[2023] UKUT 271 (LC)

In making their decision to impose the Costs Condition the FTT were exercising their discretion to decide what, if any conditions should be imposed on the making of the order for dispensation with the consultation requirements. It follows that the question for me is not whether I agree or disagree with the decision to impose the Costs Condition. Rather, the question is whether the exercise by the FTT of their discretion in making this decision can be upheld.

In my view the exercise by the FTT of their discretion cannot be upheld. I say this for procedural and substantive reasons. I will start with the procedural reasons, which I can state fairly shortly.

In paragraph 16 of the Original Decision the FTT stated their decision that dispensation should be granted on an unconditional basis. In reaching this decision the FTT no doubt took into account that they had also decided to make the Section 20C Order, with the consequence that the Appellant would, in any event, be denied the ability to recover the Costs by the Service Charge.

The FTT then however proceeded to acknowledge that the Appellant’s challenge to this part of the Original Decision was likely to succeed, given that the FTT had made the Section 20C Order on their own initiative, without any application having been made under Section 20C; see the statement of reasons in the Review Application Decision, as quoted above. It is apparent, from this statement of reasons, that the FTT decided to impose the Costs Condition to make up for the reversal of the Section 20C Order. Effectively, and by imposing the Costs Condition, the FTT brought the position back to what it would have been if the Section 20C Order had stood.

The problem with the FTT taking this course, as I understand the position, is that the parties were not given the opportunity to make submissions on whether the Costs Condition should be imposed, prior to the Review Application Decision. Nor, again as I understand the position, had any party sought the imposition of the Costs Condition. In these circumstances it seems to me that it was not open to the FTT to impose the Costs Condition, without giving the parties the opportunity to be heard on the question of whether the Costs Condition should be imposed.

Effectively therefore the FTT made the same procedural error, in relation to their decision to impose the Costs Condition, as they had made and had acknowledged that they had made in relation to their decision to make the Section 20C Order; that is to say making the decision of their own initiative, without hearing submissions from the parties. It is true that the Review Application Decision granted to either party the right to apply to set aside the decision to impose the Costs Condition, but I do not think that this was sufficient, in the particular circumstances of this case, to avoid or cure the procedural error of making the decision to impose the Costs Condition without first inviting submissions from the parties. The parties were only given the opportunity to make an application to set aside the Costs Condition after the FTT had decided that the Costs Condition should be imposed, for the reasons set out in paragraph 16 of the Reviewed Decision. To my mind this was procedurally unfair. Any application to set aside the Costs Condition would effectively have to challenge a decision which the FTT had already made. If the FTT were minded to impose the Costs Condition it seems to me that the correct course was to invite submissions on this question and, in the light of those submissions, make their decision.

In my view this procedural error was sufficiently serious to vitiate the exercise by the FTT of their discretion, and constituted an error of law. As such, it seems to me that the exercise by the FTT of their discretion, in deciding to impose the Costs Condition, cannot stand.

In theory, this is sufficient to dispose of the issues raised by this part of the appeal. The exercise by the FTT of their discretion, in deciding to impose the Costs Condition, cannot stand, by reason of the procedural error which occurred.

It seems to me however that I must also consider the question of whether the exercise by the FTT of their discretion, in making the decision to impose the Costs Condition, can be upheld on substantive grounds. I say this for three reasons. First, it seems to me that I should consider the substance of the decision to impose the Costs Condition, in case I am wrong in concluding that the decision cannot be upheld on procedural grounds. Second, if the decision cannot stand on procedural grounds, the question then arises as to what I should do, in terms of setting aside, remitting or re-making the decision. If, putting the procedural error to one side, the decision to impose the Costs Condition is one which can be upheld on a substantive basis, this is obviously relevant to the question of setting aside, remitting or re-making the decision. Third, and as the Deputy President identified in granting permission to appeal, this part of the appeal raises an issue of principle.

I therefore turn to the question of whether, if the procedural error is put to one side, the decision to impose the Costs Condition can be upheld on substantive grounds. I continue to bear in mind that the question is not whether I agree or disagree with the decision of the FTT to impose the Costs Condition, but rather whether the underlying exercise by the FTT of their discretion, in making this decision, can be upheld. Putting the matter another way, the question is not whether the FTT were or right or wrong, but whether they went outside the legitimate and, it should be acknowledged, broad ambit of their discretion.

In its application for a review of the Reviewed Decision, the Appellant contended that the Reviewed Decision did not explain the reasoning of the FTT in support of their decision to impose the Costs Condition. Specifically, it was contended that (i) the FTT had failed to explain why the Costs Condition had been imposed when none of the Respondents had sought its imposition or made any submissions in support of the imposition of the Costs Condition, and (ii) the FTT had not explained how “the nature and effect test” in Aster had been met, particularly in view of the fact that neither party had been offered the opportunity to make submissions on the point.

I have already dealt with the Appellant’s procedural criticisms. I will come back to what the Appellant refers to as “the nature and effect test” in Aster. The FTT did however give reasons, in paragraph 16 of the Reviewed Decision, for their decision to impose the Costs Condition. For ease of reference, I repeat those reasons:

“The Tribunal does however consider that the Applicants should be precluded from pursuing any costs in relation to this application from the leaseholders themselves. This is because dispensation is essentially a forbearance by the Tribunal and it would be unfair for the landlord to recover costs from any of the leaseholders living at Hippersley Point in the present case. Although not all of the leaseholders raised objections the Tribunal were satisfied that those that did were making general submissions which applied to all leaseholders. Accordingly, the dispensation is given on condition that the Applicants are prohibited from seeking their costs of this application from the leaseholders at Hippersley Point.”

Before I come specifically to the Reviewed Decision, and to the decision of the FTT to impose the Costs Condition, I should summarise the guidance to be found in the case law on the question of when a costs condition should be imposed, as a condition of the grant of dispensation from compliance with the consultation requirements.

The nature of the jurisdiction to grant a dispensation order, pursuant to Section 20ZA(1), and the way in which the jurisdiction should be exercised were considered by the Supreme Court in Daejan Investments Ltd v Benson [2013] UKSC 14; [2013] 1 WLR 854. In that case the landlord had failed to comply with the consultation requirements in relation to qualifying works to a building comprising shops on the ground floor and flats above. The Supreme Court decided, by a majority, that dispensation should be granted on terms (i) that the cost of the works capable of recovery by the landlord through the service charge be reduced by £50,000 and (ii) that the landlord pay the tenants’ reasonable costs of the application for dispensation “in so far as they reasonably tested its claim for a dispensation and reasonably canvassed any relevant prejudice which they might suffer”; see the judgment of Lord Neuberger PSC at [85].

In his judgment, with which Lord Clarke and Lord Sumption JJSC agreed, Lord Neuberger analysed the consultation requirements as a four stage process. The landlord commenced stage 3 of the process, but proceeded to place the contract for the works and have the works carried out without completing stage 3. The relevant works were substantial works to the building. The four priced tenders which were originally obtained for the works were all in excess of £400,000. The sum which the landlord wished to recover from the tenants of the relevant flats, by their service charge, was £280,000. There were seven flats in the building, of which five were let on long leases containing an obligation to pay a service charge. If therefore the landlord had been unable to obtain a dispensation from compliance with the consultation requirements, the amount which it would have been entitled to recover from the tenants of the relevant flats would have been capped at £250 per flat.

In his judgment Lord Neuberger also identified the following key principles in relation to the exercise of the jurisdiction to grant dispensation under Section 20ZA. First, the purpose of the consultation requirements is to ensure that the tenants are protected from (i) paying for inappropriate works or (ii) paying more than would be appropriate for the works. Second, the issue on which the tribunal should focus, when entertaining an application by a landlord under Section 20ZA(1) must be the extent, if any, to which the tenants have been prejudiced in either respect by the failure of the landlord to comply with the consultation requirements. Third, the tribunal is not presented with the binary choice, on an application for dispensation, of either granting or refusing dispensation. The tribunal has power to grant dispensation on such terms as it thinks fit, provided that such terms are appropriate in their nature and effect. Where it is appropriate to do so, the tribunal can impose conditions on the grant of a dispensation under Section 20(1)(b) of the 1985 Act.

In relation to the ability of the tribunal to grant dispensation subject to conditions, Lord Neuberger confirmed that the tribunal would have the power to impose a condition that the landlord pay the tenants’ reasonable costs incurred in relation to the application for dispensation, notwithstanding the limited jurisdiction of the tribunal in relation to costs. As Lord Neuberger explained, at [61]:

“61

However, in my view, that does not preclude the LVT from imposing, as a condition for dispensing with all or any of the requirements under section 20(1)(b), a term that the landlord pays the costs incurred by the tenants in resisting the landlord’s application for such dispensation. The condition would be a term on which the LVT granted the statutory indulgence of a dispensation to the landlord, not a freestanding order for costs, which is what paragraph 10 of Schedule 12 to the 2002 Act is concerned with. To put it another way, the LVT would require the landlord to pay the tenants’ costs on the ground that it would not consider it “reasonable” to dispense with the requirements unless such a term was imposed.”

Lord Neuberger then went on, at [62]-[64], to draw the following comparison, in terms of costs, between a landlord’s application for dispensation and a tenant’s application for relief from forfeiture.

“62

The case law relating to the approach of courts to the grant to tenants of relief from forfeiture of their leases is instructive in this connection. Where a landlord forfeits a lease, a tenant is entitled to seek relief from forfeiture. When the court grants relief from forfeiture, it will often do so on terms that the tenant pays the costs of the landlord in connection with the tenant’s application for relief, at least in so far as the landlord has acted reasonably: see e g Egerton v Jones [1939] 2 KB 702, 705—706, 709. However, if and in so far as the landlord opposes the tenant’s application for relief unreasonably, it will not recover its costs, and may even find itself paying the tenant’s costs, as in Howard v Fanshawe [1895] 2 Ch 581, 592.

63

As Mr Dowding QC, for Daejan, pointed out, in Factors (Sundries) Ltd v Miller [1952] 2 All ER 630, the tenant was legally aided and the court was precluded by statute from making an order for costs against him, but the Court of Appeal held that there was none the less jurisdiction to require him to pay the landlord’s costs as a condition of being granted relief from forfeiture. As Somervell LJ explained it, at p 633D—F, the liability under such a condition was “not an order to pay costs in the ordinary sense”, but “a payment of a sum equal to the costs as a condition of relief”.

64

Like a party seeking a dispensation under section 20(1)(b), a party seeking relief from forfeiture is claiming what can be characterised as an indulgence from a tribunal at the expense of another party. Accordingly, in so far as the other party reasonably incurs costs in considering the claim, and arguing whether it should be granted, and, if so, on what terms, it seems appropriate that the first party should pay those costs as a term of being accorded the indulgence.”

Lord Neuberger also identified the sympathy which tribunals might be expected to show to tenants, in terms of deciding whether tenants had discharged the burden of demonstrating prejudice caused by the failure of their landlord to comply with the consultation requirements. In the context of costs, Lord Neuberger described how this sympathy was relevant in the following terms, at [68]-[69].

“68

The LVT should be sympathetic to the tenants not merely because the landlord is in default of its statutory duty to the tenants, and the LVT is deciding whether to grant the landlord a dispensation. Such an approach is also justified because the LVT is having to undertake the exercise of reconstructing what would have happened, and it is because of the landlord’s failure to comply with its duty to the tenants that it is having to do so. For the same reasons, the LVT should not be too ready to deprive the tenants of the costs of investigating relevant prejudice, or seeking to establish that they would suffer such prejudice. This does not mean that LVT should uncritically accept any suggested prejudice, however farfetched, or that the tenants and their advisers should have carte blanche as to recovering their costs of investigating, or seeking to establish, prejudice. But, once the tenants have shown a credible case for prejudice, the LVT should look to the landlord to rebut it. And, save where the expenditure is self-evidently unreasonable, it would be for the landlord to show that any costs incurred by the tenants were unreasonably incurred before it could avoid being required to repay as a term of dispensing with the requirements.

69

Apart from the fact that the LVT should be sympathetic to any points they may raise, it is worth remembering that the tenants’ complaint will normally be, as in this case, that they were not given the requisite opportunity to make representations about proposed works to the landlord. Accordingly, it does not appear onerous to suggest that the tenants have an obligation to identify what they would have said, given that their complaint is that they have been deprived of the opportunity to say it. Indeed, in most cases, they will be better off, as, knowing how the works have progressed, they will have the added benefit of wisdom of hindsight to assist them before the LVT, and they are likely to have their costs of consulting a surveyor and/or solicitor paid by the landlord.”

Beyond Daejan, Mr Allison was able to identify only limited guidance in the authorities on the imposition of costs conditions in granting dispensation under Section 20ZA(1). Mr Allison referred me to the decision of this Tribunal (His Honour Judge Stuart Bridge) in Aster Communities v Chapman [UKUT] 177 (LC). This case was concerned with an appeal by the landlord against two of three conditions which had been imposed by the FTT as conditions on the making of a dispensation order. The three conditions were as follows:

The landlord challenged only the first two of these conditions, which meant that the Judge did not have to consider what was, in that case, the equivalent of the Costs Condition. In the present case the Appellant was not required to pay any of the Respondents’ costs as a condition of the grant of dispensation. Mr Allison relied upon the decision for the proposition that the exercise of the jurisdiction to dispense stands or falls on the issue of prejudice. In this context Mr Allison relied upon what was said by the Judge at [17], where the Judge contemplated the possibility of dispensation being granted on an unconditional basis where tenants fail to establish any prejudice resulting from the grant of dispensation:

“17.

The exercise of the jurisdiction to dispense with the consultation requirements stands or falls on the issue of prejudice. If the tenants fail to establish prejudice, the tribunal must grant dispensation, and in such circumstances dispensation may well be unconditional, although the tribunal may impose a condition that the landlord pay any costs reasonably incurred by the tenants in resisting the application. If the tenants succeed in proving prejudice, the tribunal may refuse dispensation, even on robust conditions, although it is more likely that conditional dispensation will be granted, the conditions being set to compensate the tenants for the prejudice they have suffered.”

I should mention that Aster went to the Court of Appeal. The appeal against the decision of Judge Bridge was however dismissed and, as I read the decision of the Court of Appeal, there is nothing in that decision to undermine what the Judge said at [17].

As I have mentioned above, in its grounds of appeal the Appellant relied upon the decision of the Tribunal in Aster for what it referred to as “the nature and effect test”. The criticism of the FTT was that they had provided no explanation as to how the nature and effect test had been met in respect of the Costs Condition. This nature and effect test is not however something which emerges from the decision in Aster itself. It is simply a reference to what Lord Neuberger said in Daejan, at [53] and [54] ([53] is included for context):

“53

The respondents contend that, on an application under section 20ZA(1), the LVT has to choose between two simple alternatives: it must either dispense with the requirements unconditionally or refuse to dispense with the requirements. If this argument is correct, then as the Upper Tribunal held, and the Court of Appeal thought probable, it would not have been possible for the LVT in this case to grant Daejan’s section 20ZA(1) application on the terms offered by Daejan, namely to reduce the aggregate of the sum payable by the respondents in respect of the works by £50,000.

54

In my view, the LVT is not so constrained when exercising its jurisdiction under section 20ZA(1): it has power to grant a dispensation on such terms as it thinks - provided, of course, that any such terms are appropriate in their nature and their effect.”

In the context of decisions on dispensation applications, Mr Allison also referred me to the decision of the Deputy President of the Lands Chamber (Martin Rodger KC) in Marshall v Northumberland & Durham Property Trust Ltd [2022] UKUT 92 (LC), specifically at [63]-[64]. The extract from the decision cited by Mr Allison provides a useful reminder of the importance of focussing on the question of prejudice in considering what, if any conditions should be imposed on the making of a dispensation order, but the issues being considered by the Deputy President in that case were rather different to the present case. The decision does not therefore provide any direct guidance on the question of whether the Costs Condition should have been imposed.

Mr Allison also referred me to two decisions of the Deputy President which were concerned with orders made under Section 20C of the 1985 Act. In this context I accept the submission of Mr Allison that applications under Section 20C can give rise to issues which are similar to those which may arise in relation to the question of whether a costs condition should be imposed on the making of a dispensation order. I therefore accept that it is relevant, in the present case, to consider decisions concerned with Section 20C applications.

The first of these two decisions is the decision of the Deputy President in Conway v Jam Factory Freehold Ltd [2013] UKUT 592 (LC), in which the Deputy President stressed the importance of considering the financial and practical consequences for all those who will be affected by a Section 20C order. As the Deputy President stated, at [75]:

“75.

In any application under section 20C it seems to me to be essential to consider what will be the practical and financial consequences for all of those who will be affected by the order, and to bear those consequences in mind when deciding on the just and equitable order to make. The omission to do so in this case, an omission for which I do not criticise the LVT in view of the assumption made on both sides, would be sufficient to vitiate the section 20C order. Taken together with the LVT’s incomplete balancing exercise, with its omission to give the respondent’s success in the substantive application the proper weight which the authorities require, I have no alternative but to set the section 20C order aside.”

The particular problem which the Deputy President was considering in the Jam Factory case was a Section 20C order made by the Leasehold Valuation Tribunal (as it then was) which benefited some but not all of the tenants who were liable to contribute to the landlord’s costs by the service charge. That problem does not arise in the present case.

The second of the above two decisions is Re SCMLLA (Freehold) Limited [2014] UKUT 0058 (LC), where the Deputy President again stressed the importance of considering all the consequences of the making of an order under Section 20C. At [27] he said this:

“27.

An order under section 20C interferes with the parties’ contractual rights and obligations, and for that reason ought not to be made lightly or as a matter of course, but only after considering the consequences of the order for all of those affected by it and all other relevant circumstances.”

With the above summary of the case law to which my attention has been drawn in place, I turn to the Reviewed Decision, and the question of whether the FTT were right to impose the Costs Condition. The starting point seems to me to be the facts found by the FTT in the Reviewed Decision. The key findings of fact can be found in paragraphs 11-15 of the Original Decision, which I have already quoted, and in some earlier paragraphs of the Original Decision. As I have noted, paragraphs 1-15 of the Original Decision remained the same in the Reviewed Decision.

The key findings of fact (with the relevant paragraphs of the Original/Reviewed Decision shown) may be summarised as follows:

There is no appeal, on either side, against these findings of fact. I was also told by Mr Allison, in his oral submissions, that the Dispensation Application was made as a prospective application. I took this to mean that the Dispensation Application was not made on a retrospective basis, in order to escape the consequences of non-compliance, but rather in advance of carrying out the Works and not in circumstances of past defective compliance with the consultation requirements. While there is no finding in these express terms in the Original Decision or the Reviewed Decision, it seems to me implicit in the findings of the FTT, in paragraphs 11-15 of the Original/Reviewed Decision, that the Dispensation Application was made on at least a substantially prospective basis. I note that the Appellant’s original statement of case in support of the Dispensation Application was drafted on the basis that the Appellant had complied with the consultation requirements so far as it practically could, considering the circumstances, and sought dispensation in relation to its remaining obligations under the consultation requirements. To this extent it seems to me that I can accept Mr Allison’s characterisation of the Dispensation Application as a prospective application.

It will be noted, from the findings of fact of the FTT which I have set out above, that the facts of the present case were very different from those in Daejan. In Daejan the conduct of the landlord, in failing to complete the consultation process, attracted considerable criticism, both from Lord Neuberger and, to a greater degree, from the dissenting Justices (Lord Hope DJSC and Lord Wilson JSC). In the present case there was no question of the Appellant seeking to avoid its responsibilities; see paragraph 14 of the Original/Reviewed Decision. Another way in which the same point might be expressed is that the present case was not one where the landlord was making what was in effect a retrospective application, seeking to be excused from the consequences of its previous failure to comply with the consultation requirements.

It will also be noted that the FTT found no prejudice in this case. This is clearly important. As Lord Neuberger noted in Daejan, at [45], it was hard to see why dispensation should not be granted, in a case where the extent, quality and cost of the works were in no way affected by the landlord’s failure to comply with the requirements; that is to say it was hard to see why dispensation should not be granted in a case where no prejudice was demonstrated. Conditions may be imposed on the grant of dispensation, but only where it is appropriate to do so; see Lord Neuberger at [58].

We have the benefit of Lord Neuberger’s discussion, in Daejan, of the imposition of a costs condition, at [59]-[64]. In the context of the present case it seems to me that there are two important points to be made, in relation to this discussion.

There is one other point which I should mention, for the sake of completeness, in comparing the present case with Daejan. In Daejan the costs condition which was actually imposed on the landlord went further than requiring the landlord to pay its own costs of the application for dispensation. The landlord was required to pay the tenants’ reasonable costs in connection with investigating and challenging the application for dispensation; see Lord Neuberger at [74]. It is not entirely clear to me, from the judgments in the Supreme Court, whether the landlord had the ability to recover or had sought to recover its own costs of the dispensation application from the tenants. The tenor of Lord Neuberger’s judgment suggests that the conditions on which dispensation was granted would have included a prohibition on the landlord recovering its own costs of the dispensation application by the service charge, if this question had been raised. Putting this point to one side, in the present case the Costs Condition did not extend to an obligation to pay any costs of the Respondents. This may be because the Respondents were in person. It may be that those of the Respondents who opposed the Dispensation Application did not incur any professional costs or did not seek to recover any such professional costs. In any event, I do not think that this particular point constitutes a material point of distinction between the present case and Daejan. The Costs Condition resembled the costs condition in Daejan in the sense that both were costs sanctions imposed upon the landlord, as a condition of the grant of dispensation.

I turn next to the reasons given by the FTT for imposing the Costs Condition, as set out in paragraph 16 of the Reviewed Decision. These reasons were that dispensation was essentially a forbearance by the FTT and that it would be unfair for the Appellant to recover costs from any of the Respondents. The FTT were satisfied that those of the Respondents who did make objections were making general submissions, which applied to all of the leaseholders.

With all due respect of the FTT, I do not follow this reasoning. In the present case, and on the findings of the FTT, the position of the Appellant was about as blameless as it could be. In addition to this, the FTT had identified that the Appellant was, in making the Dispensation Application, not seeking to avoid its responsibilities, but was seeking to ensure that an unsafe building was made safe as quickly as possible. In these circumstances I find it difficult to see how the making of a dispensation order was, on the facts as found by the FTT, properly described as a forbearance. It is also difficult to see why it was unfair to the Respondents that the Appellant should be able to recover the costs of the Dispensation Application from the Respondents. Given the circumstances in which the Dispensation Application came to be made, as those circumstances were found by the FTT, it seems to me that the Appellant’s expenditure on the costs of the Dispensation Application (the Costs) might legitimately be described as essential expenditure for the benefit of the Building and the safety of the Respondents. This does of course assume that the amount of the Costs was reasonable, but that question would be one for any subsequent challenge to the amount of the Costs based on Section 19 of the 1985 Act.

The points set out in my previous paragraph seem to me to be reinforced by the fact that, in paragraph 16 of the Original Decision, the FTT stated that they had “no hesitation in confirming that dispensation should be given unconditionally in this case”. This conclusion seems to me to have followed logically from the findings of fact made by the FTT in the Original Decision. It is true that the FTT then went on to make the Section 20C Order, which rendered the imposition of a costs condition unnecessary. While however this may have been the reason for the FTT not imposing a costs condition in the Original Decision, this does not alter the point that the FTT did conclude in the Original Decision, in terms and, in my view, entirely logically, that dispensation should be granted unconditionally.

There is also of course the finding of the FTT that the Respondents had failed to establish any prejudice resulting from the failure of compliance with the consultation requirements; see paragraph 13 of the Original/Reviewed Decision. The FTT stated, quite correctly, that the focus had to be on prejudice suffered by the leaseholders as a result of the failure to consult. This is clear from Daejan. In making this finding, the FTT can also be assumed to have had in mind Lord Neuberger’s encouragement to tribunals to adopt a sympathetic attitude to tenants seeking to establish the existence of prejudice; see Daejan at [67] and [68]. Notwithstanding this encouragement, the FTT were clear in finding that no prejudice would be suffered by the Respondents, if dispensation was granted.

This particular point can be taken further. I have already quoted what Lord Neuberger said in Daejan, at [68]. It seems to me significant that Lord Neuburger justified the imposition of a condition that the landlord pay the tenants’ costs of responding to a dispensation application on the basis that the tenants were entitled to recover their reasonable costs of investigating relevant prejudice. For ease of reference, I repeat what Lord Neuberger said in the second half of [68]:

“For the same reasons, the LVT should not be too ready to deprive the tenants of the costs of investigating relevant prejudice, or seeking to establish that they would suffer such prejudice. This does not mean that LVT should uncritically accept any suggested prejudice, however farfetched, or that the tenants and their advisers should have carte blanche as to recovering their costs of investigating, or seeking to establish, prejudice. But, once the tenants have shown a credible case for prejudice, the LVT should look to the landlord to rebut it. And, save where the expenditure is self-evidently unreasonable, it would be for the landlord to show that any costs incurred by the tenants were unreasonably incurred before it could avoid being required to repay as a term of dispensing with the requirements.”

In a case, such as the present case, where a tribunal makes a clear finding that the tenants have failed to establish any prejudice and (see paragraph 13 of the Original/Reviewed Decision) have failed to produce any evidence to support a case of prejudice, it seems to me that Lord Neuberger’s reasoning at [68] ceases to apply.

In all these circumstances it seems to me that the position goes beyond one where I simply find myself in disagreement with the reasoning of the FTT. In my view the reasons given by the FTT, in paragraph 16 of the Reviewed Decision, for imposing the Costs Condition were fundamentally flawed. On the basis of the findings of fact made by the FTT, it seems to me that the reasons given by the FTT for imposing the Costs Condition cannot be upheld. They seem to me to be at odds with, and contrary to the findings of fact made by the FTT. As such, it seems to me that the FTT, in relying on these reasons, went outside the legitimate scope of their discretion, and went wrong in law.

There is also what seems to me to be an additional, and similarly fundamental problem with the reasoning of the FTT. This problem goes back to the identification of the issues in this part of the appeal by the Deputy President, in his decision on the application for permission to appeal. Given the findings of fact made by the FTT, it seems to me that the decision of the FTT to impose the Costs Condition can only be justified if one accepts the principle that the imposition of a costs condition is appropriate whenever an application for dispensation is made. While the FTT did not articulate any such principle, it seems to me that their decision does in fact depend upon the existence of such a principle. I say this because it is impossible, on the findings of fact made by the FTT, to identify any justification for imposing the Costs Condition beyond a principle that, in any dispensation application, it is unfair to the tenants to allow the recovery of the costs of the application from the tenants because the grant of dispensation is a forbearance by the tribunal.

I do not think that there is any such principle. I do not think that any such principle was stated or was intended to be stated by Lord Neuberger in Daejan. I do not think that Lord Neuberger’s discussion of the analogy with applications for relief from forfeiture supports or was intended to support any such principle. To the contrary, it seems clear to me, on the authority of Daejan, that it is always a matter for the relevant tribunal to consider whether, on the facts of the application for dispensation before the tribunal, the imposition of a costs condition is appropriate in its nature and effect. In many such cases one might expect the imposition of a costs condition to be appropriate. Indeed, in cases where the landlord can reasonably be seen to be seeking to be excused from the consequences of its own default, one might normally expect to see a costs condition imposed. I do not think however that there is any principle or rule that the imposition of a costs condition is appropriate in all applications for dispensation.

In the absence of such principle or rule, it seems to me that the reasons given by the FTT for imposing the Costs Condition were wrong, as a matter of law, and cannot stand, independent of the basis on which I have already identified that these reasons cannot stand.

In the analysis set out above I have not overlooked or ignored the various written arguments advanced by the Respondents, both earlier in the appeal process and in response to my invitation for further submissions which followed the appeal hearing. It is not necessary to go through these arguments individually, but the essential points made in these arguments can be divided into three:

Drawing together all of the above discussion of the substantive reasoning of the FTT, in making their decision to impose the Costs Condition, it seems to me that the decision cannot stand. In my view, and with due respect to the FTT, the reasoning in support of this decision was sufficiently flawed to take the decision outside the legitimate scope of the discretion which the FTT were exercising. I reach this conclusion on the following two bases:

For the sake of completeness I should mention that Mr Allison also sought to persuade me that the conduct of the proceedings before the FTT by those of the Respondents who resisted the Dispensation Application had itself been such as to increase the costs of the Dispensation Application, not only because the relevant Respondents had unsuccessfully opposed the Dispensation Application and had failed to establish prejudice, but also because the relevant Respondents had opposed the Dispensation Application on an individual rather than a collective basis. I do not think that this part of Mr Allison’s case added anything to the appeal. The fact that the opposition to the Dispensation Application failed, and the fact that no prejudice was established are relevant to the question of whether the FTT were correct, in the exercise of their discretion, to impose the Costs Condition, but only for the reasons which I have set out above. Turning to the question of whether the conduct of the relevant Respondents, in not acting on a collective basis, had the effect of increasing the costs of the Dispensation Application I do not consider myself able to make any decision on that question, for two reasons. First, I do not regard myself as being in a position to decide whether there was a failure by the relevant Respondents to act on a collective basis. Second, and assuming that there was such a failure, I do not regard myself as being in a position to decide whether this failure resulted in an increase in the costs of the Dispensation Application which could otherwise have been avoided. The FTT made no findings in either of these respects and, in these circumstances, it does not seem to me appropriate that I should attempt to make findings of my own. It seems to me that my analysis should concentrate on the findings and reasoning of the FTT in the Original Decision and the Reviewed Decision, as set out above. It will be appreciated that this is effectively the same point as I have already made in respect of the equivalent attempts by some of the Respondents, in their written arguments, to go behind or outside the findings of fact made by the FTT.

Drawing together all of the analysis set out in this section of this decision, meaning my analysis of the procedural and the substantive position, my overall conclusion is that the decision of the FTT to impose the Costs Condition cannot be upheld. In my view the decision of the FTT to impose the Costs Condition fell outside the legitimate scope of their discretion, for the procedural and substantive reasons I have identified, and was wrong in law.