Landlord and tenant – Service charge – Costs – Respondent liable under terms of lease of flat to pay reasonable costs of appellant landlord incurred in connection with enforcement of lessee covenants – Appellant obtaining decision of first-tier tribunal determining respondent’s service charge liability and granting dispensation from statutory consultation requirements in respect of major works – Appellant awarded 20% of costs of proceedings pursuant to r 13(1)(b) of Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 – Whether appellant entitled to recover entirety of costs pursuant to terms of lease – Appeal allowed
The respondent was the long leaseholder of one of six flats in a converted Grade II listed terraced property in Pimlico, London SW1. The lease contained a contractual indemnity clause requiring the respondent to pay the appellant landlord’s “reasonable costs charges and expenses of proceedings or in contemplation of proceedings in connection with the enforcement of the Lessee covenants”.
A dispute arose between the parties regarding the cost of major works that the appellant proposed to carry out to the building and for which it was charging leaseholders in the service charge for 2014. The respondent refused to pay his contribution to those costs and also refused to pay certain other items going back as far as 2009. The appellant applied to the first-tier tribunal (FTT) under: (i) section 27A of the Landlord and Tenant Act 1985, for a determination of the respondent’s service charge liability for the years 2009 to 2014; (ii) section 20ZA of the 1985 Act, for dispensation from the statutory consultation requirements for major works to the extent that they had not been complied with; and (iii) section 168(4) of the Commonhold and Leasehold Reform Act 2002, for a determination that the respondent was in breach of his obligations in the lease to pay the service charge.
The FTT made determinations in favour of the appellant and also ordered the respondent to pay 20% of the appellant’s costs of the proceedings. The costs order was made under r 13(1)(b) of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013, on an application made by the appellant at the FTT’s invitation, on the grounds of unreasonable behaviour by the respondent in the conduct of the proceedings.
Rather than relying on that order, the appellant subsequently discontinued its application for costs under r 13 and instead sought to recover the entirety of its costs, in the sum of £40,710, pursuant to the indemnity clause in the lease. The respondent disputed his liability to pay and made a further application to the FTT, under para 5 of Schedule 11 to the 2002 Act, to determine whether that sum was payable as a variable administration charge.
The FTT held that the order under r 13 had exhausted the appellant’s entitlement to claim its costs of the earlier proceedings. It found that the appellant’s entitlement under the indemnity clause was therefore limited to costs incurred before the service charge application, which were not covered by the costs order, in the sum of £3,774. The appellant appealed.
Held: The appeal was allowed.
(1) When considering whether the whole of the appellant’s costs were recoverable as a variable administration charge, the FTT had erred in eliding its consideration of two separate entitlements. As a party to the lease, the appellant had a contractual indemnity clause entitling it to recover its reasonable costs of enforcement action to the extent that those costs were reasonably and properly incurred. Separately from that right, it also had an entitlement, as a party to proceedings before the FTT, to seek an award of costs under r 13(1)(b) if it could satisfy the FTT that the respondent had conducted the proceedings unreasonably. Where a party had two legal routes to the recovery of the same sum, it would not be entitled to recover that sum twice, but there was no reason why it should be required to elect between those routes unless they were inconsistent. There was no inconsistency between a claim to enforce the contractual right to recover costs and an invitation to the FTT to exercise its discretionary power to award costs. The exercise of the tribunal’s procedural power under r 13(1)(b) depended on the satisfaction of a condition, namely unreasonable conduct on the part of the respondent, which was not a requirement of the appellant’s substantive contractual claim under the indemnity clause. The appellant had two routes to the achievement of the same objective, and its ability to pursue one route did not require it to make any assertion or claim which undermined or contradicted the basis of its entitlement to rely on the alternative route.
(2) That being so, it was not “inappropriate” for the appellant to pursue its contractual right after the FTT had already made a decision in its favour awarding only 20% of the total costs under r 13(1)(b). That course was not an abuse of process and was not barred by any procedural estoppel. It did not offend against the principle that parties to litigation should bring forward their whole case at one time and that they would not generally be permitted to advance a new claim in subsequent litigation that ought properly to have been brought forward as part of the earlier dispute. That principle was not to be applied mechanically but involved a broad, merits-based judgment taking account of all relevant factors to determine whether, in all the circumstances, a party was misusing or abusing the process of the court: Henderson v Henderson (1843) 3 Hare 100 and Johnson v Gore Wood & Co [2002] 2 AC 1 considered. In the instant case, neither party had originally anticipated making submissions on the issue of costs during the earlier hearing before the FTT. Even if the appellant anticipated making a claim to recover all of its costs as an administration charge under the indemnity clause, it was not in a position at that stage to invite the FTT to make a determination of its entitlement under Schedule 11 to the 2002 Act. Having received and considered the FTT’s decision, the appellant had then discontinued the further pursuit of its application for costs in favour of reliance on its contractual claim. The respondent was not misled or inconvenienced by that course of action and he would receive an unjustified windfall if the appellant were prevented from relying on its contractual right: Chaplair Ltd v Kumari [2015] EWCA Civ 798; [015] PLSCS 238 applied.
(3) However, until the FTT made its decision granting dispensation from full compliance with the statutory consultation provisions in relation to the major works, the respondent’s liability to contribute towards the major works was limited by section 20(6) of the 1985 Act to £250, a sum which he had already paid in response to the original demand. At the time when the appellant brought its applications, therefore, it had no right to receive any larger sum and any costs that it incurred were not incurred in connection with the enforcement of the respondent’s covenants. The appellant had no right to take enforcement action against the respondent in respect of the sum of £18,727 for which he was eventually found liable until it had achieved a dispensation. It was not possible to regard the proceedings as a whole as being “in connection with the enforcement of the Lessee covenants” where, at the commencement of the proceedings there had not yet been any significant breach of the covenants so far as they related to the costs of the major works. It was therefore necessary to remit the case to the FTT for a further assessment of the extent to which the costs were “reasonably and properly incurred” in connection with the enforcement of the respondent’s obligations, as required by the indemnity clause, and whether the amount of the charge was reasonable as required by para 2 of Schedule 11 to the 2002 Act.
Edwards Denehan (instructed by Nash & Co, of Plymouth) appeared for the appellant; the respondent appeared in person.
Sally Dobson, barrister
Click here to read transcript: 87 St George’s Square Management Ltd v Whiteside