J B Leitch contributes to landmark Upper Tribunal costs decision

Sinclair v 231 Sussex Gardens Right to Manage Limited [2015]

The background

Each of the three appeals considered by the Upper Tribunal arose following a dispute over service charges payable under leases of residential flats. In each case, the sum awarded by the FTT in costs was greater than the amount of service charge subject to the initial proceedings. The three disputes were all between individual leaseholders and their respective management companies, all of whom were owned by other leaseholders in the building pursuant to collective enfranchisement or Rights to Manage.

JB Leitch represented the management company Respondent 231 Sussex Gardens Right to Manage Limited (which, despite its name, wasn’t a Right to Manage Company established pursuant to the Commonhold and Leasehold Reform Act 2002) against its Appellant, Ms Shelley Sinclair. The Appellant appealed against an FTT decision which required her to pay £16,800 towards costs incurred by the Respondent in a dispute over service charges which amounted to £9,767.

The FTT criticised the Appellant for failing to pay the service charges and for a poor, unsupported defence.

The law

The FTT has power to award costs under section 29 of the Tribunals, Courts and Enforcement Act 2007; notably:

“The relevant Tribunal shall have full power to determine by whom and to what extent the costs are to be paid.”

Rule 13 of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013, provides that the FTT may make an order in respect of costs “only if a person has acted unreasonably in bringing, defending or conducting proceedings in…a residential property case or a leasehold case…”. The FTT is required under the Tribunals’ overriding objective to deal with a case fairly and justly, in ways which are proportionate, inter alia, to the importance of the case, the complexity of the issues and the anticipated costs of the Tribunal.

None of the decisions under consideration included a wasted costs order, however, referencing Ridehalgh v Horsefield, the Upper Tribunal cited in its judgment that the definition of ‘wasted costs’ very much centres on the conduct of the professional legal representatives involved in a case and not the conduct of the parties themselves.

In discussing ‘unreasonable behaviour’ in the context of Rule 13, the Tribunal again referenced Ridehalgh, along with Cancino v Secretary of State for the Home Department [2015], holding that ‘unreasonable’ conduct may include conduct which is intended to harass the other side rather than advance the case. Tribunals must ask themselves: ‘is there a reasonable explanation for the conduct complained of?’

The decision

The Upper Tribunal laid down a three-part test in determining whether a person has acted unreasonably in bringing, defending or conducting proceedings:

1. The Tribunal should ask whether the person has acted unreasonably, considering objectively the facts of the case. Where there is no reasonable explanation for the conduct in question, behaviour will be judged to have been unreasonable;

2. The Tribunal should then consider whether, given the unreasonable conduct determined, any order for costs should be made;

3. If an order for costs is to be made, what should the terms of that order be? To whom should costs be paid and to what extent?

Considering the specific facts of the Sinclair case, the Upper Tribunal allowed the Appellant’s appeal in respect of the costs order. The UT held that the Appellant was given no notice of, or adequate time to consider, the Respondent’s allegations which formed the basis of its case, which included allegations of her unreasonable behaviour. Only behaviour related to the conduct of the proceedings themselves should be considered in respect of Rule 13; this should not encompass behaviour which may have led to the initial dispute from which proceedings arose.

The Upper Tribunal held that the FTT did not consider the Appellant’s personal testimony, and that no assessment had been made as to her honesty. As a result, the FTT’s decision to make a costs award against the Appellant was set aside.

The second part of the Appellant’s appeal was not successful. The Appellant was obliged under the terms of her lease to contribute towards heating and hot water costs. The Appellant had created her own independent heating and hot water system, and her case centred on the fact that she did not require the Respondent’s service, therefore was not obliged to pay for it. The UT held that this was not the case; the lease terms were strictly interpreted and, despite her establishing and maintaining her own system, her claim could not succeed.

J B Leitch’s Phil Parkinson comments as follows:

“The decision in Sinclair sets a useful precedent for all future Tribunals, supplying a useful test when setting down judgment on Rule 13 and the suitability of any costs award. Case law until now has been fairly limited, but the decision in this case provides sufficient authority to guide Tribunals going forward. JB Leitch was pleased to have represented the management company in Sinclair, with the service charge aspect of the claim succeeding on appeal and reinforcing the Upper Tribunal’s stance on strict interpretation of lease provisions.”