, as I found, Hammersmatch did not have any clear intention one way or the other and approached the matter by keeping their options open pending these proceedings. I therefore found that Hammersmatch did not intend to carry out the dilapidations for which it claims. As a result I accept that there is an element of costs involved in dealing with this issue, on which Saint-Gobain succeeded, which should properly be reflected in an order for costs in favour of Saint-Gobain. 

55.	As to the concerns raised by Saint-Gobain in relation to Mr Ansell’s report on windows, whilst I consider that it would have been better practice for Mr Ansell and Mr Shaw to carry out the work together in the first place, the work carried out by Mr Ansell in his supplementary report did then allow a further joint inspection, leading to further agreements. I do not consider that the costs of Mr Ansell’s further report should be disallowed or that there are any costs of Saint-Gobain which should properly fall to be paid by Hammersmatch.  

Success on issues
56.	Mr Dowding submitted that Hammersmatch had failed, either completely or very substantially in relation to all the issues which remained contentious at the trial. First, he says that in the end in relation to the extent of Saint-Gobain’s breaches of covenants the court found the costs of the works in the schedule of dilapidations was very substantially below that contended for by Hammersmatch and on the remaining items in dispute for which Hammersmatch claimed £489,371 and Saint-Gobain contended for £122,700 the court found that £177,600 was due, substantially accepting the case put forward by Saint-Gobain. 

57.	Secondly, he relies on the fact that, in relation to the measure of damages, Hammersmatch maintained throughout the proceedings that it was entitled to recover the cost of works plus fees and the statutory cap did not apply. On the other hand Saint-Gobain contended that the statutory cap did apply. On this issue he submits that Saint-Gobain was entirely successful because the claim based on the cost of the work plus fees was reduced to some £2.557 million whilst the diminution in value was found to be £900,000.  

58.	Thirdly, he says that Hammersmatch failed on its loss of rent and insurance claim which formed a significant part of the claim. Fourthly, he relies on the fact that Hammersmatch failed on its case that it intended to carry out the remedial works.

59.	Ms Jackson submits that when the schedule of dilapidations was properly approached by Saint-Gobain matters were substantially agreed and that only a small element remained to be decided by the court on which the court accepted some arguments on both sides. In relation to the measure of damages she submits that it was always necessary to ascertain the cost of the works and fees and that the s.18 cap of £900,000 was much more than the figure of £100,000 contended for by Saint-Gobain. 

60.	In relation to the loss of rent and insurance rent she submits that this was a matter of argument on which very little time was actually spent at the hearing. In respect of the issue of whether or not Hammersmatch intended to carry out the works, Ms Jackson also submits that this was not an issue on which large costs were expended.

61.	Much of the schedule of dilapidations was agreed and although agreement was reached at a late stage I do not consider that the costs of the proceedings were increased by that. In relation to the matters which were dealt with at the hearing I accept that Saint-Gobain were substantially successful in relation to those issues and that this is a factor which, to a limited extent, weighs in favour of Saint-Gobain. 

62.	As I have said above, I do accept that Saint-Gobain’s success on the issue of intention to carry out the works should be appropriately reflected in the order for costs. Whilst Hammersmatch did not recover damages for rent and insurance rent, that was a consequence of the s.18 cap and I do not consider that any special order is called for in respect of that issue on which there were not significant costs.    

63.	On the issue of the measure of damages, the question of whether the cap applied required evidence as to the cost of the works plus fees which then had to be compared to the diminution in value. I accept that the figure which I determined for the cost of the works plus fees was less than that which was claimed by Hammersmatch but that was very substantially due to agreement of figures in circumstances where Saint-Gobain’s position on that issue was not properly dealt with at the pre-action protocol stage. So far as diminution in value is concerned as I stated above I held the figure was somewhere between the two parties. Whilst I accept that Saint-Gobain’s case that the cap applied meant they were successful on that issue, they were successful because of the figures that I found, not because of the figures put forward by Saint-Gobain. In those circumstances I do not consider that this issue should lead to a different costs order given that, applying the cap under s.18 of the 1927 Act, Hammersmatch still recovered a substantial sum of £900,000. 

Overall conclusion
64.	I now turn to consider the appropriate order for costs in the light of these various considerations. As I have stated I do not consider that the second Part 36 offer by Saint-Gobain, which was very near to but still below the sum which I awarded to Hammersmatch, should in the circumstances of this case affect the costs order I should make. This is not a case where the offer should be treated as having similar costs consequence to a successful Part 36 offer nor should it lead to a different costs order because, certainly on the facts of this case, there was no unreasonable refusal to negotiate by Hammersmatch. It is not a case where I consider that the court should enter into speculation as to what might, or should have happened as a result of negotiations. This is a case where Saint-Gobain failed by a small margin to make a Part 36 offer which provided it with the costs protection it was seeking.

65.	In those circumstances it falls to the court to assess costs by reference to the other factors in CPR 44.2(4)(a) and (b). As stated above I do consider that significant costs were spent in relation to Hammersmatch’s assertion that they intended to carry out the works. This was an issue on which Hammersmatch failed and for which I consider Saint-Gobain should be entitled to an order for costs in its favour. In addition there is a small element of costs which should properly be awarded in favour of Saint-Gobain in relation to its success on the issues which remained and I determined on the schedule of dilapidations. Otherwise, in relation to conduct I accept Hammersmatch’s submission that Saint-Gobain did not properly undertake a pre-action process to make it clear what their case was on the schedule of dilapidations and diminution in value. However I do not consider that in the event this had a costs impact but rather I consider that, if anything, it would neutralise a number of points made by Saint-Gobain in relation to the claims for dilapidations and diminution in value put forward by Hammersmatch.

66.	Taking account of all the circumstances and reflecting the matters which would properly justify an order in favour of Saint-Gobain I consider that the appropriate order for costs is one where this reduces, by a percentage, the order for costs in favour of Hammersmatch. Taking account of the fact that the order should reflect a reduction to take account of the costs expended by Hammersmatch on the relevant matters as well as the impact of an order in favour of Saint-Gobain, I have come to the conclusion that, in this case, Saint-Gobain should pay Hammersmatch 80% of its costs to be assessed on a standard basis, if not agreed. 

67.	On this basis I would ask the parties to seek to agree an order, including provision for a payment on account of costs.