PGF II SA & PGF II (Lime) SA v Royal & Sun Alliance Insurance Plc (2010)


A landlord who had successfully brought a dilapidation claim against its tenant and sub-tenant was entitled to recover 90 per cent of its costs against the tenant and all of its costs against the sub-tenant, as its approach to bringing the claim had been reasonable.


The court was required to determine costs arising out of an action brought by the claimant landlord (P) against the first defendant tenant (R) and second defendant sub-tenant (L). In PGF II SA v Royal & Sun Alliance Insurance Plc (2010) EWHC 1459 (TCC), P had made a successful claim for dilapidations against R and L after they failed to comply with an obligation to put the premises into repair before the termination of their lease. P obtained judgment for £735,749.40 against R and £122,570.51 against L. P sought its costs on the basis that it had been the successful party in the litigation. R and L submitted that there should be no order as to costs because (1) P had acted unreasonably in the way it approached the dilapidations claim; (2) in breach of para 3.6 of the Dilapidations Protocol, the dilapidations schedule served by P did not contain an endorsement by the surveyor who prepared it; (3) they had won on the issue of cladding as their expert's scheme was preferred to that of P's expert; (4) although P's recovery exceeded their Part 36 offers, it was substantially less than P's own Part 36 offer.


(1) P was the successful party in the litigation and, under the general rule, R and L had to pay P's costs. However, the court could make a different order if it was just to do so, taking into account the considerations spelt out in the CPR r.44.3(4) and r.44.3(5). Those included conduct before or as well as during the proceedings, and the extent to which the parties followed the Practice Directions and the relevant pre-action protocol. P had not acted unreasonably in the way in which it approached the dilapidations claim. It had served a schedule of dilapidations on R, and its surveyor had invited R's surveyor to enter into discussions. Furthermore, there had been no attempt by R or L to accelerate the process of working through the claim before the termination of the lease. Indeed, there was nothing to suggest that they had ever intended to carry out the significant work needed to put the premises into repair. R had also failed to respond to a pre-action protocol letter sent by P, and L had sent a letter asking for the most extensive disclosure, the purpose of which had been to put P to disproportionate expense before it was able to bring a claim. (2) The fact that the schedule did not contain the endorsement set out in para 3.6 was a technicality. It was suggested that the failure naturally aroused any reasonable tenant's suspicions about the accuracy of the schedule and its costings. However, there was no suggestion in the correspondence that that was the case. The surveyors had been entirely respectable and competent in trying to grapple with the difficult problem of trying to value a complicated notional scheme. There was no suggestion that P's surveyor was unwilling to meet with R and L to try to resolve the claim. (3) P should not suffer a penalty in costs just because R and L's expert evidence had been preferred in relation to the cladding issue. P had acted entirely reasonably in raising and contesting the issues on the basis of its expert's report, and those matters had been pursued in a manner which was entirely appropriate. The parties' experts had been able to reach agreement on a number of matters, thereby indicating that the discussions were carried out in a proper and professional manner. Further, all parties had had an equal opportunity to cost the alternative schemes and to assess the risk of success and failure in relation to each and therefore to safeguard their position in relation to costs. Accordingly, there should be no specific discount against P by reason of the fact that the evidence of R and L's expert was preferred to that of P's expert. (4) There was no precedent or justification for the proposition that P's costs should be reduced because they had recovered very significantly less than their Part 36 offer or because R and L's Part 36 offers were closer to the final result. (5) Looking at the matters overall, and taking into account all the circumstances, P, having been successful, would recover its reasonable costs against L on the standard basis subject to a detailed assessment if not agreed, and 90 per cent of its costs against R on the same basis.

Costs determined