Willow Court Management Co (1985) Ltd v Alexander and two similar cases

Costs – First-tier tribunal – Service charges – Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 – FTT determining service charge properly payable to management companies by leaseholders of flats – FTT in each case making order for costs under r 13(1)(b) of 2013 Rules in sum exceeding amount of disputed service charge – Whether FTT erring in finding unreasonable conduct by a party justifying making of order – Principles to be applied when applying  r 13(1)(b) – Appeals allowed Each of the joined appeals concerned the exercise by the first-tier tribunal (FTT) of its power, under r 13(1)(b) of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013, to award costs against a party on the ground of unreasonable behaviour in bringing, defending or conducting proceedings before it. In each case, the FTT was asked to determine an issue as to the service charge properly payable under a long lease of a flat. The dispute in each case arose between an individual leaseholder and a management company responsible for the running of the building, whose members were themselves leaseholders. In each case, the FTT awarded costs in an amount that was greater than the amount of service charge in issue in the proceedings. In the first appeal, the FTT found that the management company had not properly implemented the procedure prescribed by the lease for determining the service charges and, further, had behaved unreasonably in bringing and continuing the FTT proceedings without first having complied with that contractual procedure when it had been explained in a previous tribunal decision. The FTT ordered the management company to pay £13,095 to the leaseholder as a contribution towards her costs of the proceedings under r 13(1)(b). The service charges claimed in the proceedings were £5,702. In the second and third appeals, it was the leaseholder who brought the proceedings before the FTT. In the second appeal, the FTT ordered the leaseholder to pay £16,800 towards the management company’s costs, incurred in a dispute over a service charge of £9,767. In making that order, the FTT criticised the leaseholder’s conduct in failing to pay the service charges, defending herself on what it considered to be spurious grounds unsupported by sufficient evidence, and generally in behaving unreasonably. In the third appeal, the FTT decided that the leaseholder should pay £2,260.80 towards the management company’s costs, in a dispute over the company’s entitlement to retain a surplus on the service charge account as a reserve against future expenditure. After receiving expert advice, the leaseholder withdrew his application to the FTT shortly before it was due to be heard and the FTT undertook no investigation of the merits. However, the FTT was nonetheless satisfied that the leaseholder had acted unreasonably in withdrawing the application when he did rather than at an earlier stage, after the management company had made certain concessions and when fewer costs had been incurred. The party against whom costs were ordered appealed in each case. Held: The costs appeals were allowed. (1) The power of the FTT to make a costs order, under section 29 of the Tribunals, Courts and Enforcement Act 2007, was subject to the restrictions imposed by the 2013 Rules, including the overriding objective, set out in set out in r 3, of dealing with cases justly. Each of the present appeals concerned a “leasehold case” in which the FTT was empowered by r 13(1(b) to make an order for costs against a party only if they had acted unreasonably in bringing, defending or conducting proceedings. That power was distinct from, and should not be confused with, the FTT’s power under r 13(1)(a) to order the payment of “wasted costs” in any case, which was concerned with the conduct of a “legal or other representative” of a party and not with conduct of the parties themselves. (2) An assessment of whether behaviour was “unreasonable” for the purposes of r 13(1)(b) required a value judgment on which views might differ. However, the standard of behaviour to be expected in tribunal procedures should not be set at an unrealistic level. Conduct that was “unreasonable” included conduct that was vexatious and designed to harass the other side rather than to advance the resolution of the case. It was not enough that the conduct led, in the event, to an unsuccessful outcome. The test could be expressed in different ways. One was to ask whether a reasonable person, in the position of the party, would have conducting themselves in the manner complained of. Another was whether there was a reasonable explanation for the conduct: Ridehalgh v Horsefield [1994] Ch 205; [1994] EGCS 15 considered. It was not possible to prejudge certain types of behaviour as reasonable or unreasonable out of context. However, while it might be unreasonable for a professional advocate to be unprepared, a lay person who was unfamiliar with the substantive law or with tribunal procedure, or who failed properly to appreciate the strengths or weaknesses of their own or their opponent’s case, or who lacked skill in presentation, or who performed poorly in the tribunal room, should not be treated as behaving unreasonably. (3) Tribunals should not be over-zealous in detecting unreasonable conduct after the event and should not lose sight of their own powers and responsibilities in the preparatory stages of proceedings. Such cases were often fraught and emotional. Those who found themselves before the tribunal were typically inexperienced in formal dispute resolution and professional assistance was often available only at disproportionate expense. It was the responsibility of tribunals to ensure that proceedings were dealt with fairly and justly, which required that they be dealt with in ways proportionate to the importance of the case, including the sum involved, and the resources of the parties. Tribunals should use their case management powers actively to encourage preparedness and co-operation, and to discourage obstruction, pettiness and gamesmanship. (4) While unreasonable conduct was an essential pre-condition of the power to order costs under r 13(1)(b), once the existence of the power had been established its exercise was a matter for the discretion of the tribunal. It was therefore appropriate to adopt a sequential approach. The first stage was to ask whether a person had acted unreasonably. If unreasonable conduct was found, then the second stage was to ask whether an order for costs should be made, and, if an order was to be made, the third stage was to decide what that order should be. At the first stage, a decision that the conduct of a party had been unreasonable did not involve an exercise of discretion but was rather the application of an objective standard of conduct to the facts of the case. If there was no reasonable explanation for the conduct complained of, then it was unreasonable and the threshold for the making of an order would have been crossed. However, once the power to make an order for costs was engaged, the tribunal had full power to determine by whom and two what extent costs were paid, subject to the overriding objective. At both the second and the third stages, the tribunal was exercising a judicial discretion in which it was required to have regard to all relevant circumstances. It did not follow that an order for the payment of the whole of the other party’s costs assessed on the standard basis would be appropriate in every case of unreasonable conduct. The nature, seriousness and effect of the unreasonable conduct would be an important part of the material to be taken into account, and other circumstances would also be relevant. (5) One relevant factor was whether the party whose conduct was criticised had had access to legal advice. That factor would be relevant at the first stage in determining whether the conduct was unreasonable, and might also be relevant, although to a lesser extent, at the second and third stages, when considering whether an order for costs should be made and what form that order should take. At the first stage, when asking whether a reasonable person would have acted in the way the party acted, it would be wrong to assume a greater degree of legal knowledge or familiarity with the procedures of the tribunal, and the conduct of proceedings before it, than was in fact possessed by the party whose conduct was under consideration. The behaviour of an unrepresented party with no legal knowledge should be judged by the standards of a reasonable person who did not have legal advice. At the second and third stages, when exercising the discretion conferred by r 13(1)(b), the tribunal should have regard to all of the relevant facts known to it, including any mitigating circumstances, but without either “excessive indulgence” or allowing the absence of representation to become an excuse for unreasonable conduct: Cancino v Secretary of State for the Home Department [2015] UKFTT 59 applied. (6) It was important that parties in tribunal proceedings, especially unrepresented parties, should be assisted to make sensible concessions and to abandon less important points of contention or even, where appropriate, their entire claim. Such behaviour should be encouraged. It should not be discouraged by the fear that it would be treated as an admission that the abandoned issues were unsustainable and should never have been raised and as a justification for a claim for costs: McPherson v BNP Paribas [2004] EWCA Civ 569 and Cancino applied. (7) At the third stage, where the tribunal had decided that there was unreasonable conduct justifying an order for costs and was deciding what order to make, the issue of causation would be a relevant consideration. Rule 13(1)(b) did not explicitly set out the need for a causal connection between the costs incurred and the behaviour to be sanctioned. However, since unreasonable conduct was a pre-condition of the existence of the power to make a costs order, its nature, extent and consequences were relevant factors to be taken into account in deciding whether to make such an order and, if so, the form of the order: McPherson applied. (8) Applications under r 13(1)(b) should not be regarded as routine, should not be abused to discourage access to the tribunal, and should not be allowed to become major disputes in their own right. They should be determined summarily, preferably without the need for a further hearing, and after the parties had been given opportunity to make submissions. Submissions were likely to be better framed in the light of the tribunal’s decision, rather than in anticipation of it, and applications made at interim stages, or before the decision was available, should not be encouraged. The applicant for an order should be required to identify clearly and specifically the conduct relied on as unreasonable. If the tribunal considered that there was a case to answer, then the other party should be given the opportunity to respond to the criticisms made and to offer any explanation or mitigation.  A decision to dismiss an application for costs could be explained briefly. A decision to award costs did not need to be lengthy and the underlying dispute could be taken as read. The decision should identify the conduct that the tribunal had found to be unreasonable and list the factors that had been taken into account both in deciding that it was appropriate to make an order and in deciding the form of the order and the sum to be paid. (9) Applying those principles to the instant appeals, the FTT had erred: (i) in the first appeal, by according too much weight to the fact that the management company had lost at the substantive hearing, and also by applying a standard of unreasonableness that fell well below the appropriate threshold; (ii) in the second appeal, by failing to give a proper opportunity to the leaseholder to respond to the case against her on unreasonable conduct and failing to regard the leaseholder’s own testimony as evidence in support of her case, without making any assessment of the leaseholder’s honesty or evaluating that evidence beyond finding that it was often unreliable and insufficient to make her case, and in failing to explain why it considered that aspect of the leaseholder’s conduct to be unreasonable; and (iii) in the third appeal, by finding that the leaseholder, having made his application reasonably, had acted unreasonably in withdrawing it when he did, despite making no finding as to when the leaseholder had received his expert advice and without having any reason to believe that there had been any significant gap, amounting to unreasonable delay, between the receipt of the advice and the decision to withdraw. (10). The Upper Tribunal dismissed a further ground of appeal, raised in the second case, concerning the FTT’s substantive decision about the leaseholder’s liability for certain items of service charge. Alexander Bastin and Caoimhe McKerney (instructed by JE Kennedy & Co, of Harrow) appeared for the appellant in the first appeal; Tom Carpenter-Leitch (instructed by Forsters LLP) appeared for the respondent to the first appeal; Philippa Seal (instructed by direct access) appeared for the appellant in the second appeal; Simon Allison and Rupert Cohen (instructed by JB Leitch, of Liverpool) appeared for the respondent to the second appeal; the appellant appeared in person in the third appeal; Elizabeth England (instructed by SLC Solicitors, of Shrewsbury) appeared for the respondent to the third appeal. Sally Dobson, barrister Click here to read transcript: Willow Court Management Co (1985) Ltd v Alexander and two similar cases