The Legal Update this week relates to an interesting case that came before the Upper Tribunal on appeal and was ruled upon just a few weeks ago, on 10 September. It serves to highlight the fragility of the ability to recover costs in the Tribunal and the extent of the limitations imposed in respect of costs even where, on first glance in this matter, one might reasonably say that the matter warranted a hefty costs award against the leaseholder. The case is Laskar -v- Prescot Management Company Limited [2020] UKUT 241 (LC) - See the case report here.

Background

Some brief background is relevant. Prescot Management Company (“PMC”) is a leaseholder owned company set up to manage the development in Prescot Street, London E1 with all 151 flat owners owning shares therein.

The Flat was previously owned by a Mr Khan. Since 2006 Mr Khan had had what is best described as a “poor relationship” with PMC and had, since that date until 2014, been in almost continuous litigation with PMC over the management of the development and service charges. Over that period some £350,000 in legal costs had been incurred by PMC with both parties taking some wins and losses, but ultimately the service charge, to which all leaseholders paid, taking the brunt of that cost burden.

In 2014 the flat was passed to Ms Laskar, Mr Khan’s partner, who it appears simply took up where Mr Khan had left off in regard to the disagreements with PMC and tendency to litigation in relation to service charges.

In 2018 PMC brought proceedings for a determination of service charges totalling some £17,000 for the years ended 2018 and 2019. This sum included the leaseholder’s proportionate liability (along with all of her neighbours) for the unrecovered costs of some previous litigation which had settled.

The application to the FTT as drafted included a claim under r.13(1)(b) of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 inviting the FTT to consider the history of disputes between Mr Khan and PMC going back to 2006 and to make an order that Ms Laskar pay PMC’s costs of the current application. This was a somewhat premature request given that it preceded any ability of Ms Laskar (as distinct from Mr Khan) to conduct herself in any way, let alone badly, and it therefore presupposed that she would from that point forward act unreasonably.

Rule 13 costs

Rule 13(1)(b) of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 provides to the FTT a power to award costs against a person who has acted “unreasonably in bringing, defending or conducting proceedings…”. The case of Willow Court Management Co (1985) Ltd v Alexander (2016) held that “unreasonable” behaviour 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 2018 claim

In the current case, Ms Laskar defended the claim and in so doing made various and serious allegations against PMC including that the directors were incompetent and dishonest, and that their previous solicitors had committed perjury. She also maintained that as PMC was a ‘dormant’ company it could not lawfully carry on any activity including employing staff, receiving service charge funds, incurring liabilities, and even conducting its own AGM (a flawed allegation which no doubt you have all heard at some stage). To top off what was a full house of mud slinging, there was also a claim of harassment by PMC and members of its staff.

All of the above was essentially a repeat of previous allegations and the general approach of Mr Khan prior to Ms Laskar.

In the FTT, all of the allegations against PMC made by Ms Laskar were found to be unfounded and, as a result, the FTT determined that the allegations amounted to unreasonable behaviour making an order that Ms Laskar pay PMC’s costs of £18,500 (roughly half of the actual costs) pursuant to its powers under rule 13(1)(b) and relying upon the findings in Willow Court Management Company -v- Alexander (2016) referred to above.

The FTT stated: “Apart from the allegations of incompetence these are all examples of the pattern of the [Ms Laskar’s] behaviour referred to above, namely making serious allegations of criminal behaviour by [PMC] without a shred of evidence, particulars or follow-through. Even at the hearing, the [Ms Laskar’s] representative, Mr Khan, continued to seek to rely on similar vague allegations (see paragraph 5 of the Tribunal’s decision of 12 August 2019).

Given the complete lack of evidence or details, despite more than ample time to produce any, the Tribunal can only conclude that this behaviour was solely designed to harass [PMC] rather than advance the resolution of the case. [Ms Laskar’s] conduct does not permit of a reasonable explanation. A reasonable person would not have acted in this way.”

Ms Laskar appealed to the Upper Tribunal on four grounds which included that the conduct which provided the basis for the FTT’s finding that Ms Laskar had behaved unreasonably was NOT, on an objective view, unreasonable conduct.

The Upper Tribunal looked in detail at the various allegations made by Ms Laskar within the proceedings and concluded that the Tribunal had considered many in isolation and thus out of context. Accordingly, the Upper Tribunal took the view that when considered fully and in proper context the various allegations made by Ms Laskar, of which some may have been incorrect, were issues which she genuinely believed to be true and were in any event not unreasonable. The order for costs was therefore duly dismissed.

Conclusion

To award costs the FTT has to be satisfied that a party has acted unreasonably in bringing, defending or conducting proceedings. That high standard is often extremely difficult to attain and thus costs in the Tribunal are rare.

This case merely confirms that statement with a leaseholder who has by her (and her partner’s) past conduct over many years put residents of the development to significant and likely unnecessary costs in lengthy and potentially unreasonable disputes. That past conduct however is unlikely to provide, on its own, sufficient evidence of a presumption of unreasonableness in any current dispute no matter how much bad feeling between the parties it has cultivated.

Approaching any litigation carries a risk of costs and whilst in some cases litigation proves to be necessary, it should be approached alive to that risk. Where you or your client are forced to progress any dispute to the issue of proceedings, some considerable thought should be given to where the best starting point for that action should be and what prospect there is in that jurisdiction for an award of costs were the claim to prove to be successful. Whilst the FTT is specifically set up to deal with service charge and other leaseholder disputes, it is restrictive on costs and alternatives might be better starting points.

We are always happy to advise on any specific case.

Should you have any queries in relation to the above or require our assistance on any other matter then do please contact Kevin Lever on 01435 897297 or Kevin.Lever@kdllaw.com.

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