A long-awaited Upper Tribunal (Lands Chamber) (“the UT”) decision is a green-light for tenants to bring “spurious” service charge claims with little costs risk, lawyers have warned.
In a combined judgment dealing with three appeals, the UT has deliberately given extensive guidance on costs claims based upon a party’s unreasonable conduct in the First-tier Tribunal (Property Chamber) (“FTT”), pursuant to section 13(1)(b) of the Tribunals, Courts and Enforcement Act 2007.
All three appeals were against decisions of the FTT in which the tribunal used its power under rule 13(1)(b) of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 to award costs against a party on account of their unreasonable behaviour in bringing, defending or conducting proceedings before it. And in each case, the sum awarded in costs was greater than the amount of the service charge in issue in the proceedings.
The UT allowed the appeals, and gave guidance on the approach to be followed in future cases.
It said that the standard of behaviour expected of parties in tribunal proceedings “ought not to be set at an unrealistic level”, and that in cases involving unrepresented parties with no legal knowledge, their behaviour “should be judged by the standards of a reasonable person who does not have legal advice”.
It added: “It is not enough that the conduct leads in the event to an unsuccessful outcome. The test may be expressed in different ways. Would a reasonable person in the position of the party have conducted themselves in the manner complained of? Or Sir Thomas Bingham’s ‘acid test’: is there a reasonable explanation for the conduct complained of?”
It said that tribunals ought not to be over-zealous in detecting unreasonable conduct and should not lose sight of their own powers and responsibilities in the preparatory stages of proceedings.
It recommended a “systematic or sequential” approach to applications, involving at the first stage the question whether a person has acted unreasonably, then a second stage consideration of whether the discretionary power should be used to make an order or not. The third stage, if reached, is considering what the terms of that order should be.
It added that the rule should not be used routinely, but should instead “be reserved for the clearest cases”, stressing that parties to litigation in the Property Chamber “must usually expect to bear their own costs”. It reiterated that the burden of demonstrating unreasonable conduct lies with the party claiming costs.
Following the decision, lawyers expressed concern that it sets a high threshold for these applications.
Alexander Bastin, a barrister at Hardwicke who appeared for one successful appellant leasehold management company, said that anecdotal evidence strongly suggested that this type of costs application had been on the rise ever since the unreasonable conduct costs jurisdiction was introduced in 2013, but that this decision would bring an “abrupt halt” to most claims in future.
He said: “This decision puts an end to any hopes that the Property Chamber might develop a commercial and realistic approach to costs.”
Janice Northover, of Northover Law, added: “This decision effectively invites tenants to dispute service charges on ill-considered, spurious grounds knowing there’s little risk of an adverse costs order. It’s a green-light for tenants not to take legal advice and will result in both increased FTT applications and more management companies facing possible insolvency.”
Tom Carpenter-Leitch of Tanfield, who represented the lead respondent, said: “Clients and practitioners will welcome the clarity of this decision and the guidance given. Inevitably, however, the effect of the decision will be to severely restrict the availability of costs awards and thus likely be to the detriment of landlords and management companies who tend to be represented and thus suffer the greater costs burden.”
Willow Court Management Company (1985) Ltd v Alexander (and two similar appeals) Upper Tribunal (Lands Chamber)
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