The general consensus is that litigation is the last port of call. It is imperative that any party who pursues litigation considers the costs consequences. This article addresses the recent case of Willow Court Management (1985) Ltd v Alexander [2016] 0290 UKUT (LC) (“Willow Court”) in the Upper Tribunal (Lands Chamber), vis-à-vis unreasonable conduct during litigation in England.
Rule “13” Tribunal Rules 2013
The Romans held the number thirteen as a sign of death and destruction. Yet in Chinese culture it is seen as a lucky number. Whether East or West, good or bad luck is out of the control of parties in a dispute. However, conduct, entirely within their control, will never be simply dismissed as part of litigation's 'tug-of–war'. Hence, Rule 13 of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 (“Rules”), and the potential for its financially damaging consequences.
Under Rule 13(1), where a Tribunal finds that:
(a) costs have been incurred as a result of any “improper, unreasonable or negligent act or omission on part of any legal or other representative which is unreasonable to expect that party to pay”, the F-tT may order payment of wasted costs.
(b) a person who has acted: “unreasonably in bringing, defending or conducting proceedings”, the F-tT may order payment of unreasonable conduct costs.
It is imperative to note that such an award and/or determination under Rule 13 is not subject to any capping whatsoever, which is notably different to the £500 limitation under paragraph 10(12) of Schedule 12 to the Commonhold and Leasehold Reform Act 2002. It is also worth remembering that the Tribunal has other powers in relation to costs and fees. Notable amongst these are the unfettered discretion in Rule 13(2) to order reimbursement of fees, the power in Rule 13(8) to order interest on costs and the power to order that costs incurred in connection with Tribunal proceedings may not be added to service charges under s.20C of the Landlord and Tenant Act 1985.
Case law update:
Willow Court dealt with Rule 13(1)(b) unreasonable conduct costs. The case involved a purpose built block of ten flats. There was a tripartite lease. Mrs Alexander: (1) was a lessee (2) owned 50% of the shares in the freehold company and (3) owned one tenth of the shares in the management company.
The management company sought payment of service charges. Mrs Alexander’s defences centred on the validity of a retrospective certificate (which was a condition precedent to liability for the charges under the lease), whether the authority of the Directors was duly given to approve the service charges and whether the management company could prove it had incurred relevant costs of expenditure going back to 2007.
For the purposes of this article it would not be possible to discuss the full details of the First-tier Tribunal (Property Chamber) (“F-tT ”) determination, save to say that the tribunal found in favour of Mrs Alexander and consequently she made an application for costs under Rule 13. The F-tT ordered the management company to pay a significant sum to Mrs Alexander under Rule 13.
It is important to note that authoritative case law on “unreasonable conduct” was non-existent before Willow Court and that tribunals at first instance had adopted a bewildering variety of tests. The appeal quite deliberately brought together a number of F-tT cases where orders had been made or refused in order to lay down guidance for the future. In particular the Upper Tribunal makes it quite clear that the implications of this case are that Tribunals are discouraged from considering Rule 13 unreasonable conduct applications and that Tribunals should use their case management powers “to actively encourage preparedness and cooperation and to discourage obstruction, pettiness and gamesmanship”.
The Upper Tribunal’s determination of Willow Court propounds a three (no Roman adage needed for three) stage systematic approach that should be taken in such applications:
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“Has the person acted unreasonably”? At this stage, there is a high threshold. The UTLC said that “if there is no reasonable explanation for the conduct complained of, the behaviour will be adjudged to be unreasonable, and the threshold for making of an order will have been crossed”.
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“Should an Order be made?” If the party has acted unreasonably, the Tribunal has a discretion whether to make an order or not. There would be focus on the nature, seriousness and effect of the unreasonable conduct, which will be an important part of the material to be taken into account.
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“What should the order be?” If the above two stages above are satisfied, it does not necessarily follow there will be an order for costs. Importantly, the order need not be confined to “attributable to the unreasonable conduct”.
Conclusions:
It seems the natural course of events will mean that fewer applications will be made under Rule 13 and they should not be routine applications. Of course, Willow Court elucidates that Rule 13 may be financially destructive to a party (as Rule 13 costs are uncapped), but the applicant must satisfy the three stage test before getting any order.
Notably, alternative dispute resolution may be ever so relevant in disputes, especially in a time where cost consequences may be open ended. LEASE now offers a mediation service.
Find out more about this and other forthcoming cases at the Service Charge Summit on 20th September 2016.
Mark Loveday, Barrister at Tanfield Chambers and Ibraheem Dulmeer, Legal Adviser at LEASE.
