Blog written by Gabrielle Davies, Associate in our Dispute Resolution team.
Background
Unlike other areas within the civil litigation arena the threshold between small claims track and fast track for disrepair claims is set at a low threshold. For a disrepair claim to be allocated to the small claims track the cost of the repairs or other work to the premises must be estimated to not be more than £1000 and the value of any other claim for damages is not more than £1000 (CPR 26.9 (b)(ii)&(iii) for England and CPR 26.9 (c)(ii)&(iii) for Wales). That threshold has not been reviewed for a number of years.
In practice, the compensation element of the claims often settle under £1000, but the cost of the works will ignite an argument over track, with the Claimant’s solicitors pushing for fast track in order to recover their costs. Those costs are often substantial and will amount to several times the damages and cost of works combined.
The Claimant solicitors will often refuse to settle claims unless there is agreement by the landlord to pay costs in principle. The difference is potentially huge. Small claims track costs are limited to £260 plus up to £750 for an expert report, yet Claimant costs claims are often in excess of £10,000 (even before a claim has been issued). In this negotiation, the Landlord is faced with the option to concede and settle or incur potentially considerable costs fighting the whole case (which they often want to settle – whether for commercial reasons or because they have quite properly assessed there may be a modest liability). So, what can be done?
Jalili v Bury Council 2021
Jalili was a very helpful decision for landlords. There was no dispute that works were required. The question was exactly what work was required and whether the claim met the fast track threshold. The Claimant’s expert costed the works he said were required at £3,915 on an open market basis. The Defendant’s expert produced his own schedule of work and costed it at £740 on an in-house basis. A part 36 offer was made. Damages settled at £1,000 and once the Defendant had completed the work it had identified, the Claimant accepted the disrepair was resolved.
The parties could not agree the basis on which costs were recoverable and a part 8 claim was issued. The Judge had to consider what track the claim would have been allocated to had it been an issued disrepair claim in accordance with part 36.13. The Court held that as the Defendant would have carried out the work themselves, the Claimant’s expert’s approach to the valuation of work was flawed and a more helpful indicator of the cost of the work for the purpose of looking at which track the claim would have been allocated to had it been issued was the actual cost the Defendant would incur.
Although only a county court decision, it is persuasive. It is an argument we frequently run and has been followed by other District Judges. One case in particular proved a resounding success.
KH v F
The claimant pursued a claim for disrepair at their property, the main claim settled prior to the issue of proceedings for £750 damages and costs to be assessed if not agreed (by way of part 36). The works had been carried out by the time of settlement.
There obviously was no dispute that the damages were under £1,000 and so this part of CPR 26.9 was satisfied for allocation to the small claims track (had the matter been allocated).
The costs proceeded to a detailed assessment as the parties were unable to reach agreement. The Defendant’s argument was that the works, as costed by the Defendant’s in house surveyor, cost less than £1,000 and hence it was a small claims matter. The Claimant argued that the matter was and had always been a fast track claim on the basis their expert’s report put the works at £2,427.30 including VAT.
The Claimant also argued that this case was not on all fours with the decision in Jalili v Bury Council as in that case the Judge specifically stated that he preferred the Defendant’s expert surveyor and that the number of years of experience was important. The fact that the Defendant did not have an expert report and relied solely on its in-house surveyors costings meant it could be distinguished from Jalili.
The Defendant argued that the actual cost incurred to the Defendant for the work that was actually done was the relevant figure for the purpose of determining the appropriate track. The Defendant had costed the works, including all materials, at £954.
The Claimant’s bill of costs was £9,693.00 (for a non-issued claim that settled eight months after the letter of claim). It proceeded to provisional assessment on the papers. In addition to the usual points of dispute the Defendant filed a witness statement from the in-house surveyor explaining the costs of the works; the Claimant served points of reply.
At detailed assessment the judge was satisfied that this was (and always had been) a small claims matter and awarded costs of £260 plus the £750 for the expert report. In reaching his decision the Judge noted:
- This is a case where the repairs were always going to be carried out by the Local Authority in-house team or nominated contractors and hence the commercial, open market estimate contained in the expert’s report is not binding; VAT and project management fees are items which would be disregarded when considering allocation.
- The expert’s report was commissioned by the Claimant without reference to the Defendant; it was not a joint report. An estimate provided by a jointly instructed expert would carry greater weight upon consideration of allocation.
- The overall estimate provides no breakdown.
- Even if the Court had allocated the matter to the Fast Track, the Court retains an overall discretion in relation to costs. Bearing in mind the settlement figure in this case the Court is entitled to exercise its discretion to limit costs to those which would have been recovered had the matter been allocated to the small claims track.
Takeaway
The key to successfully challenging extortionate costs lies in the early handling and response to a claim. Landlords must produce an accurately costed schedule of works at the outset of the claim and send it to the Claimant solicitors. In correspondence you must set out why you say it is a small claims track claim.
The Court’s comments above should also be noted, that the costings from a joint expert would have been more persuasive than those of an expert appointed by one side. That said, an “open market” cost is not the correct approach. However, obtaining a joint expert’s report comes with its own challenges, which is a topic for another article!
As ever, accurate record keeping is crucial for Landlords defending these types of cases. It goes towards determining when a landlord was put on notice (if at all) which in turn determines whether there is a claim at all, and if so the level of general damages, which as stated above cannot be more than £1,000 for the matter to fall within the small claims In our experience Jalili v Bury Council is highly persuasive and Defendant representatives should not be afraid to push this argument when the right case comes along.
Our case was a great decision for landlords and ensured that the local authority landlord was not exposed to a claim for costs which vastly outweighed the value of the claim itself!
