Our Legal Update from October 2020 (which can be viewed here) reported on the case of Laskar -v- Prescot Management Company Limited [2020] UKUT 241 (LC) which, despite what one might view as unreasonable behaviour on the part of the leaseholder, saw the Upper Tribunal reverse a Rule 13 costs order made by the First-Tier Tribunal. That case illustrated the difficulties in meeting the high threshold of unreasonable behaviour under Rule 13, for a costs order to be made in the otherwise ‘no costs jurisdiction’ of the First-Tier Tribunal.

By contrast, the recent case of Leibel v Baird CHI/29UC/HMF/2020/0035 (2021) saw that threshold being met in somewhat extraordinary circumstances and costs awarded against a landlord on a full indemnity basis under Rule 13. The case serves a lesson and strong warning to all parties to litigation that their conduct can and will be taken into account by the Tribunal when considering whether an award of costs should be made.

Background

The case concerned an application for a Rent Repayment Order (RRO), that being an order for repayment of rent paid for a property which requires an HMO licensing under the Housing Act 2004 but fails to hold a licence (see here for more on RROs).

Ms Leibel was one of five tenants to whom Mr Baird had granted a tenancy. Ms Leibel applied for an RRO. Mr Baird defended the application on grounds that the property did not require a licence. Mr Baird claimed that there were only four tenants (which would not have required licensing), not five, and produced at the hearing what later transpired to be a copy of the tenancy agreement which was not the version signed by the tenants, with only four of the five tenants named. Mr Baird, who on the first day of the hearing was unrepresented, also subjected Ms Leibel to lengthy cross-examination, personal attacks and unfounded accusations throughout the first day of the hearing.

By the second day of the hearing, which took place some weeks later, Mr Baird had secured legal representation and accepted, having been ordered to produce bank statements, that there had been five tenants paying the rent, therefore the property required a HMO licence. He accepted that the property was unlicensed, therefore a criminal offence had been committed and a RRO should be made. The sum of £5,382 sought by Ms Leibel was ordered to be paid.

The RRO was not particularly extraordinary in itself. However, what was interesting was the Tribunal’s findings on Ms Leibel’s Rule 13 costs application. Since the Upper Tribunal’s decision in the now well-known case of Willow Court Management Co (1985) Ltd v Alexander (2016), it is widely accepted and understood that the threshold for a costs award under Rule 13 for unreasonable behaviour is extremely high. The Upper Tribunal said in Willow Court that the behaviour envisaged by Rule 13 included conduct which was “vexatious” and “designed to harass the other side… the acid test is whether the conduct permits of a reasonable explanation…”.

The Rule 13 costs application

Ms Leibel sought an order for her costs under Rule 13. Her case was that Mr Baird had presented evidence that was “palpably false” and Mr Baird could not have an honest belief in his case. Mr Baird had proceeded with a full day’s hearing defending his case, cross examining witnesses and went to great lengths to attack Ms Leibel. It was said that Mr Baird had gone to “extraordinary lengths” forging a tenancy, giving false evidence and then latterly withdrawing all of the same. Mr Baird pursued matters with a “ferocity and nastiness”. It was clear that, in 2019, Mr Baird needed an HMO licence if he wanted five or more persons in the property. He could have limited occupation to four persons but would have to accept lower rent. Matters were structured in such a way as to provide financial gain. Ms Leibel said Mr Baird got desperate in the proceedings and embellished his evidence. He knew there were five tenants paying rent and that he needed a licence and he knew he was lying. He knew the tenants did not have a copy of the agreement as he had taken it off them once they had signed it. His conduct was described as particularly “egregious” and the “most disgraceful example” of conduct, such that Ms Leibel should not be out of pocket and she should be indemnified as to her costs.

In response, it was said for Mr Baird that there was no evidence of forgery given that the tenancy agreement he produced could not be compared to the original (the irony being, Mr Baird said that he destroyed the original copy after scanning it, so it could not be produced). It was said that he had not been paying attention to detail, when it transpired that there were five people paying the rent and not four. He argued that “the lawyers are the biggest winners” and that a lower cost could have been incurred for the claim, which only amounted to £5,382. Ms Leibel’s costs were in the region of £22,000.

The Tribunal’s decision

The Tribunal held that Mr Baird did “deliberately obfuscate” matters and in signing the statement of truth on his defence he “deliberately misled” the Tribunal. Indeed, the Tribunal held “It would now appear that there is nothing within Mr Baird’s statement which can be said to be true”.

Mr Baird was said to have attended a course on licensing requirements and had other properties which held licences. The evidence was clear that there were five tenants signing up to the tenancy agreement, and Mr Baird had on the second day of the hearing accepted that the property was unlicensed. The Tribunal said that he was plainly an experienced landlord and he chose not to be represented prior to the second day of the hearing.

The Tribunal found Mr Baird’s actions were deliberate and he set out to deceive Ms Leibel and the Tribunal. His response to the claim was said to be confrontational and bullying. He made “scurrilous accusations” about Ms Leibel which the Tribunal said were made in an attempt to persuade her to withdraw her claim.

Further, the Tribunal said that Mr Baird had “treated the Tribunal with contempt”. Another example of this was a late adjournment sought by Mr Baird, claiming he could not conduct a video call, describing himself as a “technophobe”. Yet as the hearing went on, it was explained that Mr Baird communicated by email and WhatsApp with the tenants, he would scan in tenancy agreements to create electronic files before archiving original documents. Further his banking was conducted online with an account which was accessed online only.

Mr Baird had shown “no contrition”. Even once he had legal representation and decided he no longer wished to contest the claim, he gave no indication to Ms Leibel or the Tribunal. The Tribunal said that a reasonable person would have done so, and found “Mr Baird did so hoping beyond hope the case may not proceed”. The submissions made on behalf of Mr Baird offered no apology and still tried to paint Mr Baird as the wronged party. By contrast, Ms Leibel and her representatives were said to have behaved properly throughout.

Taking all matters into account, Mr Baird was found to have acted unreasonably in conducting the proceedings. The Tribunal therefore ordered Mr Baird to pay Ms Leibel’s costs under Rule 13 on a full indemnity basis, just shy of £22k, in addition to the £5,382 RRO.

Conclusion

Clearly the circumstances of this case and the behaviour of the landlord were exceptional. Indeed, the Tribunal said that “…some of the lies and deceit practised by the Respondent is some of the most serious that this Tribunal has seen”.

However, the case serves as a very serious warning to all parties to proceedings before the First-Tier Tribunal that their conduct can and will be taken into account by the Tribunal, when considering whether or not to make an order for costs under Rule 13. As can be seen from this case, often the costs can far exceed the substantive sums in dispute - in this case, four-fold.

Whilst this was a case before the Tribunal on a specific application for an RRO, the same principles will apply to any application before the First-Tier Tribunal, or indeed the Courts (which of course have a much wider jurisdiction when it comes to the award of costs generally). That is in addition to any proceedings which may be pursued for contempt of Court, punishable by fine or imprisonment.

A very clear example to all of how not to conduct proceedings…

For more information, please feel free to contact a member of the team on 01435 897297 or info@kdllaw.com.

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