Quick notes on a couple of Upper Tribunal (Lands Chamber) cases.

Cardiff Community Housing Association Ltd v Kahar  [2016] UKUT 279 (LC)

Ms K had a weekly tenancy of a flat (initially her daughter’s flat but assigned to her in 2014 by mutual exchange). The tenancy agreement provided for the payment of rent and also a weekly payment for service charge, originally £14.60. In 2015 the service charge was raised to £16.22. The tenancy agreement specified payment of the service charge but the space for the services to be provided was left blank.

Ms A challenged the reasonableness of the raised charge. CCHA admitted that an element for window cleaning was wrong, but the FTT, off its own bat raised the issue of whether a service charge was payable for unspecified services and then decided it was not.

The Upper Tribunal allowed an appeal. The omission created uncertainty over what was to be provided but did not relieve the tenant of the contractual obligation to pay. Any practical difficulties on assessing services were resolved by a) the practice of the parties over the previous 8 years (including Ms K’s daughter) and b) the ability of the tenant to request details of the services and this had not been done.

The revised service charge, less the window cleaning and an element for a sinking fund for lift repairs, which the FTT had found could not be charged absent express provision in the agreement, was payable,

Willow Court Management Company (1985) Ltd v Alexander [2016] UKUT 290 (LC)

We’ve been extremely tardy with this one, but better late…

The Upper Tribunal gave detailed guidance on the power for the First Tier Tribunal and Upper Tribunal to award costs against parties who have behaved unreasonably in proceedings (Tribunal Procedure (First Tier Tribunal)(Property Chamber) Rules 2013 Rule 13).

Wasted costs

The key characteristic of “wasted costs”, as they are defined by section 29(5) is that they are costs incurred by a party “as a result of any improper, unreasonable or negligent act or omission” on the part of a representative. Section 29(5) replicates section 51(7) of the Senior Courts Act 1981 which confers jurisdiction in relation to wasted costs in the civil courts.

So, on wasted costs, the whole civil courts wasted costs regime applies. It also means – at least where a party is represented – this should be somewhat distinguished from ‘unreasonable behaviour in proceedings’.

Unreasonable behaviour

We see no reason to depart from the guidance given in Ridehalgh at 232E, despite the slightly different context. “Unreasonable” conduct includes conduct which is vexatious, and designed to harass the other side rather than advance the resolution of the case. It is not enough that the conduct leads in the event to an unsuccessful outcome. The test may be expressed in different ways. Would a reasonable person in the position of the party have conducted themselves in the manner complained of? Or Sir Thomas Bingham’s “acid test”: is there a reasonable explanation for the conduct complained of?

It is not possible to prejudge certain types of behaviour as reasonable or unreasonable out of context, but we think it unlikely that unreasonable conduct will be encountered with the regularity suggested by Mr Allison and improbable that (without more) the examples he gave would justify the making of an order under rule 13(1)(b). For a professional advocate to be unprepared may be unreasonable (or worse) but for a lay person to be unfamiliar with the substantive law or with tribunal procedure, to fail properly to appreciate the strengths or weaknesses of their own or their opponent’s case, to lack skill in presentation, or to perform poorly in the tribunal room, should not be treated as unreasonable.

The discretion in rule 13(1)(b)

At the first stage the question is whether a person has acted unreasonably. A decision that the conduct of a party has been unreasonable does not involve an exercise of discretion but rather the application of an objective standard of conduct to the facts of the case. If there is no reasonable explanation for the conduct complained of, the behaviour will properly be adjudged to be unreasonable, and the threshold for the making of an order will have been crossed. A discretionary power is then engaged and the decision maker moves to a second stage of the inquiry. At that second stage it is essential for the tribunal to consider whether, in the light of the unreasonable conduct it has found to have been demonstrated, it ought to make an order for costs or not; it is only if it decides that it should make an order that a third stage is reached when the question is what the terms of that order should be.

Once the power to make an order for costs is engaged there is no equivalent of CPR 44.2(2)(a) laying down a general rule that the unsuccessful party will be ordered to pay the costs of the successful party.

Unrepresented parties

In the context of rule 13(1)(b) we consider that the fact that a party acts without legal advice is relevant at the first stage of the inquiry. When considering objectively whether a party has acted reasonably or not, the question is whether a reasonable person in the circumstances in which the party in question found themselves would have acted in the way in which that party acted. In making that assessment it would be wrong, we consider, to assume a greater degree of legal knowledge or familiarity with the procedures of the tribunal and the conduct of proceedings before it, than is in fact possessed by the party whose conduct is under consideration. 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 crucial question is always whether, in all the circumstances of the case, the party has acted unreasonably in the conduct of the proceedings.

We also consider that the fact a party who has behaved unreasonably does not have the benefit of legal advice may be relevant, though 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. When exercising the discretion conferred by rule 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.

Withdrawal of claims

In one of the appeals with which we are now concerned (Stone), costs were awarded under rule 13(1)(b) on the grounds that the applicant had delayed in withdrawing proceedings until after a time when it should have been clear to him that he had achieved as much by concession from the management company as he could realistically expect to obtain from the FTT by proceeding to a hearing. It is 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, not discouraged by the fear that it will be treated as an admission that the abandoned issues were unsustainable and ought never to have been raised, and as a justification for a claim for costs.

Causation

Unreasonable conduct is a condition of the FTT’s power to order the payment of costs by a party, but once that condition has been satisfied the exercise of the power is not constrained by the need to establish a causal nexus between the costs incurred and the behaviour to be sanctioned.

Making the decision

We conclude this section of our decision by emphasising that such applications 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 have had the opportunity to make submissions. We consider that submissions are 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 is available should not be encouraged.

The applicant for an order should be required to identify clearly and specifically the conduct relied on as unreasonable, and if the tribunal considers that there is a case to answer (but not otherwise) the respondent should be given the opportunity to respond to the criticisms made and to offer any explanation or mitigation. A decision to dismiss such an application can be explained briefly. A decision to award costs need not be lengthy and the underlying dispute can be taken as read. The decision should identify the conduct which the tribunal has found to be unreasonable, list the factors which have been taken into account in deciding that it is appropriate to make an order, and record the factors taken into account in deciding the form of the order and the sum to be paid.

Comment

This is helpful guidance. Not least because I have seen aggressive freeholders seeking rule 13 costs simply because leaseholders had the temerity to challenge service charges.

That said, the safest course is always to pay then challenge, as defending a money claim, with potential s.146 clause costs is really not where you want to be.

But the UT emphasis on reasonable conduct should be taken on board by both freeholders and leaseholders. The rule 13 powers and discretion should not be taken lightly.