Landlord and tenant – Right to manage – Costs – Commonhold and Leasehold Reform Act 2002 – RTM company withdrawing claim under 2002 Act to acquire right to manage property – Appellant landlord applying for costs order in its favour under section 88(4) of 2002 Act – First-tier tribunal disallowing solicitor’s fees for lack of proof that indemnity principle complied with – Whether erring in approach to indemnity principle – Whether liability for solicitor’s fees established on balance of probability – Appeal allowed
The appellant was the landlord of a property in Newcastle-upon-Tyne which was the subject of a claim by an RTM company to acquire the right to manage the building pursuant to Part 2 of the Commonhold and Leasehold Reform Act 2002. The appellant served a counternotice and a hearing was scheduled but the RTM company withdrew its claim the day before the hearing date. The appellant then applied to the FTT for an order, under section 88(4) of the 2002 Act, requiring the RTM company to pay its costs incurred in consequence of the claim notice. The RTM company put the appellant to proof of its costs, requiring it to show that the indemnity principle, by which the appellant could not recover more than the sum for which it was in fact liable, had been complied with.
The FTT determined that the appellant was entitled to recover the fees of counsel and its managing agents in the total sum of £4,866, for which the appellant had produced receipted invoices. However, it disallowed a further £4,276 which the appellant claimed in respect of solicitor’s fees. The solicitor which acted for the appellant on the costs application was a different firm from the one which had dealt with the RTM claim notice and, while the appellant produced invoices and a statement of truth from its former solicitor, the invoices were not receipted and had not yet been paid.
The FTT took the view that, in those circumstances, it could not be satisfied on the evidence that the indemnity principles had been complied with in respect of the former solicitor’s fees. It therefore refused to award them, despite finding that the reasonable costs incurred as a consequence of the RTM company’s claim notice would include more than £3,600 for that item. The appellant appealed.
Held: The appeal was allowed.
An over-zealous application of the indemnity principle should be avoided in the FTT since it might cause disproportionate costs to be incurred in unnecessary satellite disputes over the recovery of modest sums, contrary to the overriding objective of dealing with cases fairly and justly, which included dealing with them in ways that were proportionate to the importance of the case and the resources of the parties.
Moreover, section 88(2) of the 2002 Act provided substantial protection to RTM companies and their members by limiting the costs payable in respect of professional services to those that might reasonably be expected to have been incurred by the landlord had it been personally liable for such costs. The express statutory protection afforded to the paying party by section 8892) was a further reason why tribunals should discourage, rather than incite, challenges based on the indemnity principle.
It was questionable whether the indemnity principle had any role to play in the determination of costs under section 88, given that landlord and other recipients of a claim notice under that section had a statutory entitlement to their reasonable costs incurred in consequence of the claim notice. However, even assuming that the FTT was entitled to have regard to the indemnity principle, it had erred in its application. The proper application of the principle required it to decide whether, on the balance of probability, the appellant was liable to pay the fees of its former solicitor. The evidence presented to the FTT was all one way. The RTM company had advanced no positive case to suggest the existence of any arrangement inconsistent with the indemnity principle but had simply put the appellant to proof. The FTT’s approach was wrong in principle so far as it had treated the absence of any requirement for a formal bill of costs, accompanied by a certificate from the receiving party’s solicitor confirming compliance with the indemnity principle, as requiring it to be especially vigilant in establishing compliance with the indemnity principle. The absence of a formal procedure requiring bills of costs in a prescribed form did not disturb the presumption created by the verification of the appellant’s liability by its own solicitor. Nor did a formulaic “putting to proof” create a higher hurdle or call for any additional vigilance.
Where a solicitor made an application for costs on behalf of a successful landlord, the FTT could, and should, place reliance on what it was told by that solicitor. The FTT had lost sight of the elementary principle that solicitors, as officers of the court, were trusted not to mislead or to allow the court to be misled. In doing so, it had caused the appellant to incur unnecessary costs in recouping a modest bill. It had not explained why the evidence failed to satisfy it that the indemnity principle had been complied with; nor had it considered whether there was any credible alternative explanation for the information with which the appellant’s former solicitor had provided it. Had it done so, it would inevitably have concluded that there was nothing to displace the very strong presumption that the appellant’s former solicitor was entirely truthful and was best placed to know what arrangements had been made: Bailey v IBC Vehicles Ltd [1998] 3 All ER 570 considered.
The FTT’s decision was set aside accordingly and solicitor’s fees of £3,632.25 were awarded to the appellant.
The appeal was determined on written representations.
Sally Dobson, barrister
Click here to read the transcript of Re Triplerose Ltd’s appeal
