A master had erred in assessing costs awarded on a preliminary issue at nil on the ground that the receiving party had ultimately failed very badly in its case. The costs order had been intended to deal with the costs of the preliminary issue as a discrete set of costs, irrespective of the overall fate of the action.
BUSINESS ENVIRONMENT BOW LANE LTD v DEANWATER ESTATES LTD [2009] EWHC 2014 (Ch)
COSTS OF PRELIMINARY ISSUE
The Appellant (“A”) had brought proceedings against the Respondent (“R”) in respect of a schedule of dilapidations.
R defended the claim based on grounds of a previous collateral contract and/or promissory estoppel, which was tried as a preliminary issue and ultimately failed in the Court of Appeal. R was ordered to pay the costs of that trial and the appeal.
The action proceeded and was ultimately compromised upon agreement that R should pay A fraction of the sum that had been claimed.
At a subsequent hearing to determine costs, it was found that the claim had been grossly exaggerated, and R was awarded its costs of the action, save for those subject to the Court of Appeal’s Order on the preliminary issue, on the indemnity basis.
At the detailed assessment of costs related to the preliminary issue R disputed whether it should have to pay any of those costs, on the basis that if the claim had not been exaggerated, it would never have had to argue a preliminary issue.
The Master hearing the assessment reduced R’s liability under the Court of Appeal’s costs order to nil.
A argued that it was entitled to enforce the costs that it had been awarded on the preliminary issue on the basis that that was a self-contained order, and it was wrong to infect the assessment of it with the final findings as to the exaggeration of the claim
On 31st July 2009 Mr Justice Mann held that it was important to give proper effect to the order of the Court of Appeal, which involved construing it in its proper context, Ultraframe (UK) Ltd v Fielding (Costs) (2006) EWCA Civ 1660, (2007) 2 All ER 983 applied.
That order had been intended to deal with the costs of the preliminary issue as a discrete set of costs, which were to be paid by R to A irrespective of the ultimate fate of the action.
The Master should accordingly have assessed the costs of the preliminary issue by reference to their reasonableness and propriety within the issue, not by reference to the ultimate fate of the action, no matter how misconceived it might have been.
It was the duty of the assessing tribunal to carry out the assessment which the previous court had directed it to carry out.
It was common for costs orders to be made for interim matters in order to fix liabilities and allocate costs to the activities to which they related.
Such orders should be dealt with on a self-contained basis; otherwise part of their purpose would be lost.
It had been open to the Court of Appeal to make an order which catered for the fact that the claim might be lost, but it had not done so.
Further, it would not have been open to R to run its argument had the Court of Appeal summarily assessed the costs; the ability to take such points should not depend on a slightly arbitrary matter such as that.
It could not be seriously argued that if a case which failed had not been brought, then costs orders made on the way would not have been made because the relevant applications would not have been necessary, and the fact that the receiving party had lost the action badly made no difference.
The fact remained that R had fought the preliminary point and lost it, and that attracted cost consequences.
The Master’s order had undermined the Court of Appeal’s ability to determine its own costs incidence: any court making an order relating to an interim application before it was in the best position to understand the merits of the case and order costs accordingly.
There may have been discretionary factors at play in the preliminary issue of which the subsequent tribunal was not aware, and the subsequent tribunal could not undo the costs order either in terms or in effect, Koshy v DEG-Deutsche Investitions- und Entwicklungs Gesellschaft GmbH (2003) EWCA Civ 1718 applied.
Although the result in the instant case was fair and logical, if there was a harsh case which needed addressing, that could be done under CPR r.3.1(7).
While the scope of that rule was very limited, if there was a genuine change of circumstances, or some entirely false basis for something having been done, the court might vary or revoke its earlier order, Collier v Williams (2006) EWCA Civ 20, (2006) 1 WLR 1945 considered.
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The Reasonableness of Instructing London Solicitors 
