A recent case raises questions about a landlord’s ability to recover tribunal costs through the county courts
Key point
- Only the courts and not the tribunals have the power to make orders in relation to landlords’ costs claims
In the case of Chaplair Ltd v Kumari [2015] EWCA Civ 798; [2015] PLSCS 238, the Court of Appeal had to consider two related costs issues: first, does a court have power to order a leaseholder to pay costs payable under the terms of the lease; and secondly, where a county court claim has been allocated to the small claims track (“SCT”) under the Civil Procedure Rules (“CPR”), does the SCT £260 upper limit on costs apply?
The claim
Mrs Kumari was one of 10 leaseholders in a block of flats who challenged the level of service charges made by their landlord, Chaplair Ltd. The parties had previously agreed that some elements of the landlord’s claim should be dealt with on the SCT while the others were transferred to the First-tier Tribunal (Property Chamber). In addition to the service charges, the landlord was also seeking to recover the costs incurred in the litigation.
As is usually the case, the landlord had rights under the lease to recover legal and professional costs. Those most relevant to this case are a leaseholder covenant to pay costs incurred in contemplation of forfeiture proceedings and another to indemnify the landlord against costs (and other losses) in cases where the leaseholder is in breach of the lease.
Costs in the tribunal
Despite the leaseholders securing some reductions in the level of the service charges, Chaplair was successful overall. Its application that the leaseholders should pay towards its costs because they had behaved vexatiously or unreasonably was rejected by the tribunal (under powers, since superseded, in schedule 12 to the Commonhold and Leasehold Reform Act 2002).
The leaseholders sought an order restricting future recovery of the landlord’s costs as a service charge under section 20C of the Landlord and Tenant Act 1985 (mistakenly referred to by the court as the Housing Act 1985). In the event, they did not have to proceed as the landlord conceded that it could not add these costs to the service charge.
Costs in the court
With the service charge dispute having been determined by the tribunal, the landlord’s application for costs was restored in the county court. The judge (overruling the district judge) decided that the £260 upper limit did not apply as the landlord was seeking to recover costs under the leases and not under the CPR.
Mrs Kumari was ordered to pay a proportion of the landlord’s costs incurred in the tribunal proceedings and those in the county court (that is, both the proceedings before the district judge and the county court judge).
The Court of Appeal
Mrs Kumari’s appeal was dismissed. The Court of Appeal rejected submissions made on her behalf that the tribunal proceedings were determinative. It was argued on her behalf that the doctrine of res judicata applied, or the landlord should be estopped from raising the issue again.
The court would have none of this. Only the court, not the tribunal, could make orders on the landlord’s contractual claim for costs.
Mrs Kumari’s other submission also failed. Although the parties agreed that the landlord’s county court claim for costs should be dealt with under the SCT, this was a contractual claim for costs to which the costs limit should not be applied.
Here the court applied the reasoning in Church Commissioners for England v Ibrahim [1997] 1 EGLR 13 (on the principles on which a mortgagee can recover its costs under an indemnity clause). Where there is a contractual right to recover costs, a court should usually allow the claim. It also decided that this principle is not limited to mortgage cases and applies in other cases where a party has a contractual right to claim costs.
It followed that the county court had the power to make an award of costs under the terms of the lease. It correctly included the costs incurred in the tribunal proceedings. The appeal on the first issue was rejected and although the Court of Appeal agreed to hear argument on the second issue, permission to appeal was in the event refused.
This decision was given by Arden LJ with the agreement of the other Lord Justices. One encapsulated the reasoning by stating that “…it remains a contractual entitlement which the courts will enforce subject to its equitable power to disallow unreasonable expenses. There is nothing in the CPR which enables the rules to exclude or override that contractual entitlement…” [45].
The report does not disclose the amount of the service charges that were challenged. While Mrs Kumari may have succeeded in reducing her proportion of the charges, she will have to offset that against the costs ordered (but yet to be assessed) by the courts in the subsequent costs litigation that involved solicitors and counsel.
After word
This decision may lead to more landlords (where there are suitably drafted leases) using the county court to recover costs, including the costs of tribunal proceedings. One of the uses of section 20C is to prevent landlords who have lost substantially in the tribunal from recovering their costs as a future service charge. This may be undermined if a landlord can sue for the costs in the county court under its contractual entitlement, rather than as a service charge.
Could the court refuse an award in such circumstances on the grounds that it would be inequitable?
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James Driscoll is a solicitor, a writer and an accredited mediator
