This week’s legal update focuses on the limited jurisdiction of the First Tier Tribunal (FTT) to award costs at the conclusion of litigation.

Whilst it is undeniably limited, Rule 13 of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules does permit the FTT to make an order for costs for any sum (there is no longer a limit of £500) but only two instances:

1. Under Rule 13(1)(a) the FTT may order the parties’ legal or other representative to pay any “wasted costs”, that is to say costs incurred by a party as a result of any improper, unreasonable or negligent act or omission on the part of any legal or other representative, or which in the light of any such act or omission occurring after they were incurred, the FTT considers it is unreasonable to expect that party to pay.

2. Under Rule 13(1)(b) the FTT may order a party to pay costs to the other party, if a person has acted unreasonably in bringing, defending or conducting proceedings.

We have previously provided greater detail on Rule 13 in our Legal Update from September 2021 but following the recent Upper Tribunal decision earlier this year in Connell -v- Beal Developments Ltd and others [2023] UKUT 135 (LC), a case which revolved around “unreasonably bringing, defending or conducting proceedings”, there is good reason to revisit Rule 13 and compare the position of the Tribunal in this latest case to other notable Rule 13 decisions in recent years.

Starting with Willow Court Management Company -v- Alexander (2016), this case was one of a number of conjoined appeals that provided useful guidance on the procedure and a more systematic approach of the FTT using a three-stage analysis to apply when it considers making a costs order under Rule 13 on account of a party’s alleged unreasonable behaviour in bringing, defending or conducting proceedings.

The FTT was asked to consider what constitutes “unreasonable behaviour” under Rule 13 and how it should be applied in practice. This is the key case on “unreasonable behaviour” which held that unreasonable behaviour includes conduct which is “vexatious” and “designed to harass the other side… the acid test is whether the conduct permits of a reasonable explanation…”  

On 10 September 2021 the Upper Tribunal ruled on the case of Laskar -v- Prescot Management Company Limited [2020] UKUT 241 (LC). The management company, Prescot Management Company Limited (“PMC”), brought proceedings against the lessee, Ms Laskar, for a determination of service charges. The application included a claim under r13(1)(b) inviting the Tribunal to make an order that Ms Laskar pay PMC’s costs of the application. The flat was previously owned by Ms Laskar’s partner, Mr Khan, and he passed the flat to Ms Laskar in 2014. Mr Khan had a long history of disputes with PMC going back to 2006. The claim for costs under Rule 13 was based on that past conduct and thus was premature given that the historical conduct was Mr Khan’s, and Ms Laskar had not had an opportunity to conduct herself in any way, let alone badly, at the point of issue of the claim.

Ms Laskar defended the claim, essentially repeating the previous allegations and general approach of Mr Khan prior to Ms Laskar’s ownership - so in essence what PMC had anticipated and hence the ‘pre-emptive’ Rule 13 claim.   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 roughly half of PMC’s costs.

Ms Laskar appealed to the Upper Tribunal on four grounds, which included that the conduct was not unreasonable conduct. The Upper Tribunal concluded that the FTT had considered many allegations made by Ms Laskar in isolation and thus out of context. The Upper Tribunal took the view that when considered fully, the various allegations made by Ms Laskar were issues which she genuinely believed to be true and were not unreasonable even if they were wrong.  The order for costs was therefore duly dismissed. For a more detailed write up of the case, our Legal Update from October 2020 refers.

By contrast to the decision in Laskar -v- Prescot Management Company Limited, the case of Leibel -v- Baird CHI/29UC/HMF/2020/0035 (2021) saw the unreasonable behaviour test being met and costs awarded against a landlord on a full indemnity basis under Rule 13.

The application brought by Ms Leibel for a Rent Repayment Order, being an order for repayment of rent paid for a property which required an HMO license under the Housing Act 2004 but where the landlord had failed to obtain such a licence.  Ms Leibel was one of five tenants to whom the landlord, Mr Baird, had granted a tenancy. Mr Baird defended the application, alleging that there were only four tenants (which would not have required licensing), not five. He produced at the hearing an unsigned tenancy agreement which named only four of the five tenants. At 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 rent and therefore the property required an HMO licence. The RRO was made requiring that a substantial sum of rent be repaid to Ms Leibel.

In light of the successful claim, Ms Leibel sought an order for her costs under Rule 13 on the basis that Mr Baird could not have had an honest belief in his case and that Ms Leibel should not be out of pocket as a result of Mr Baird’s disgraceful conduct. The Tribunal held that Mr Baird did “deliberately obfuscate” matters and he deliberately misled the Tribunal.  More detail of this case is set out in our Legal Update from June 2021. The Tribunal found Mr Baird had acted unreasonably in conducting the proceedings and ordered him to pay Ms Leibel’s costs under Rule 13 on a full indemnity basis, in addition to the RRO.

Turning now to the most recent decision in Connell -v- Beal Developments Ltd and others [2023] UKUT 135 (LC). In this matter, Mr Connell was the secretary of a residents’ association which commenced proceedings in the FTT against the landlord but subsequently abandoned their case and withdrew the proceedings. The landlord applied for an order under Rule 13 against Mr Connell on the basis that Mr Connell had acted unreasonably in bringing, defending or conducting proceedings, and the FTT made the order. The Upper Tribunal ruled that Mr Connell was not a party to the FTT proceedings nor had he brought, defended or conducted the proceedings. The claim had been made by the residents association of which he was merely a representative.  The extent of his involvement in the case was to have signed the FTT application form, which the UT found was not enough to bring him within the scope of Rule 13.

Conclusion

Whilst Rule 13 does provide an avenue for recovery of costs in certain circumstances, since Willow Court it is significantly harder to reach the high bar required by Rule 13 that would see a party recover costs from an opponent who appears to have behaved unreasonably. What is clear is that the unreasonable conduct threshold is extremely high and, as a result, Rule 13 costs orders will only be made in exceptional circumstances. It is therefore very important that clients are fully aware of the realities of cost recovery in the Tribunal arena before they enter into that litigation.

The above though does not mean that a defaulting leaseholder need not be concerned as to any liability for costs as such may arise under the contractual provisions of the lease by which they are bound.  Any landlord, RMC or RTM company seeking to enforce the lease provisions against a leaseholder should seek advice on any contractual ability to impose an obligation on an errant leaseholder for costs incurred in enforcing a breach of the lease.  Most leases will contain such a provision.  Accordingly, a landlord, RMC or RTM company is not necessarily limited to a cost award by the Tribunal under Rule 13 or a Court under the Civil Procedure Rules and may have alternative means to recover its costs - always subject though to the test of reasonableness over which the Court or Tribunal have jurisdiction.  It is however wise to seek competent legal advice on the specific terms of a lease in relation to costs and the circumstances of a case as a precursor to issuing proceedings.

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

Disclaimer

This Legal Update describes the position in law as at the date of this article and care should be taken to note any subsequent amendments to the position as set out above.  The Legal Update is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of KDL Law or by KDL Law as a whole.

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