Clearer on costs

This article was first published in New Law Journal.

Rule 13(1) of the Tribunal Procedure (First-tier Tribunal)(Property Chamber) Rules 2013 (SI 2013/1169) provides that the Property Chamber of the First Tier Tribunal (FTT) may order costs(other than fees) in several limited circumstances. Of most interest to landlords, managing agents and others involved in FTT cases is r 13(1)(b), which provides for costs orders (in agricultural land and drainage, residential property or leasehold cases) “if a person has acted unreasonably in bringing, defending, or conducting proceedings”.

The introduction of r 13(1) on 1 July 2013 looked to mark a significant departure from the rules of the old Leasehold Valuation Tribunal, where costs could be awarded only where a party had acted frivolously, vexatiously, abusively, disruptively or otherwise unreasonably, and only up to a maximum of £500 in any event. Thus the past three years have seen many parties to proceedings before the FTT seeking awards of costs pursuant to r13(1)(b), citing various forms of allegedly unreasonable conduct by others.

In the absence of authority on the scope of the rule, outcomes have been mixed. Now, a welcome decision by the Upper Tribunal (Lands Chamber) has provided much-needed guidance on how this jurisdiction should be exercised.

Willow Court Management Company(1985) Limited v Alexander

In Willow Court Management Company(1985) Limited v Alexander [2016] UKUT290 (LC), Martin Rodger QC (Deputy President of the Upper Tribunal (Lands Chamber)) and Siobhan McGrath (President of the FTT (Property Chamber)) heard three conjoined appeals against costs orders made under r 13(1)(b). Demonstrating that such orders should be the exception rather than the rule, all three appeals were allowed, with the Tribunal remarking that orders pursuant to r 13(1)(b) should be reserved “for the clearest cases”.

The Upper Tribunal also gave valuable guidance on how applications for costs orders under r 13(1)(b) should be dealt with. A systematic three-stage approach should be adopted:

1. Has the party acted unreasonably?
    
2. If so, ought the tribunal to make an order for costs?
    
3. If so, what should the terms of that order be?

At the first stage, an objective standard of conduct should be applied to the facts of the case. However, the Upper Tribunal rejected the wide interpretation of “unreasonable conduct” contended for by the respondent to the Willow Court appeal and made clear that the standard of behaviour expected of parties in tribunal proceedings ought not to be set at an unrealistic level. The Tribunal adopted the question formulated in the leading decision on wasted costs orders, Ridehalgh v Horsefield [1994] Ch 205, [1994] 3 All ER 848, is there a reasonable explanation for the conduct complained of?

The Tribunal’s reluctance to allow costs orders under r 13 (1)(b) to become routine is evident from some of the examples given of conduct which would not normally (without more) qualify as unreasonable. They considered that a costs order would not ordinarily be justified where a party has failed to prepare properly for a hearing, failed to adduce proper evidence, failed to state their case clearly or sought a wholly unrealistic or unachievable outcome. The Tribunal was also at pains to emphasise that, unlike in the court system, withdrawing a claim at a late stage ought not to amount to a justification for a claim for costs.

Perhaps most notably, it is also clear from the Tribunal’s decision that litigants in person while not being given a carte blanche to act unreasonably — will be given rather more leeway than represented parties. The Tribunal stated: “The behaviour of an unrepresented party with no legal knowledge should be judged by the standards of a reasonable person who does not have legal advice.”

The second and third stages of enquiry on a r 13(1)(b) application involve an exercise of judicial discretion, having regard to all relevant circumstances, including the nature, seriousness and effect of the unreasonable conduct. However, there is no general rule that where unreasonable conduct is found the unsuccessful party will be ordered to pay the costs of the successful party. Rather, the matter will be governed by the Property Chamber’s overriding objective of dealing with cases “fairly and justly”.

Finally, the Tribunal observed that applications for costs under r 13(1)(b) ought not to be permitted to become major disputes in their own right. Applications should be made after the substantive decision and determined summarily, without the need for a further hearing. Any decision to award costs should identify the conduct found to be unreasonable and list the factors taken into account in determining that an order should be made and the form of that order.

Clear message

The message from the Tribunal is clear: costs orders under rule 13(1)(b) ought to be relatively rare. This decision is unlikely to be of much comfort to landlords and managing agents, who frequently find themselves incurring considerable legal costs bringing or defending tribunal proceedings against leaseholders. This is particularly so given the Tribunal’s indication that the same standard of reasonableness will not, apparently, be applied where a party chooses, as leaseholders often do, to act without legal representation.

What can at least be said is that at long last some clarity has been shed on the exercise of a hitherto uncertain jurisdiction.