Alexander Bastin and Caoimhe McKearney explain what a recent decision means for costs claims in the First-tier Tribunal – and it’s not good news for landlords
The issue of costs in the old Leasehold Valuation Tribunal (LVT) had long troubled landlords and their lawyers. Apart from any contractual right to costs in the lease, the costs of legal proceedings were irrecoverable save for, at most, £500 where a party’s conduct was frivolous, vexatious or otherwise an abuse of process. Not terribly fair.
However, the creation of the new Property Chamber of the First-tier Tribunal (F-tT) (in existence from 1 July 2013) brought hope. Rule 13(1) of the chamber’s new procedural rules provides that the F-tT may order costs (other than fees) in three circumstances:
- Rule 13(1)(a) provides for “wasted costs” against legal or other representatives;
- Rule 13(1)(b) provides for costs orders (in agricultural land and drainage, residential property, or leasehold cases) where the F-tT finds that a party “has acted unreasonably in bringing, defending or conducting proceedings”;
- Rule 13(1)(c) provides for an ordinary costs jurisdiction in land registration cases.
Parties to F-tT proceedings eagerly embraced the opportunity presented by rule 13(1)(b) in particular – albeit with mixed, inconsistent results, redolent of a lottery. Clarification of the scope of the power to order costs for unreasonable conduct was sorely needed.
So, in March 2016, Martin Rodger QC, deputy chamber president of the Upper Tribunal (Lands Chamber), and Siobhan McGrath, chamber president of the F-tT (Property Chamber), heard three appeals over two days so as to give guidance on the exercise of the rule 13(1)(b) jurisdiction.
What’s new?
The Upper Tribunal (UT) has now handed down its decision in Willow Court Management Company (1985) Ltd v Alexander (and two similar appeals) [2016] UKUT 290 (LC); [2016] PLSCS 184, and it is possible to identify a number of key points.
- Rule 13(1)(a) and rule 13(1)(b) powers should not be confused. The former concerns the conduct of a “legal or other representative” of a party and the latter the conduct of the party themselves.
- The UT refused to adopt a wide interpretation of unreasonable conduct, making it clear that costs should not ordinarily be awarded where a party has (a) not prepared properly for a hearing, (b) adduced proper evidence in support of their application, (c) failed to state their case clearly, or (d) sought a wholly unrealistic or unachievable outcome.
- The standard of behaviour expected of the parties ought not to be set at an unrealistic level. It may be unreasonable for a professional advocate to be unprepared, but it is not unreasonable for a lay person to (a) be unfamiliar with substantive law or F-tT procedure, (b) fail to recognise the strengths and weaknesses of the parties’ respective cases, or (c) lack skill in presenting their case.
- There is no general rule (such as is found in the CPR) that the unsuccessful party should pay the successful party’s costs. Rather, the F-tT must deal with cases “fairly and justly” in accordance with the overriding objective. A costs order will not, therefore, be appropriate every time unreasonable conduct is found.
The three-stage approach
The UT said that a systematic three-stage approach should be followed:
- Stage 1: The F-tT should determine whether the party acted unreasonably by applying an objective standard of conduct to the facts of the case: would a reasonable person in the particular party’s circumstances have acted the same way? If there is no reasonable explanation, the conduct will be unreasonable. The F-tT should not assume greater legal or procedural knowledge than the party in fact has (ie, judge a party without legal advice by the standards of a reasonable party without legal advice).
- Stage 2: If the conduct complained of is found to be unreasonable, the F-tT must consider whether to make a costs order.
- Stage 3: If the F-tT decides to make a costs order, it must determine how much.
At stages 2 and 3, the F-tT is exercising a judicial discretion whereby it is required to have regard to all the relevant circumstances. The nature, seriousness and effect of the conduct will be highly relevant, as may other circumstances.
The absence of legal advice is also relevant to stages 2 and 3, albeit to a lesser extent than in stage 1. But the F-tT should not be excessively indulgent or let the absence of legal advice become an excuse for unreasonable conduct.
Further key points
- Costs orders should only be made in the clearest cases and the burden of demonstrating unreasonable conduct is on the claiming party.
- No analogy is to be drawn with the CPR on discontinuance: withdrawing a claim, even at a late stage, is unlikely to constitute unreasonable conduct. Parties, especially unrepresented ones, are to be encouraged to make sensible concessions without fear of adverse costs orders.
- Once unreasonable conduct has been established, there is no need to establish a causal nexus between the costs incurred and the behaviour to be sanctioned.
- Applications ought only to be made after the F-tT has ruled on the substantive dispute (ie, interim applications and pre-final decision applications were discouraged).
- An F-tT decision to award rule 13(1)(b) costs should (a) identify the conduct that it finds unreasonable, (b) list all factors taken into account in deciding to make an order, and (c) record all factors taken into account in determining the form of the order and the amount to be paid.
The exception, not the rule
The UT concluded by emphasising that rule 13(1)(b) applications should not be made routinely, should not be used to discourage applications to the F-tT, and should not become major disputes.
The fact that all three appeals were allowed (thereby overturning the costs awards made in all three cases) only serves to emphasise the UT’s enthusiasm for deterring rule 13(1)(b) applications. This will, generally, not be welcomed by landlords and management companies, but comes as no surprise given the F-tT’s roots in the no-costs-jurisdiction LVT. And while landlords might not consider it terribly fair, at least much-needed clarity has been given by a heavyweight tribunal.
Alexander Bastin and Caoimhe McKearney are barristers at Hardwicke Chambers who acted for Willow Court Management Company (1985) Ltd
