Denny v Babaee & Ors

[2023] EWHC 1490 (TCC)

Denny brought claims that there were significant defects to their new house caused by dampness. The claims were successful and HHJ Pearce had to consider the question of costs. Denny sought costs on an indemnity basis; the Defendants said the costs should be reduced because the valuation of Denny’s claim changed during the course of proceedings. 

The parties had relied on expert valuation evidence. Denny’s first expert valued the cost of repairs and reinstatement at around £475k. - a figure revised upwards to £721k. In the end, Denny relied on a second expert who valued the cost of the necessary works at £485k. The Defendants suggested that the initial overstatement of the value of the case should lead to a reduction of Denny’s costs. Although the Defendants did not file any further submissions, the Judge considered that the Defendants were saying that Denny should be penalised for relying earlier in the case on the higher figures or that additional costs were incurred because Denny initially put their case on exaggerated figures.

The suggestion was rejected. There was no suggestion of misconduct or that the overstatement of the valuation was deliberate or reckless conduct. And, whilst it might have been possible to argue that avoidable costs had been incurred because of the exaggerated value put on this aspect of the claim (for example, through the costs of the Defendants’ expert considering this aspect of the case), no material had been provided to the court. 

Denny sought indemnity costs on the grounds that the Defendants had been uncooperative - failing to engage and/or to deal with the case in a realistic manner, thereby incurring additional costs. Further, the Defendants engaged in mediation and came to an agreement in principle but then failed to see that settlement agreement to completion. The Judge did not accept the first issue. The lack of cooperation and the failure to engage with proceedings  were, like the change in value of Denny’s case: “features of the rough and tumble of litigation.” 

The parties engaged in mediation in November 2022 and entered into a settlement agreement, dated 29 November 2022, signed by Denny and the First Defendant. It was not possible to reach a binding agreement for the sale of the land because of the provisions of section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989, but the settlement agreement provided, in essence, for the house to be subject to independent valuation followed by the purchase by either the First or the Third Defendant (or their nominee) at the valuation price. In addition, the Third Defendant was to pay Denny the sum of £200k by way of damages. Whilst a joint valuation was obtained, the Defendants did not fulfil their side of the bargain by purchasing the house.

The Defendants said that they had wanted to obtain their own valuation in order to raise funds to buy the house. The difficulty with this explanation was, of course, that the agreement was clear on its terms. The Defendants had contracted to buy the house at the figure in the independent joint valuation without reservation. This meant that there were “ample grounds” to conclude that, in respect of costs incurred after the Defendants reneged on the agreement, an order for indemnity costs should be made. This would penalise the Defendants for agreeing terms and then not carrying them out, conduct which was well outside of the norm and sufficient to justify the censure of the court. The Judge said that: 

“The purpose of the order is to mark disapproval of conduct that its likely to incur unnecessary costs rather than compensating the party who has actually incurred those costs.”

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