UPPER TRIBUNAL (LANDS CHAMBER)

	
UT Neutral citation number: [2013] UKUT 0212 (LC)
	UTLC Case Number: LCA/124/2011

TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007
	
COMPENSATION – Mining subsidence – Coal Mining Subsidence Act 1991 – damage notice – costs “reasonably incurred” (section 38 of the 1991 Act) – application of the test of proportionality

IN THE MATTER OF A NOTICE OF REFERENCE 

BETWEEN                            (1) MR PATRICK	 PLUNKETT                                 Claimants
(2) MRS LINDA PLUNKETT
	and
THE COAL AUTHORITY	Compensating Authority
	
	Re: Wylam Cottage
Holeyn Hall Road
Wylam
Northumberland
NE41 8BA

	Before: 
The President, Sir Keith Lindblom sitting with Mr Donald Scannell, Registrar, as Assessor

	Sitting at 45 Bedford Square, London WC1B 3DN
on 16 April 2013

Mr Roger Mallalieu, instructed by Reynolds Porter Chamberlain, solicitors for the claimants
Dr Mark Friston, instructed by DLA Piper, solicitors for the compensating authority

© CROWN COPYRIGHT 2013

The following cases are referred to in this decision:

Lownds v Home Office [2002] EWCA Civ 365
Re Gibson’s Settlement Trusts [1981] Ch.179
Motto v Trafigura Ltd [2011] EWCA Civ 1150
Francis v Francis & Dickerson [1955] 3 W.L.R. 973
Shirley v Caswell [2001] 1 Costs L.R. 1 
Dooley v Parker [2002] EWCA Civ 1188
Nugent v Goss Aviation [2002] EWHC 1281 (QB) 
Hurley v Hurley LP/74/2006

DECISION

Introduction

1.	This case concerns a damage notice under section 3 of the Coal Mining Subsidence Act 1991 (“the 1991 Act”), which the claimants, Mr and Mrs Patrick Plunkett, served on the compensating authority, the Coal Authority, in November 2005, alleging damage by coal mining subsidence to their property, Wylam Cottage, Holeyn Hall Road, Wylam, Northumberland. It has come before me at this stage for the determination of several preliminary issues relating to the payment by the Coal Authority of the claimants’ expenses under section 38 of the 1991 Act. 

2.	At the hearing the claimants were represented by Mr Roger Mallalieu, the Coal Authority by Dr Mark Friston.

The preliminary issues

3.	On 30 November 2012 the Tribunal (Mr N.J. Rose F.R.I.C.S.) ordered the hearing of the following preliminary issues “before a Member sitting with the Registrar as Assessor…”:

“(i)   Does a test of proportionality (akin to that provided for by Rule 44.5 of the Civil Procedure Rules in relation to assessments of civil costs on the standard basis) apply to the assessment of the sums payable under [section 38 of the 1991 Act]

(ii)	If so, is the test as provided for by Lownds v Home Office [[2002]] EWCA Civ 365, or as provided for by the [respondent] at page 4 of the Points of Dispute (or some other test)? In addition, what factors should the Tribunal take into account for the purposes of deciding whether the costs are disproportionate?

(iii)	 If a test of proportionality applies, are the costs claimed by the [claimants] disproportionate according to that test? If so, what is the effect of such a finding?

(iv)	(a) To what extent, if at all, is a claimant entitled to expenses under [section 38 of the 1991 Act], which were incurred after the Coal Authority has made its offer under section 4, and 

(b) To what extent, if at all, is a claimant entitled to expenses under [section 38 of the 1991 Act] in relation to any heads of claim, or remedies, which have been abandoned or not pursued?

(v)	Whether any reduction should be made to the hourly rates claimed with the [claimants’] Bill of Costs.”

The facts

4.	The relevant facts are not in dispute. For the hearing of the preliminary issues the parties prepared an agreed statement of facts, in the light of which and from the documents before me I find the following facts. 

5.	Wylam Cottage was built in about 1810, mainly of stone. It stands in an area of grassland – some 19 acres – in the Tyne Valley.

6.	Subsidence damage at Wylam Cottage was first noticed by the claimants on 26 October 2005. The damage reported was to various outbuildings, courtyard walls, the driveway and paths. There had been movement in the ground to the front and side of the house. It seems that no damage to the house itself was noticed at this stage. Cracks had previously appeared in the house, but the claimants had apparently thought that that damage was caused by tree roots. Minor repairs had been carried out inside the building and were paid for by the claimants. A neighbouring building, The Carriage House, owned by Mr and Mrs Carr, also sustained damage in 2005. That building was bought by the Coal Authority in 2007. By then it had been significantly damaged by subsidence. On 1 November 2005, having been told of the damage to Wylam Cottage, the Coal Authority inspected the site. 

7.	On 18 November 2005 the claimants served their damage notice on the Coal Authority. In section 2 of the damage notice, “DAMAGE TO DWELLING HOUSES”, at “4. Nature of Property …”, the boxes for “House: Detached” and “Flats: ... Other” were ticked. In section 3, “DAMAGE TO PROPERTY OTHER THAN DWELLING HOUSES”, the “nature of the property and purposes for which it is normally used” were described as “GARAGE’S[,] OUTBUILDING’S, COLD RM, STORAGE RM, TOILET, COURT-YARD WALL’S[,] DRIVEWAY SURFACE[,] CONCRETE PATH’S”. In section 4 the date when the “damage was first recognised …” was stated to be “WED 26TH OCT 05”, and the “Brief description of damage” was “AS ABOVE. FRONT FIELD TO HOUSE[,] SIDE FIELD TO HOUSE[,] AS O/S MAP ENCLOSED”.

8.	During November 2005 the claimants’ and the Carrs’ insurers and the Coal Authority arranged for boreholes to be sunk at Wylam Cottage and The Carriage House. Levels were subsequently monitored by Digital Surveys on behalf of the claimants and the Carrs.

9.	Level monitoring for the Coal Authority was begun in February 2006. This continued until May 2011. In April 2006, Ian Farmer Associates, the Coal Authority’s geotechnical consultants, said that in their opinion there were two possible explanations for the occurrence of damage at Wylam Cottage. One was a “sudden catastrophic collapse of pillars in ancient abandoned mine workings”. The other was “[some] form of landslip in the slope and the ground beneath the foundations of [The] Carriage House”. On 2 May 2006 the Coal Authority wrote to the claimants, saying that the damage was “not indicative of that normally associated with a collapse of shallow coal workings”, and that it could not be “of any further assistance in this matter”.

10.	In a letter dated 14 July 2006 Reynolds Porter Chamberlain LLP (“Reynolds Porter Chamberlain”) told the Coal Authority that they had been instructed to act for the claimants. 

11.	On 21 July 2006 DLA Piper UK LLP (“DLA”) were appointed to act for the Coal Authority. In July and August 2006 further boreholes were drilled at The Carriage House and Wylam Cottage. On 8 November 2006 reports prepared by three firms of consultants acting for the claimants – Wardell Armstrong, R.J. Evans and Geotechnics – were sent to DLA. R.J. Evans’ report said that damage caused by mining subsidence had occurred to outbuildings and boundary walls within the curtilage of Wylam Cottage, but did not allege any such damage to Wylam Cottage itself.

12.	In January 2007 significant further cracking occurred to the garage at Wylam Cottage. Temporary repairs were carried out. On 21 February 2007 the Chief Executive of the Coal Authority, Mr Lawrence, and other representatives of the Coal Authority – Mr Finnegan, Mr King and Professor Hanna – visited Wylam Cottage. 

13.	On 7 March 2007, the Coal Authority gave notice to the claimants, under section 4(1) of the 1991 Act, that it believed it would not be able to discharge the burden of proof imposed on it by section 40(2) of the 1991 Act. It thus accepted that it had a remedial obligation for the damage referred to in the damage notice. 

14.	In March 2007 the Coal Authority paid the claimants the sum of £100,591.10 towards their experts’ fees and disbursments. In a letter dated 5 April 2007 Reynolds Porter Chamberlain alerted the Coal Authority to further cracking that had appeared inside Wylam Cottage, which they said had been caused by mining subsidence. The claimants have not pursued that allegation. In their letter Reynolds Porter Chamberlain said:

“For the record, we do not agree either that the causation of the damage is an issue of some complexity or that the investigations revealed ground movements which are difficult to reconcile with mining subsidence.”

15.	On 13 April 2007 the Coal Authority asked the claimants if they wanted to sell Wylam Cottage. Between 31 May and 8 June 2007 angled boreholes were drilled beneath Wylam Cottage. On 22 June 2007 Reynolds Porter Chamberlain wrote to DLA about the reimbursement of the claimants’ fees and expenses. They denied that the fees expended were “in any way grossly excessive and disproportionate”. This, they said, was “a complex case and our fees reflect the effort which we and our clients have had to make to persuade your client to reconsider its original refusal to accept liability”. During July 2007, at Wylam Cottage, the claimants met several representatives of the Coal Authority including its Director of Mining Projects and Property, Mr Wilson. The claimants were asked if they would contemplate their garage being rebuilt away from the main area of ground movement. The claimants did not want this to be done. On 7 August 2007 the claimants sent the Coal Authority a grouting proposal, which had been prepared for them by Wardell Armstrong. The proposal involved pumping grout into four coal seams beneath Wylam Cottage through a network of about 950 boreholes, up to 70 metres deep, across an area of some 7,310 square metres in the deepest seam. On 8 August 2007 the Coal Authority wrote to the claimants, saying it understood that the discussion of remedial works had been “deferred pending consideration of the grouting proposal and ongoing survey exercise”. On 17 October 2007 the Coal Authority’s Chief Executive told the claimants that the Coal Authority did not intend to buy Wylam Cottage. In a letter dated 17 October 2007 Reynolds Porter Chamberlain said that the Coal Authority had now had “more than enough time to consider [its] position and put forward sensible proposals”. 

16.	On 18 October 2007 the Coal Authority gave notice to the claimants under section 4(2) of the 1991 Act that it proposed to undertake remedial work at Wylam Cottage. It provided a schedule of works, under section 6 of the 1991 Act, and said it would take advice from a structural engineer on the timing of the work should the ground continue to move. 

17.	On 1 November 2007 MHI, the consulting engineers acting for the Coal Authority, sent the claimants a sketch design of the foundations for the proposed replacement garage, which was to be erected on the site of the existing one. In a letter dated 12 November 2007 Reynolds Porter Chamberlain gave notice to the Coal Authority, under section 6(3) of the 1991 Act, that the claimants did not agree with the Coal Authority’s schedule of proposed remedial works. Reynolds Porter Chamberlain said it would be “premature” to agree a design “in view of the ongoing monitoring”, and that they “would expect to see considerably more detail before being able to comment”. On 19 November 2007 the Chief Executive of the Coal Authority wrote to the claimants, emphasizing the “significant limitations with grouting” under Wylam Cottage. He also referred to an allegation that mining subsidence had caused cracking to ceramic tiles in the conservatory. The claimants have not, however, pursued that allegation.

18.	On 14 January 2008 Reynolds Porter Chamberlain wrote to DLA, saying that damage had occurred in the dressing room of the master bedroom. The claimants have not pursued that allegation. On 3 March 2008 the Coal Authority paid the claimants £50,000 on account of legal fees. On 21 May 2008 the Coal Authority told the claimants it intended to drill five further boreholes so that it could install four inclinometers and an extensometer at The Carriage House. In June 2008 the Coal Authority began the drilling of boreholes at The Carriage House. On 21 July 2008 Reynolds Porter Chamberlain wrote to DLA requesting the Coal Authority to pay the claimants compensation under “The Coal Mining Subsidence (Blight and Compensation for Inconvenience During Works) Regulations 1994 (“the Blight Regulations”)”. They said that the claimants wanted to sell Wylam Cottage but were unable to do so because it was blighted. In July 2008 without prejudice offers to settle legal fees and disbursements were made by both parties. The Coal Authority withdrew its offer in a letter from DLA to Reynolds Porter Chamberlain dated 12 August 2008. In that letter DLA said the Coal Authority would now only “give consideration to fees in their entirety at the conclusion of the claim, presumably as part of an assessment to be carried out by the Lands Tribunal”. In October 2008 the claimants allowed the Coal Authority to install two monitoring boreholes at Wylam Cottage. In November 2008, engineers instructed by the Coal Authority, White Young Green, proposed the drilling of a borehole in front of the garage at Wylam Cottage and another in front of Wylam Cottage itself.

19.	In January 2009 the claimants said that further ground movement had occurred. The Coal Authority installed temporary shoring to the courtyard wall. In a letter to Reynolds Porter Chamberlain dated 13 January 2009 DLA said that if the claimants had accepted the offer made by the Coal Authority on 18 October 2007 the remedial works would have gone ahead then. On 20 April 2009 the Coal Authority’s contractors, Fugro, began drilling the first of two further boreholes at Wylam Cottage. Their first attempt had to be abandoned after the drilling equipment was stuck in broken ground between the Top and Bottom Busty coal seams. An extensometer was eventually put in to the completed borehole on 21 May 2009. On the same day the Coal Authority decided not to go ahead with the second borehole because of the difficulties that had arisen in drilling the first. In July 2009 the Coal Authority offered to pay the claimants to have work carried out to a damaged foul drain. In a letter dated 3 November 2009 Reynolds Porter Chamberlain proposed a meeting with the Coal Authority’s advisers with a view to resolving the claimants’ concerns about the adequacy of the proposed remedial works. In doing so, however, they sought to reserve their “legal rights under the Coal Mining Subsidence Act 1991 and generally”. In a letter dated 24 November 2009 Reynolds Porter Chamberlain said the claimants wanted to proceed with the remedial works that had been proposed by the Coal Authority on 18 October 2007, provided that those works were designed to withstand future movement. On 4 December 2009 Reynolds Porter Chamberlain asked that the Coal Authority pay for the remedial works under section 8(2) of the 1991 Act, rather than executing the works itself, but also that it should provide “the appropriate engineering input”. On 23 December 2009 DLA wrote to Reynolds Porter Chamberlain to say that the Coal Authority had elected to discharge its remedial obligation by making a payment for the cost of remedial works, and to provide “the engineering design, support, and supervision in relation to the proposed remedial works”. The remedial works were completed by the end of September 2010. 

20.	In summary, apart from the remedial works for which the Coal Authority paid, the claimants have sought to be compensated for (1) internal damage to Wylam Cottage, including cracking in the master bedroom and the conservatory, (2) depreciation in the value of Wylam Cottage, and (3) blight; and have requested that the Coal Authority (1) undertake the grouting of coal seams beneath Wylam Cottage; (2) purchase Wylam Cottage; and (3) undertake preventive works under section 33 of the 1991 Act. 

21.	In approximate monetary and percentage terms (excluding VAT) the costs and disbursements incurred by the claimants in the relevant periods are set out below. 

22.	From 14 July 2006 to 7 March 2007 the disbursements incurred by the claimants were £133,185, which represents 50.4% of the total disbursements. The profit costs were £34,280 – 14.3% of the total profit costs.

23.	From 8 March 2007 to 18 October 2007 the disbursements incurred by the claimants were £46,060 – 17.4% of the total. The profit costs were £28,415 – 11.9%.

24.	From 19 October 2007 the disbursements incurred by the claimants were £84,780 – 32.2% of the total. The profit costs were £176,320 – 73.8%.

25.	The total disbursements incurred by the claimants since 14 July 2006 were £264,025. The profit costs in total were £239,015.

Section 38 of the 1991 Act

26.	Under the heading “Reimbursement of successful claimants’ expenses” section 38 of the 1991 Act provides:

“(1) Where the Corporation – 
           (a)  take any remedial action; or
           (b) make any payment to, or make any living accommodation available to, any person under Part III of this Act, 
     they shall also pay any costs or expenses to which subsection (2) below applies.

(2)	Subject to subsections (3) to (5) below, this subsection applies to any costs or expenses reasonably incurred by the claimant or any other person interested, or as the case may be, by the person in question – 
(a)	for the purposes of, or for purposes  connected with, the preparation and prosecution of his damage notice or claim; or
(b) in the case of costs or expenses incurred by the claimant before the subsidence damage became evident, with a view to the possible preparation and prosecution of his damage notice.
…

(4) Subsection (2) above does not apply to any costs or expenses incurred by the claimant or any other person interested more than four years before the giving of his damage notice.

(5) Subsection (2) above does not apply to any costs or expenses incurred in or in connection with any proceedings before any tribunal, court or other person if an order for their payment has been or could have been made by that tribunal, court or other person.

 …”.

Preliminary issue (i) – whether a test of proportionality applies

Submissions for the claimants

27.	Mr Mallalieu submitted:  

(1) This is not an assessment of costs under the Tribunals Procedure (Upper Tribunal) (Lands Chamber) Rules 2010 (“the Lands Chamber Rules”) or under the rules of civil procedure. It is a quantification of costs and expenses agreed to be payable under section 38 of the 1991 Act. 

(2) No test of proportionality arises here. Section 38 speaks for itself. It imposes a single, simple test, which is a test of reasonableness. It does not impose any further restriction, whether by way of proportionality or otherwise. 
 
(3) Proportionality, as a concept relating to awards of costs in litigation in the English and Welsh jurisdiction, applies to orders as to costs made under the powers conferred on the court by section 51 of the Senior Courts Act 1981 (“the 1981 Act”). Section 51(1) provides that the costs of proceedings “shall be in the discretion of the court”, and that rules of court may regulate matters relating to the costs. It does not set any test to be applied by the courts when awarding or assessing costs. It merely grants the court a broad discretion. The test of proportionality was introduced by the CPR. This was a further restriction on the awarding and assessing of costs, additional to that imposed by the test of reasonableness.

(4) The contrast between the provisions in section 51 of the 1981 Act and those in section 38 of the 1991 Act is stark. Section 38 of the 1991 Act prescribes the test relevant in this case, and it does so in clear terms. The test is whether costs and expenses have been “reasonably incurred”. This is the test the Tribunal must apply. Though the test is amplified by the expression “for the purposes of, or for purposes connected with, the preparation and prosecution of [the claimant’s] damage notice or claim”, those words serve only to extend the potential for costs to have been “reasonably incurred” (see Re Gibson’s Settlement Trusts [1981] Ch.179). But in any event the test of proportionality provided for by rules of court has no relevance to the test to be applied under section 38. For such a test to be introduced section 38 would have had to be amended by Act of Parliament.

(5) The notion that a test of proportionality is to be implied into section 38 of the 1991 Act is wrong. Not only is section 38 clear in its own terms, it was enacted at a time when proportionality, as an aspect of the assessment of costs, did not exist in this jurisdiction. Parliament cannot have intended that the clear words it enacted should be read as including an additional test not yet invented. The concept of costs being “reasonably incurred” was, however, a wholly familiar one, and it was this test that Parliament had adopted.

(6) Even if section 38 of the 1991 Act had been amended to incorporate a test of proportionality, under the civil costs regime such amendments do not have retrospective effect. The rationale for this is plain. Proportionality is an extra restriction on the courts’ power to make an award of costs. It would be contrary to the principles of natural justice for a party’s costs to be made subject to a test not apparent in the relevant statute. For costs that have accumulated over the last seven years to be scrutinized under a test that did not appear in the relevant statutory provisions and in the rules relating to costs in the CPR current when those costs were incurred would be unjust.

Submissions for the Coal Authority

28.	Dr Friston submitted:

(1) The Tribunal is concerned here with the concept of “costs or expenses reasonably incurred” in the specific circumstances contemplated by section 38 of the 1991 Act. If a dispute such as has arisen in this case settles without the need for litigation, a claimant will be deemed to be entitled to his costs under section 38. But if the case reaches the Tribunal such costs will only be recoverable under the Tribunal’s normal discretion to award costs (in rule 10 of the Lands Chamber Rules, a power deriving from section 29 of the Tribunals, Courts and Enforcement Act 2007). Common sense suggests that, unless the 1991 Act provides otherwise, there should be no significant difference in approach between the assessment of costs for a deemed award and the assessment for a discretionary award.  

(2) Paragraph 12 of the Tribunal’s Practice Directions of November 2010 provides useful guidance. Paragraph 12.2 indicates that when considering an application for costs the Tribunal will generally exercise its discretion “in accordance with the principles applied in the High Court and county courts”. In other words, the approach set out in the rules of civil procedure applies by analogy. Indeed, the Practice Directions expressly adopt the test of proportionality. Paragraph 12.4 states that the Tribunal will normally award costs on the standard basis, and that, on this basis, “costs will only be allowed to the extent that they are reasonable and proportionate to the matters in issue, and any doubt as to whether costs were reasonably incurred or reasonable and proportionate in amount will be resolved in favour of the paying person.” It would be surprising if that approach applied to a “discretionary award” in claims for coal mining subsidence under the 1991 Act but not to a “deemed award”.

(3) In any event, although section 38 of the 1991 Act does not expressly refer to a test of proportionality, it does refer to “costs” (rather than, for example, professional fees or legal fees). The meaning of the word “costs” is dynamic, as those who conduct litigation are aware. It will change from time to time as the principles by which courts and tribunals are guided in the exercise of their discretion when determining applications for costs and the procedure to be followed on assessment constantly evolve. As is well known, the test of proportionality has for a long time been part of the fabric of the law of costs in this jurisdiction. Where, as here, a statutory provision refers to “reasonable costs”, this clearly implies “costs reasonably and proportionately incurred and which are reasonable in amount” That is how one should construe section 38(2) of the 1991 Act, which refers to “costs or expenses reasonably incurred … for the purposes of, or for purposes connected with, the preparation and prosecution” of a claimant’s damage notice or claim.

Discussion 

29.	As Mr Mallalieu submitted, I am not concerned with an application for costs to which either the Lands Chamber Rules or the rules of civil procedure directly relate. I am concerned with the quantification of “costs or expenses” under a specific statutory provision. 

30.	The essential question here is whether a now well-established approach to the assessment of costs in civil litigation should be applied to the assessment of a successful party’s “costs or expenses” in a process under the 1991 Act whose result is the Coal Authority either taking “any remedial action” (section 38(1)(a)) or making a “payment to, or making … living accommodation available to, any person under Part III of [the 1991 Act]” (section 38(1)(b)). 

31.	Mr Mallalieu was of course right to point out that section 38 does not spell out a test of “proportionality” as such or refer to the concept of costs being “proportionate”. The section is not expressed in such language. 

32.	The claimants say the words “for purposes connected with” in subsection (2)(a) serve to extend rather than restrict the ambit of costs incurred “for the purposes of” the pursuit of the damage notice or claim. They drew my attention to what was said by Sir Robert Megarry V.-C. in Re Gibson’s Settlement Trusts. In that case the court had to consider the meaning in an order for costs of the expression “of and incidental to the said application of the defendants”. On that question Sir Robert Megarry said this (at pp.184 and 185): 

“I find great difficulty in seeing on what basis it can be said that the addition of these words drives out the right to antecedent costs … . The words seem to me to be words of extension rather than words of restriction. The litigant is to have the costs “of” the proceedings and also the costs “incidental to” the proceedings. This phrase cannot mean that the costs “of” the proceedings are to be included only if they are also “incidental to” them. …”. 

Clearly, however, that analysis was directed at the particular words used, in their particular context. It demonstrates, above all, the need to focus on both words and context. Beyond that I do not think the decision helps me in my task here. Both the words and their context were different from the words and context in this case.

33.	The claimants emphasize the contrast between the provisions of section 38 of the 1991 Act and those of section 51 of the 1981 Act. They point to the discretionary nature of awards of costs in proceedings to which section 51 of the 1981 Act applies, through the rules of court regulating the assessment of costs in civil proceedings. They urge me to note that the genesis of the test of proportionality lay in the CPR, which introduced a new dimension to the assessment of costs in civil litigation, more demanding than the simple test of reasonableness. The position under section 38 of the 1991 Act, the claimants say, is fundamentally different. In section 38 one sees a simple and self-contained code for the assessment of costs in the particular form of proceedings to which that section relates, and proportionality has no place in it. 

34.	Superficially attractive as that argument might seem, the answer to it, in my view, is that there was no need for any refinement of the provisions of section 38 to import the test of proportionality. Those provisions already, in their own terms, articulate an approach consistent with the one laid down in the old rule 44 of the CPR. 

35.	In my view the provisions of section 38(2) of the 1991 Act and those of the old rule 44 – and, indeed, the new rule 44 as well – are based on the same fundamental principles. The statutory formula in section 38(2) is not simply “any costs or expenses”, nor even “any costs or expenses reasonably incurred”. It is “any costs or expenses reasonably incurred” in one or other of two specified respects, namely (in subsection (2)(a)) “for the purposes of, or for purposes connected with, the preparation and prosecution of [the claimant’s] damage notice or claim”, and (in subsection (2)(b)) “in the case of costs or expenses incurred by the claimant before the subsidence damage became evident, with a view to the possible preparation and prosecution of his damage notice”. Read properly in their particular context, the words “for the purposes of, or for purposes connected with” are words of qualification, not expansion.

36.	Section 38(2) does not, in my view, exclude from the assessment of costs the familiar requirement now known in the sphere of civil proceedings by the name of “proportionality”. One does not find in section 38 phrases such as “proportionate to the matters in issue” and “reasonable and proportionate in amount” – which appear in the old rule 44.4(2) of the CPR and the new rule 44.3(2) – or “proportionately and reasonably incurred” and “proportionate and reasonable in amount” – which appear in the old rule 44.5(1) – or “reasonably and proportionately incurred” – which appears in the new rule 44.3(2). There is no explicit statutory test framed in such terms. But I see nothing in the language of section 38 to shut out the principle of proportionality or to prevent its being applied in the normal way when a claimant’s costs are being assessed.

37.	That is enough, in my view, to dispose of the issue I have to decide. 

38.	I can, however, go further. Section 38 does not oust the principle of proportionality. That is plain. But I also think that in substance the principle is clearly engaged by the words the draftsman has used. Costs or expenses will not have been “reasonably incurred”, in the sense of that expression in section 38(2), unless they are reasonably related in both scope and scale to the subject-matter of the dispute, and thus proportionate. Parliament cannot have intended that a successful claimant in a process to which section 38 relates would be able to recover costs out of proportion to the reasonable conduct of that process. In my view, the concept of costs “reasonably incurred” in this statutory context must be taken to mean costs proportionate to the matters in issue, and both reasonable and proportionate in amount.  

39.	The question of reasonableness in this context is not to be judged in the abstract, without an appreciation of the specific nature and extent of the issues raised in the process itself. When gauging the reasonableness of the costs for which a claimant contends, it will always be necessary to consider the relationship of those costs to the dispute in which they have been incurred, having regard to the specific matters put in issue by the claimant in his damage notice or claim, the effects of the subsidence damage alleged and the magnitude and complexity of those aspects of the claim that have proved to be contentious. These considerations, I believe, are clearly implicit in the provisions of section 38(2). 

40.	That analysis seems to me to accord not only with the relevant statutory words but also with the modern culture of costs in civil litigation. 

41.	As Dr Friston submitted, it also has the merit of avoiding an inconsistency between the approach to a deemed award of “costs or expenses” under section 38 and the approach the Tribunal would adopt in making a discretionary award under rule 10 of the Lands Chamber Rules. The old rule 10(5)(c) and the new rule 10(12)(c) make it plain that the rules of civil procedure apply to such an assessment as if the proceedings in the Tribunal had been proceedings in a court to which those rules apply. Paragraph 12.2 of the Practice Directions indicates that the Tribunal’s discretion will generally be exercised in accordance with the principles applied by the court. The Tribunal will therefore take into account “all the circumstances, including the conduct of the parties; whether a party has been successful on part of their case, even if they have not been wholly successful; and admissible offers to settle”. Paragraph 12.4 incorporates into this system the principle of proportionality. Costs on the standard basis will only be allowed to the extent that they are “reasonable and proportionate to the matters in issue”, and any doubt as to whether costs “were reasonably incurred or reasonable and proportionate in amount” will be resolved in favour of the paying person. 

42.	For all those reasons I conclude that the test of proportionality does apply in the assessment of costs and expenses payable under section 38 of the 1991 Act.

Preliminary issue (ii)(a) – if a proportionality test does apply, what is the test?

Submissions for the claimants

43.	Mr Mallalieu submitted:

(1) If, contrary to the submissions made on preliminary issue (i), a test of proportionality does apply, it cannot be – as the Coal Authority at first submitted – the new test. Even in proceedings to which section 51 of the 1981 Act and the new rules as to costs in the CPR apply, the new test cannot have retrospective effect. It cannot be applied to any costs incurred before 1 April 2013.

(2) Therefore, if proportionality is engaged in a case such as this, the test must be akin to that developed by the courts under section 51 of the 1981 Act. And the appropriate test must be the old one, explained by the Court of Appeal in Lownds. That is the relevant jurisprudence.

Submissions for the Coal Authority

44.	Dr Friston submitted:

(1) Although the Coal Authority originally contended that the test of proportionality under the new rule 44 should be applied, that argument is not maintained. It now accepts that the claimants’ submissions on this issue are correct. 

(2) The effect of the new rule 44.3(7) is that the old test of proportionality as it was under the old rule 44.4 will apply where the work was carried out before 1 April 2013. The appropriate test in this case, therefore, is the one explained in Lownds.

Discussion 

45.	This issue is no longer controversial between the parties. If, as I have concluded, proportionality is not excluded by the provisions of section 38 of the 1991 Act, both sides agree that the relevant principles are those identified by the Court of Appeal in Lownds. I endorse that consensus. It is plainly right. The effect of the new rule 44.3(7) is that the previous test of proportionality will continue to apply where the case was begun before 1 April 2013, and to costs incurred for work done before that date. The new principles do not have retrospective effect. In my view, therefore, whilst the present situation is not governed directly by the rules of civil procedure, it would clearly be inappropriate to use the principles introduced by the new regime as to costs in the CPR. 

46.	For the reasons I have given I conclude on this issue that the relevant principles are as set out by the Court of Appeal in Lownds, and elaborated on in the note on proportionality at paragraph 44.4.2 in the White Book.

Preliminary issue (ii)(b) – if a proportionality test applies, what factors should be taken into account?

Submissions for the claimants

47.	Mr Mallalieu submitted:

(1) In the light of the jurisprudence in Lownds, if a test of proportionality does apply in cases such as this, all the circumstances of the case will be relevant, including (i) the conduct of the parties, both before as well as during the proceedings, and the efforts made, if any, before and during the proceedings to resolve the dispute; (ii) the amount or value of the money or property involved; (iii) the importance of the matter to the parties; (iv) the particular complexity of the matter or the difficulty or novelty of the question raised; (v) the skill, effort, specialized knowledge and responsibility involved; (vi) the time spent on the case; and (vii) the place where, and the circumstances in which, the work or any part of it was done.

(2) The Tribunal should also bear in mind paragraphs 11.1 and 11.2 of the Costs Practice Direction (cited in paragraph 26 of the judgment of the court in Lownds):

“11.1 In applying the test of proportionality the court will have regard to rule 1.1(2)(c). The relationship between the total of the costs incurred and the financial value of the claim may not be a reliable guide. A fixed percentage cannot be applied in all cases to the value of the claim in order to ascertain whether or not the costs are proportionate.

11.2 In any proceedings there will be costs which will inevitably be incurred and which are necessary for the successful conduct of the case. Solicitors are not required to conduct litigation at rates which are uneconomic. Thus in a modest claim the proportion of costs is likely to be higher than in a large claim, and may even equal or possibly exceed the amount in dispute.”

(3) Two paragraphs in the judgment in Lownds – paragraphs 38 and 39 – are especially pertinent in this case: 

“38. In deciding what is necessary the conduct of the other party is highly relevant. The other party by co-operation can reduce costs, by being unco-operative he can increase costs. … Access to justice would be impeded if lawyers felt they could not afford to do what is necessary to conduct the litigation. Giving appropriate weight to the requirements of proportionality and reasonableness will not make the conduct of litigation uneconomic if on the assessment there is allowed a reasonable sum for the work carried out which was necessary.

39. … [Where] a claimant recovers significantly less than he has claimed, the following approach should be followed. Whether the costs incurred were proportionate should be decided having regard to what it was reasonable for the party in question to believe might be recovered. Thus (i) the proportionality of the costs incurred by the claimant should be determined having regard to the sum that it was reasonable for him to believe that he might recover at the time he made his claim; …”.

Submissions for the Coal Authority

48.	Dr Friston submitted:

(1) Since the appropriate test is the Lownds test, the factors to be taken into account at the first stage are “all the circumstances” and the “seven pillars of wisdom” under the old rule 44.5(3).

(2) If the Tribunal accepts that the principles to be applied in this instance are those that applied under the old regime for costs in the CPR, it will be inappropriate to follow the revised approach provided in the new rule 44.

Discussion

49.	On this issue the parties seem not to be at odds.

50.	In Lownds the Court of Appeal noted (in paragraph 2 of its judgment) that the problem with the former test of reasonableness in the Rules of the Supreme Court was that “that test, standing on its own, … institutionalised, as reasonable, the level of costs which were generally charged by the profession at the time when the professional services were rendered”. Thus [if] a rate of charges was commonly adopted it was taken to be reasonable and so allowed on taxation even though the result was far from reasonable”. The court went on to refer (at paragraph 3) to the old rule 44.3, noting that it did not specifically use the word “proportionate” but embraced considerations “redolent of proportionality”. The specific considerations in rule 44.3(4) and (5), by way of expansion on “all the circumstances”, included “(a) the conduct of all the parties”; “(b) whether a party has succeeded in part of his case, even if he has not been wholly successful”; and “(c) any payment into court or admissible offer to settle made by a party which is drawn to the court’s attention …”. 

51.	The so-called “seven pillars of wisdom” in this context were these (in the old rule 44.5(3)):

“(a) the conduct of all the parties, including in particular – 
(i) conduct before, as well as during the proceedings; and 
(ii) the efforts made, if any, before and during the proceedings in order to try and resolve the dispute;
(b) the amount or value of any money or property involved;
(c)	the importance of the matter to all the parties;
(d)	the particular complexity of the matter or the difficulty or novelty of the questions raised;
(e)	the skill, effort, specialised knowledge and responsibility involved;
(f)	the time spent on the case; and
(g)	the place where and the circumstances in which work or any part of it was done”.

52.	The parties agree that the approach now provided for in the new rule 44 – as part of the Jackson reforms – is not applicable in this case. I agree. But it is worth noting that under the new rule 44.3(5) proportionality is now to be considered in terms of costs bearing “a reasonable relationship” to the five matters set out. 

53.	In paragraph 31 of the Court of Appeal’s judgment in Lownds Lord Woolf C.J. set out the “two-stage approach”. The first stage – the “global approach” – involved a consideration of the total sum claimed to decide whether that was “disproportionate having particular regard to the considerations which … [rule] 44.5(3) states are relevant”. If the costs as a whole were not disproportionate by that test, all that was normally required was that “each item should have been reasonably incurred, and that the cost for that item should be reasonable”. But if the costs as a whole appeared disproportionate, the court would want to be satisfied that, for each item, the work was “necessary, and, if necessary, that the cost of the item [was] reasonable”. The court emphasized that “a sensible standard of necessity” had to be adopted (paragraph 37). It added that, in deciding what was necessary for the party seeking his costs, the conduct of the other party was “highly relevant” (paragraph 38). Where a claimant recovered significantly less than he had claimed, the question of whether the costs incurred were proportionate should be decided “having regard [to] what it was reasonable for the party in question to believe might be recovered” (paragraph 39). The reason for this was that “a claimant should be allowed to incur the cost necessary to pursue a reasonable claim but not allowed to recover costs increased or incurred by putting forward an exaggerated claim and a defendant should not be prejudiced if he assumes the claim which was made was one which was reasonable and incurs costs in contesting the claim on this assumption” (paragraph 40). 

54.	In my view, all of the principles to which I have just referred apply in this case.

Preliminary issue (iii) – are the costs sought by the claimants disproportionate?

Submissions for the claimants

55.	Mr Mallalieu submitted:

(1) Assuming that the approach in Lownds is the right one, the Tribunal should recognize that this process was very important for the claimants. It was not just about money. Wylam Cottage was, of course, of substantial value – about £3,000,000 before the subsidence. But it was also the claimants’ family home and their most significant asset. The subsidence damage detected at first was itself serious, but the claimants were even more concerned by the risk of further extensive damage, a concern only heightened by what had happened at The Carriage House. While the initial scale of the claim was considerable – in terms of the likely cost of the remedial work – it was reasonable to expect this to grow.

(2) The issues involved in the claim were technical and difficult, as the Coal Authority acknowledged. All of the issues – liability, quantum and the extent and timing of any remedial works – were complex. This remained so after the Coal Authority accepted liability, and after it made its proposal for remedial works. This too seems to have been acknowledged at the time. And it is also clear from the fact that monitoring and assessment continued. The schedule of proposed works itself was fluid. The Coal Authority conceded that further investigation was required before any remedial work could be carried out. It was necessary for specialist solicitors to be instructed on both sides, as the Coal Authority must presumably accept, given their choice of DLA to represent them. A number of technical experts were brought in, again on both sides.

(3) The conduct of the claim speaks for itself in the documents before the Tribunal. It is clear that this was a hard-fought claim throughout, from the Coal Authority’s initial denial of liability and in the serial disagreement between the parties as to the adequacy of monitoring and the risk of ongoing movement.

(4) The claimants’ costs – if they are not agreed – will have to be the subject of detailed consideration in due course, and any costs that were not “reasonably incurred” will be disallowed. At this stage, if the two-stage approach in Lownds is followed, the Tribunal will not, presumably, be going further than the first stage (as described in paragraphs 31 and 37 of the judgment). Only at the second stage would the Tribunal be concerned with necessity, exercising the test of costs being “necessarily incurred” in substitution for the test of their being “reasonably incurred” (as in section 38 of the 1991 Act). At any rate, whatever test of proportionality one applies, the Tribunal ought to find that the costs the claimants are seeking are prima facie proportionate to a lengthy, complex and hard fought claim for compensation in a case of significant subsidence, which required the investigation and monitoring of ground movement over a long period.

Submissions for the Coal Authority

56.	Dr Friston submitted:

(1) The claimants’ costs are obviously disproportionate. In the Bill of Costs they amount to £333,756 (exclusive of VAT), in addition to the sum of about £85,000 (exclusive of VAT) already paid for experts’ fees. 

(2) The costs picture is complicated by the fact that Reynolds Porter Chamberlain also acted for Mr and Mrs Carr in their claim relating to The Carriage House. Many letters were sent on behalf of both sets of clients. In the early stages the Carrs’ claim was the dominant one. The claimants’ was much more limited. 

(3) This case clearly would have been important to any reasonable litigant, but the claimants have exaggerated its significance. For example, there is no evidence to support their assertion that the value of Wylam Cottage has fallen by 75%. Their conduct throughout was overly combative. They rejected the Coal Authority’s offer when they should have accepted it. They constantly complained about minutiae, did not concentrate on resolving the dispute, and allowed their costs to escalate to “scandalous levels”.

(4) The time spent by those representing and advising the claimants was plainly excessive. Although the case justified the involvement of specialist solicitors, this is not an excuse for the very high level of fees that was charged. Specialists ought to be able to deal with cases more efficiently than non-specialists. 

(5) The claimants should not now be heard to say that this was a particularly complex case. It was, in fact, “moderately complex”, and such complexity as there was related only to the technical matters and not to questions of law. At one stage the claimants were pressing the Coal Authority for its response on the question of liability. The Coal Authority said it needed more time because this was a factually complex matter. In Reynolds Porter Chamberlain’s letter of 5 April 2007 they made it clear that the claimants did not accept that causation was an “issue of some complexity” or that the investigations revealed ground movements “difficult to reconcile with mining subsidence.” This is not an isolated comment, taken out of context. It recurred in the correspondence. It shows that the claimants’ view at the time was that the case was not one of any great complexity. But when the issue of costs arose the claimants found themselves able to stress how complex the case had been.  

(5) A test of necessity ought therefore to apply to all of the claimants’ costs.

Discussion 

57.	In tackling this issue I must remind myself that I am not trying to assess the costs that the claimants should recover. I am considering only the preliminary issues before me with a view to helping the parties understand how those costs will be assessed if they have to be. 

58.	This preliminary issue requires me to consider whether the claimants’ costs are disproportionate when viewed in the light of the principles to which I have referred in dealing with the previous issues.

59.	I have considered the submissions made to me by counsel and acquainted myself with the history of the dispute as it emerges from the voluminous correspondence and other documents before me. Having done this, I cannot conclude that the costs for which the claimants are contending are, as a whole, proportionate when judged against the principles to which I have referred. The main thrust of Dr Friston’s submissions therefore seems to me to be cogent.

60.	I acknowledge, as has been submitted by Mr Mallalieu, that the case was, and is, very important for the claimants. The monetary value was high, and the claim concerned their family home. They were also concerned about the risk of further damage being caused, or coming to light later, not least because they were aware of the progressive damage to The Carriage House. The Coal Authority, for its part, was never in any doubt about that, and never denied it. But the importance of a case does not relieve a litigant or potential litigant and his professional advisers of the responsibility they bear for conducting the process, at every stage, in a reasonable and proportionate manner. And here I am unable to accept that that was done. 

61.	The parties cannot agree – at least they cannot agree now – how complex were the issues to which their dispute gave rise. The claimants say that the complexity of the issues was once acknowledged by the Coal Authority, and that the live issues continued to be complex even after liability was accepted and the Coal Authority had put forward its proposal for remedial works. This, say the claimants, is clear from the fact that the Coal Authority accepted the need for further monitoring and assessment, and from the provisional nature of the schedule of proposed works, which left at large the possible need for further investigation in due course. 

62.	On this question of complexity it may well be that neither side has been wholly consistent. When the claimants were pressing the Coal Authority to respond to them on the issue of liability, as they were in the early stages of the dispute, the Coal Authority was itself saying that the case was a complicated one, and that it needed time to consider the issues carefully. But in their letter to DLA dated 5 April 2007 Reynolds Porter Chamberlain said that in the claimants’ opinion causation was not a complex issue in this case. This was clearly the view the claimants were presenting to the Coal Authority in their effort to get the dispute resolved. However, when Reynolds Porter Chamberlain wrote to DLA on 22 June 2007, denying that the fees incurred were excessive or “disproportionate”, they contended that this was “a complex case”. I am conscious of the danger of reading too much into a single letter in a long chain of correspondence. Nonetheless, I think the complexity of the case may at times have been overstated. In truth, this was not an unusually complex case of its kind. It was certainly not legally difficult. 

63.	The relevant costs claimed in the Bill of Costs seem extremely high. They are well in excess of £300,000, and the total costs, taking account of the sum already paid to meet the fees of experts (some £85,000) amount to more than £400,000. 

64.	I appreciate that the claimants’ solicitors were also acting for the claimants’ neighbours, Mr and Mrs Carr, that some of the correspondence involved both sets of clients, and that, at least initially, the Carrs’ claim seems to have been taking the lead. 

65.	In the period before the Coal Authority made its offer to the claimants on 18 October 2007, the Coal Authority seem to me to have conducted itself reasonably in the face of an understandably firm approach by Reynolds Porter Chamberlain on behalf of the claimants. The claimants’ reaction, in Reynolds Porter Chamberlain’s letter of 12 November 2007, was to seek more time in which to consider the outcome of the monitoring then under way, and to agree a suitable design. This, in my view, was not an unreasonable position for the claimants to take at that stage. And for its part the Coal Authority seems to have been doing what the claimants wanted it to do. It had accepted liability and agreed to carry on with the monitoring.

66.	However, after 21 July 2008, when Reynolds Porter Chamberlain wrote to DLA ventilating the claimants’ concerns about blight and diminution in value, I cannot accept that the claimants’ costs were proportionate to the pursuit of the claim originally set out in their damage notice of 18 November 2005. At least from this point I am not satisfied that the claimants would be able to justify the level of expense generated on their side. It was more than 15 months later, and over two years after the Coal Authority had given notice of its proposal to carry out remedial works, that the claimants accepted the Coal Authority’s offer. They did this in Reynolds Porter Chamberlain’s letter of 3 November 2009. In doing so, however, they sought to reserve their “legal rights under [the 1991 Act] and generally”.

67.	The claimants were entitled to keep alive the prospect of a further damage notice or claim. I do not doubt that. But I am not satisfied that they can justify all of the professional fees and other expenses incurred ostensibly in preparing and prosecuting their damage notice of 18 November 2005, in particular the costs they incurred after the Coal Authority gave notice in October 2007 that it proposed to undertake remedial works. 

68.	In short, I find it impossible to conclude that the claimants’ costs, viewed as a whole, can be seen as proportionate under section 38(2) of the 1991 Act – that is to say, costs “reasonably incurred … for the purposes of, or for purposes connected with, the preparation and prosecution of [the] damage notice or claim”.

69.	It follows that, as Dr Friston invited me to conclude, a test of necessity ought to be applied to all of the claimants’ costs. 

Preliminary issue (iv)(a) – to what extent are the claimants entitled to costs incurred after the offer was made?

Submissions for the claimants

70.	Mr Mallalieu submitted:

(1) In principle, the costs incurred by the claimants after the Coal Authority had made its statutory offer are recoverable, so long as they can be shown to have been “reasonably incurred … for the purposes of, or for purposes connected with, the preparation and prosecution of the damage notice or claim”.

(2) The Coal Authority has not identified any legal basis on which the Tribunal could hold that the claimants’ costs incurred beyond a certain date ought to be disallowed in full. And there is none. In its “Points of Dispute” the Coal Authority goes no further than to suggest that elements of the work undertaken for the claimants after October 2007 were neither necessary nor conducive to resolving the dispute. The claimants deny that. But it is a contention best addressed item by item – and at a later stage, not now. 

Submissions for the Coal Authority

71.	Dr Friston submitted:

(1) The claimants cannot explain why they incurred hundreds of thousands of pounds of costs in dealing with issues such as blight, depreciation and grouting, only then to accept the Coal Authority’s offer many months after it had been made. It is not a satisfactory answer to say, as they do in their response to the Coal Authority’s “Points of Dispute”, that the offer was incapable of being accepted because, when it was made “movement under the site was continuing and therefore further monitoring was required”, and that “[this] was acknowledged by the Coal Authority.” That proposition is untenable. The correspondence shows the claimants believed that an offer could be evaluated, and that this was urgent. It was only after the offer had been made that they took a different stance.

(2) It seems that the claimants changed their minds because they did not want to reject the offer and expose themselves to the risks associated with making a formal claim relating to blight, depreciation and grouting, but at the same time they did not want to accept the Coal Authority’s offer and compromise the matter. They ought either to have accepted the offer subject to its being reviewed at the end of the monitoring process or waited for the monitoring to be completed before deciding what to do. Had they done either of those things their costs would have been much more modest. No more than a few hours of a solicitors’ time would have been required, and the experts’ fees need not have been more than, say, £2,000 to £3,000. The Coal Authority was not unsympathetic to the claimants’ concerns about the possibility of further movement. Nothing that it said or did justified the claimants’ behaviour after the offer was made.

(3) Normal principles on the effect of offers on a successful party’s entitlement to costs should be applied here. The Coal Authority’s offer was an “admissible offer” as contemplated by the CPR. It is trite that an admissible offer is capable of removing or reducing an entitlement to costs when an otherwise successful party fails to obtain a result more advantageous to him than the terms of the offer. That approach should be followed in this case. Paragraph 12.7 of the Practice Directions makes it clear that offers to settle may be taken into account when costs are being considered. An open offer should be given no less weight than a sealed offer. Here the offer was made at an appropriately early stage, it remained open, and was capable of being accepted at any time. In these circumstances the offer must be taken into account when the claimants’ costs are being considered.

(4) The claimants’ failure to accept the offer, or at least to refrain from taking further legal advice until the monitoring had come to an end, was unreasonable. The suggestion that the Coal Authority’s argument is based on hindsight is wrong. A basic principle is that if one party to a dispute makes an offer to the other he puts him at risk as to costs, even though the outcome of the dispute is unknown. 

(5) Most, if not all, of the costs incurred by the claimants after the Coal Authority’s offer was made ought therefore to be disallowed.

Discussion 

72.	I agree with Mr Mallalieu – and I did not understand Dr Friston to dispute – that, in principle, the claimants may recover costs incurred after the Coal Authority made its offer. Such costs will therefore fall to be considered against the principles of proportionality, together with the rest of the costs the claimants are seeking. 

73.	Paragraph 12.7 of the Practice Directions makes it clear that, in any proceedings before the Tribunal, offers to settle may be taken into account when applications for costs are considered. Neither a sealed offer nor an open offer – such as was made in this case – should be disregarded. 

74.	The Coal Authority’s proposals to settle the dispute in October 2007 had the essential quality of an “admissible offer” of the kind envisaged in the CPR (the old rule 44.3(4)(c) and the new rule 44.2(4)(c)). In civil litigation such an offer is generally relevant when an application for costs is being dealt with. When an offer is made it can, and usually will, affect the entitlement to costs of the party to whom it has been made, if that party fails to obtain a result more advantageous to him than the terms of the offer. 

75.	In this case the offer was in my view timely. It was made at a reasonably early stage in the dispute. It remained open, and could have been accepted by the claimants at any time. It is plainly relevant to the claimants’ application for costs.

76.	I am not persuaded that it was unnecessary for Reynolds Porter Chamberlain to continue to act for the claimants in the remaining stages of negotiation. But nor do I think that the amount of work done and the quantity of fees the claimants are now seeking to recover for it can be regarded as reasonable and proportionate in the circumstances. 

77.	I am not saying that the claimants ought to have accepted the offer immediately. However, as Dr Friston pointed out, they could simply have reserved their position until the end of the monitoring process. Had they done this I think it likely that the amount of costs they incurred in this period would have been much less than it was. Anyway, I see force in Dr Friston’s submission that the claimants’ claim for costs relating to blight, depreciation and grouting in the period before they finally accepted the Coal Authority’s offer is hard to reconcile with the principle of proportionality inherent in section 38.

78.	I am therefore unable to conclude on the submissions made to me that the costs incurred by the claimants after the Coal Authority made its offer can be regarded as proportionate within the parameters set by section 38 of the 1991 Act. Each item in those costs will have to be considered on detailed assessment. It remains to be seen whether that exercise will result, as Dr Friston submitted it should, in only very modest costs being allowed after the Coal Authority’s offer was made.

79.	Costs attributable to work that does not demonstrably correspond to the matters specifically raised in the claim cannot be expected to qualify as necessary and reasonable. Expense incurred in considering the offer itself and in negotiations relating to it is more likely to be recoverable than costs incurred on new issues or, as it would seem, with a view to a further damage notice or claim being pursued.   

Preliminary issue (iv)(b) – to what extent are the claimants entitled to costs related to heads of claim or remedies that have been abandoned or not pursued?

Submissions for the claimants

80.	Mr Mallalieu submitted:

(1) The claimants are entitled under section 38 to costs and expenses relating to any heads of claim or remedies unless they were not reasonably incurred or were not for the purposes of, or for purposes connected with the preparation and prosecution of the damage notice or claim. The issues that had been raised but not dealt with in the final schedule of remedial works on which the parties agreed were all reasonably pursued. The claimants reasonably believed, in good faith and with the support of expert opinion, that the Coal Authority was going to be liable for any damage caused by the further movement that had undoubtedly occurred. Such damage was clearly connected with the damage notice or claim, and the costs associated with it fell within the compass of section 38.

(2) It is instructive to consider the way in which the court had construed similar words and phrases when determining applications for costs in civil litigation. The remarks made by Sir Robert Megarry in Re Gibson’s Settlement Trust are germane. The words “or for purposes connected with” in section 38(2)(a) do not limit the statutory entitlement to costs. They extend it. They are intended to provide for costs and expenses incurred on a wider and less restrictive basis than would be so if those words were not there.

(3) As to the costs of investigating grounds that in the end do not feature in a claim, the claimants rely on the Court of Appeal’s decision in Motto v Trafigura Ltd [2011] EWCA Civ 1150. Even if such costs seem disproportionate, the relevant test in considering whether they were properly incurred is whether the claimant reasonably believed at the time that they were a legitimate part of his case. This test sits well with the approach set out in Lownds. The strength of particular grounds that might eventually fall away in an important and complex case is to be judged by a claimant’s reasonable contemporaneous belief and not with the benefit of hindsight (see also, for example, Francis v Francis & Dickerson [1955] 3 W.L.R. 973, per Sachs J. at p.980).

(4) The test of reasonable contemporaneous belief is satisfied here. Though some aspects of the claim were not ultimately pursued, these costs were nevertheless “reasonably incurred” (see paragraph 82 in the judgment of Lord Neuberger of Abbotsbury M.R. in Motto v Trafigura). There is no basis in principle for disallowing the whole of the costs incurred on such issues. No doubt the Tribunal would make some reductions when looking at these costs line by line, as one might expect in any assessment of costs.

Submissions for the Coal Authority

81.	Dr Friston submitted:

(1) Even under the rules of civil procedure, it is rare for the court to allow in full the costs of issues that have been abandoned. Such costs may be excluded either when the costs order is made or during the assessment (see Shirley v Caswell [2001] 1 Costs L.R. 1 and Dooley v Parker [2002] EWCA Civ 1188). So, for example, in Nugent v Goss Aviation [2002] EWHC 1281 (QB) Burton J. said (at paragraph [50]) that on assessment the costs judge, who will “prima facie disallow costs in respect of issues abandoned or not pursued, … will in any event disallow the costs of any claims which were positively struck out.”

(2) There is no reason to believe that an assessment in a claim before the Tribunal should be treated any differently. The general rule that costs follow the event applies. This holds good when a claim is withdrawn, just as it does when a claim is contested and fails. For example, in Hurley v Hurley (LP/74/2006), the Tribunal (George Bartlett Q.C., President) said (at paragraph 6) that “[where] an applicant withdraws an application the objectors ought to have their costs unless there is some good reason why they should not.”

(3) The provisions of section 38(2) of the 1991 Act are clear. Costs must be related to the claim actually brought – that is to say, the claim pleaded in the damage notice – rather than to some other claim that might, or might not, be brought in the future. 

(4) It was plainly unreasonable for the claimants to incur any significant costs in exploring the issues of blight, depreciation and grouting. This ought only to have been done if monitoring showed that the subsidence was continuing. This work was speculative.

(5) The costs of the abandoned issues ought therefore to be disallowed.

Discussion 

82.	I do not see any disagreement between the parties as to the principle that in civil litigation costs will rarely be awarded in full for issues abandoned in the course of proceedings. And I see no reason why this should not apply in disputes before the Tribunal. It matches the related principle that when an application is withdrawn the opposing party ought to be awarded its costs unless there is some good reason for not doing so. Those general principles are well established and familiar.  

83.	As Dr Friston submitted, there are two ways in which a court or tribunal may deal with the costs of an abandoned issue. Either it may disallow such costs in whole or in part when making an order for costs, or it may leave the matter to detailed assessment (see Dooley v Parker, per Dyson L.J. at paragraph 32).

84.	I do not think it would be appropriate at this stage to deny the claimants all of their costs on issues raised in the course of the dispute but later abandoned. Two main questions arise. First, were the issues of blight and depreciation and the possibility of grouting being carried out truly encompassed within the claim, and, if so, to what extent? And secondly, was it reasonable to pursue them in the way that they were pursued before the monitoring had shown whether subsidence was continuing? If the claimants are to be awarded any significant costs for the work done on the issues they did not pursue they would have to provide robust answers to both of those questions. So far, in my view, they have not done so.

85.	I acknowledge, however, that the provisions of section 38(2)(a) allow some latitude for a claimant in the costs he incurs when preparing and prosecuting a damage notice or claim. There will be circumstances in which a claimant can quite properly raise and maintain grounds that prove to be untenable. To this extent, I accept Mr Mallalieu’s argument. 

86.	I also accept, as Mr Mallalieu submitted, that the reasonableness and proportionality of costs sustained in that way are not to be judged only with the advantage of hindsight.  Rather, the Tribunal must look realistically at the circumstances as they were at the time when a claimant and its advisers were deciding how to conduct the process. The decision of the Court of Appeal in Motto v Trafigura supports this proposition. There is no hard and fast rule that costs may only be recovered if they can be shown to have contributed to a successful result in the litigation or to the settlement of the dispute. The question here is whether the claimants reasonably believed, in good faith, that the matters on which they were incurring cost were genuinely and reasonably related to the claim they had made. 

87.	In Motto v Trafigura Lord Neuberger said (at paragraph 81) that “in the absence of special facts, each claimant should be entitled to recover the costs in respect of any item reasonably (and, in a case such as this, necessarily) incurred by way of costs in connection with the claim, and in a sum which is reasonable and proportionate.” As Lord Neuberger pointed out, it is necessary to look at the circumstances in which a party has continued to pursue a particular head of claim or damage that he later gives up. He said this (at paragraph 84):

“Of course, once a costs judge decides that it was no longer reasonable (or necessary) to pursue a particular head of claim further, or that it should have been investigated, and therefore abandoned, earlier, the costs incurred in connection with that head of damage should be disallowed from that date. Equally, even in respect of costs allowed on this basis in principle, they will not be allowed in so far as they were incurred beyond what was reasonable and proportionate.”

88.	In this case I think that is the approach the Tribunal will need to take if the claimants’ costs come for detailed assessment. It is inevitably a more refined approach than simply disallowing any costs associated with issues abandoned, or, conversely, simply accepting that all such costs are to be regarded in the same way as the costs of the issues pursued throughout. And the touchstone, as I have said, is not hindsight but the reasonableness of the claimants’ contemporaneous belief in the merit of the matters they chose to pursue. If they pass that test, the costs of the abandoned issues will still have to be scrutinized closely, with the principles of proportionality in mind.

89.	Thus I accept that it would not be right at this stage to disallow all of the claimants’ costs of the issues they abandoned, any more than it would be right to disallow all of the costs they incurred after the Coal Authority’s offer was made. I shall therefore let those costs go forward for detailed assessment if they cannot be agreed.

Preliminary issue (v) – whether any reduction should be made to hourly costs

Submissions for the claimants

90.	Mr Mallalieu submitted:

(1) Given the importance and complexity of the case, it was reasonable for the claimants to instruct London solicitors to advise them and conduct the dispute for them. The choice of Reynolds Porter Chamberlain was itself perfectly reasonable.

(2) The hourly rates contended for by the claimants are in no way excessive. They are, in the circumstances, entirely appropriate.  

Submissions for the Coal Authority

91.	Dr Friston submitted:

(1) This is a standard basis assessment. Any doubt as to the reasonableness of the costs the claimants are seeking must be exercised in favour of the Coal Authority as paying party.

(2) It was unreasonable of the claimants to instruct solicitors in London. There is no evidence before the Tribunal to explain why they did this. They ought to have instructed a firm “in a mining area (either in Newcastle-upon-Tyne, or some other area in the North of England)”. Anyway, the choice of Reynolds Porter Chamberlain has not been justified. There is nothing to show that they had experience in work related to mining and subsidence. Neither of the two solicitors who did most of the work on the case, Ms Percy and Ms Howard, appears to have specialist knowledge or experience in this kind of work. It seems that Reynolds Porter Chamberlain were no better able to handle this case for the claimants than any other large firm of solicitors.

(3) The claimants’ Bill of Costs does not state the grades of the fee earners who carried out the work, but the rates evidently were £295 an hour for a Grade A solicitor, £220 to £250 for a Grade B, £175 for a Grade C, and £120 for a Grade D, as set in 2006. The guideline rates in Newcastle-upon-Tyne in 2006 were £184 an hour for a Grade A solicitor, £163 for a Grade B, £137 for a Grade C, and £100 for a Grade D. Some increase on those rates would have been justified in a case such as this. The amounts offered are £240 an hour for a Grade A solicitor, £183 for a Grade B, £154 for a Grade C6, and £112 for a Grade D.

Discussion 

92.	I can deal with this issue briefly.

93.	I do not accept that the claimants acted unreasonably in instructing solicitors in London, or in choosing Reynolds Porter Chamberlain to act for them. I am not attracted by Dr Friston’s argument that it was unreasonable for the claimants to instruct London solicitors because London is, as he put it, “hardly a mining area”. In my view it was not incumbent on the claimants to instruct a firm “in a mining area”. 

94.	More persuasive is the Coal Authority’s contention that the case did not warrant the continuous involvement of Grade A fee-earners (Ms Percy and Ms Peters), there being no complex issues of law and the Coal Authority having accepted its remedial obligation under the 1991 Act without undue delay. In my view, however, the Coal Authority goes too far if it asserts that all items of work within the Bill of Costs in which Ms Percy and Ms Peters were engaged are excessive, and that counsel need not have been instructed. The claimants’ answer to those assertions in its response to the Coal Authority’s “Points of Dispute” (on pages 14 and 15) is that the matter clearly justified the involvement of a Grade A fee-earner but that, because of Ms Peters’ academic training in geoscience and practical experience in “Carboniferous (Coal Measures)” geology in Northumberland, the time spent was kept to a minimum, and most it – including liaising with experts and preparing letters and notes of meetings – was undertaken at a lower hourly rate. In view of the very brief submissions that were made on this issue I am not prepared to dismiss that response in this decision.

95.	I also note the claimants’ comment (ibid.) that counsel’s fees account for only 6% of the total claim for costs, and that this was not a case in which counsel was overused. Some of counsel’s fees clearly relate to work done on the claim relating to The Carriage House. Again, I am not prepared to rule out any element of counsel’s fees at this stage. This too will have to be considered on detailed assessment.

96.	As to the hourly rates themselves, I do not think it would be sensible to reach a concluded view without the benefit of any further written submissions either side may wish to make if the claimants’ Bill of Costs does come back for detailed assessment. To help the parties, however, I can say that the hourly rates contended for do not strike me as being obviously too high.

Conclusion

97.	I have stated my conclusions on each of the preliminary issues before me and have indicated the approach the Tribunal will take on a detailed assessment of the claimants’ costs. It may be, of course, that my decision will help the parties to resolve any remaining issues between them by agreement.

              Dated: 12 July 2013

Sir Keith Lindblom, President

Addendum on costs

98.	The Coal Authority applies for the costs of the hearing of the preliminary issues. It submits that the claimants’ stance at the hearing of those preliminary issues was unreasonable. It says it has clearly won on preliminary issues (i), (iii) and (iv)(a). Preliminary issue (iv)(b) has been deferred to the detailed assessment. Only on preliminary issue (v) have the claimants succeeded, and this issue took virtually no time at the hearing. The claimants’ conduct had been at times over-hasty, disingenuous, and intimidatory. They exaggerated the damage to their property and the consequences of it. And they “advocated a wildly exaggerated and unnecessary scheme of repair”. In these circumstances justice requires that an order for costs be made now in favour of the Coal Authority. In view of the claimants’ conduct a reduction of no more than between 5% and 7.5% – to reflect their success on preliminary issue (v) – would be appropriate.
99.	The claimants resist an order requiring them to pay any of the Coal Authority’s costs at this stage. They point out that the dispute here is not about liability under section 38 of the 1991 Act, but about quantum. For the Tribunal to try to decide now what award of costs, if any, should be made on the preliminary issues would be premature and would risk injustice. The Tribunal cannot be sure yet whether the outcome of the hearing of the preliminary issues will lead ultimately to success for the claimants or success for the Coal Authority. It does not know whether any offers have been made, and whether any offer that has been made will be exceeded in the final result (see HSS Hire Services Group Plc v BMB Builders Merchants Ltd. [2005]  EWCA Civ 626). It should therefore hold off making any award of costs on the preliminary issues until the whole case has reached its conclusion. Neither side will suffer any prejudice if that is done. If that submission is not accepted the claimants say the appropriate order would be to award them a proportion of their costs, to reflect what they achieved on the preliminary issues, including the Coal Authority’s concession that the test in Lownds is the appropriate one. It is clear, they say, that they achieved the greater measure of success. So, they submit, if any award of costs is to be made at this stage, an appropriate order would be that the Coal Authority should pay 70% of their costs.
100.	I shall deal with this application under rule 10 of the Tribunal Procedure (Upper Tribunal) (Lands Chamber) Rules 2010 (see rule 10 of the Tribunal Procedure (Amendment No.3) Rules 2013).
101.	I do not think it would be right to prolong the preliminary stage of this case by inviting the parties to respond to each other’s submissions on costs. As I shall explain, I can avoid such delay without any unfairness to either side.  
102.	I can see some strength in both of the rival arguments based on the degree of success the parties have achieved on the preliminary issues. Either side can say it was partly successful. Neither can claim total success. 
103.	If the whole of the parties’ dispute were now at an end I would have to exercise my discretion on costs by deciding which side had won and which had lost. But the proceedings are not at an end. Only the preliminary issues have been decided.
104.	It may be that no injustice would be caused by my making an award of costs in favour of one side or the other without speculating about the final outcome of these proceedings. But it is possible that to do so would cause injustice to one side or the other. 
105.	The crucial point, it seems to me, is that the Tribunal is not yet able to tell whether the claimants are going to succeed in obtaining a greater amount of costs and expenses under section 38 of the 1991 Act than the Coal Authority has been prepared to pay. In particular, the Tribunal does not and cannot yet know whether either side or both have made offers to settle the dispute – and, if so, by whom, when, and in what terms. If, for example, the Coal Authority has made an offer at a level higher than the sum the claimants recover, this might affect the Tribunal’s view on where the costs of the preliminary issues should fall. On the other hand, if the claimants have offered to accept less than is ultimately found to be due to them, this too might bear on that decision. The timing of such an offer is also likely to be relevant, and, in particular, whether it was made before or after my decision on the preliminary issues. As Waller L.J. said in HSS (at paragraph 29 of his judgment):

“… The proper approach at the conclusion of a trial of a preliminary issue where there has been a [Part] 36 payment in or a [Part] 36 offer, should therefore normally be to adjourn the question of costs pending the resolution of all the issues including damages, at which stage the quantum of the Part 36 offer can be revealed and the discretion in relation to costs exercised in the knowledge of it.”       
106.	If the Tribunal does not deal with the costs of the preliminary issues at this stage it will be able to make an appropriate decision on those costs in due course, knowing that all the relevant facts are before it. Neither side suffers any prejudice by the Tribunal taking this course. The arguments the parties have used at this stage can be deployed once again. But both parties will be free to add to or change the submissions they have made. 
107.	I shall therefore order that the costs of the preliminary issues be reserved so that they can be dealt at the conclusion of the proceedings. 

Dated: 30 October 2013

Sir Keith Lindblom, President