Costs – First-tier Tribunal – Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 – FTT making order for payment of costs because of appellant’s unreasonable behaviour – Behaviour comprising statements in correspondence and witness statement not considered by FTT – Appellant appealing – Whether conduct objectively unreasonable – Appeal allowed
The appellant held a long lease of Flat 147, 1 Prescot Street, London E1. Under the terms of the lease the appellant was obliged to pay service charges to the respondent, a leaseholder owned management company whose members were the leaseholders of the flats in the building.
The appellant was obliged to pay service charges. On 1 January each year the appellant was required by paragraph 12(a) to pay a sum estimated to be payable for the whole of the forthcoming year. By paragraph 13 a balancing charge was payable, equal to the net amount, if any, certified by the respondent as being due from the leaseholder.
The appellant appealed against a decision of the First-tier Tribunal (FTT) by which it ordered the appellant to pay £18,500 towards the costs of the respondent incurred in connection with an earlier hearing before the same tribunal concerning estimated service charges and administration charges totalling a little over £17,000.
The application for costs to which the FTT acceded had been made under rule 13(1)(b) of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 which gave the FTT power to make an order in respect of costs in a residential property case “if a person has acted unreasonably in bringing, defending or conducting proceedings”.
Referring to the guidance on the exercise of the jurisdiction in rule 13(1)(b) in Willow Court Management (1985) Ltd v Alexander [2016] UKUT 290 (LC); [2016] EGLR 48, the FTT concluded that the appellant’s actions in making serious allegations of criminal behaviour against the respondent without a shred of evidence, particulars or follow-through was unreasonable.
The appeal was determined on written representations.
Held: The appeal was allowed.
(1) Although the tribunal in Willow Court suggested an approach to decision making in claims under rule 13(1)(b) which encouraged tribunals to work through a logical sequence of steps, it did not follow that a tribunal would be in error if it did not do so. The only test was laid down by the rule itself, namely that the FTT might make an order if it was satisfied that a person had acted unreasonably in bringing, defending or conducting proceedings. The rule required that there must first have been unreasonable conduct before the discretion to make an order for costs was engaged; the relevant tribunal then had to exercise that discretion. Whether the discretion had been properly exercised, and adequately explained, was to be determined on appeal by asking whether everything had been taken into account which ought to have been, and nothing which ought not, and whether the tribunal had explained its reasons and dealt with the main issues in such a way that its conclusion could be understood, rather than by considering whether the Willow Court framework had been adhered to.
Having found that the person against whom an order was being sought had acted unreasonably, the FTT would normally wish to consider any points made in mitigation or explanation before deciding whether it was appropriate to make an order for costs. In this case nothing was said in the appellant’s defence, despite the FTT giving directions for her to respond to the application for costs after she had had the opportunity to consider the substantive decision and the respondent’s grounds of application.
Although the FTT’s explanation was concise, elaborate reasons were not required when it came to costs. The appellant could have been in no doubt what had led the FTT to make the order for costs against her. The same could be said of the FTT’s consideration of the scope of those costs. The reason the FTT considered it appropriate to order payment of the whole of the respondent’s reasonable costs was because the appellant had engaged in the behaviour complained of. She had said nothing in her own defence which the FTT needed to weigh in the balance. While it did not automatically follow that a party who had behaved unreasonably would be required to pay all of the other party’s costs, it was clear enough from the decision that the FTT regarded the appellant’s conduct as sufficiently flagrant and repeated to justify such a draconian order.
(2) The FTT had not expressed any view on whether the appellant’s allegations were made honestly, with a genuine belief in their truth, or were based on a mistaken understanding of the respondent’s obligations or of the facts. It had ruled allegations of harassment out of consideration altogether, while at the same time advising the appellant that they could be pursued in separate proceedings. In those circumstances the FTT was not in any position to form the view that the allegations contained in the witness statement were made purely with a view to harassing the respondent.
If the FTT considered and rejected alternative explanations for the appellant’s conduct it did not say so. As the basis of the allegations was identified in the witness statement itself, and in the supporting documents, the fact that the appellant did not submit a separate response to the application for costs did not relieve the FTT of the need to consider whether the statements were objectively unreasonable. A decision to award costs on account of unreasonable behaviour need not be lengthy or elaborate, but the parties and the tribunal on an appeal had to be able to understand why the FTT had reached its conclusion.
Viewed in their full context, the statements relied on by the respondent in its application did not amount to unreasonable conduct and it would not be open to the FTT to make an order under rule 13(1)(b). Therefore, the respondent’s application for costs would be dismissed.
(3) The appellant’s application for an order under section 20C of the Landlord and Tenant Act 1985, relieving her of the obligation to contribute through the service charge to the respondent’s costs of the present appeal, and under paragraph 5A of schedule 11 to the Commonhold and Leasehold Reform Act 2002, protecting her from any administration charge in respect of the respondent’s costs of the appeal, was dismissed. Although the appellant had succeeded in the appeal, she was entirely unsuccessful in the substantive proceedings, having repeatedly, and unsuccessfully, challenged the liability to pay service charges, knowing that the lease required all leaseholders to contribute to the respondent’s costs of dealing with those challenges. Therefore, it was not unjust or inequitable for her to share equally with her fellow leaseholders in meeting the respondent’s costs of the appeal.
Eileen O’Grady, barrister
Click here to read a transcript of Laskar v Prescot Management Co Ltd