[2023] UKUT 108 (LC)

Generally the FTT has no power to award costs in proceedings relating to service charges, but rule 13(1)(b) of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 provides:

“(1)

… the Tribunal may make an order in respect of costs …

(b)

if a person has acted unreasonably in bringing, defending or conducting proceedings...”

In Willow Court Management Company (1985) Limited v Alexander [2016] UKUT 290 (LC) the Tribunal (Martin Rodger QC, Deputy Chamber President, and Judge Siobhan McGrath) provided guidelines for decisions on applications for costs under rule 13(1)(b). At paragraph 24 it was said:

““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? …is there a reasonable explanation for the conduct complained of?”

The Tribunal in Willow Court envisaged a three-stage decision-making process: first, the FTT should decide whether the respondent to the application behaved “unreasonably” in the sense set out above; if it was then, second, the FTT should decide whether it should therefore make a costs order; third, and if so, it should consider what order it should make. At paragraph 28 it was said:

“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.”

The application for costs, dated 23 December 2021, made no reference to Willow Court but set out the following “aspects of unreasonableness in bringing the proceedings”:

The application went on to detailed “aspects of unreasonableness in pursuing the proceedings”:

That is a lot of points, and it will be helpful later in this decision if I group them together. The behaviours said to have been unreasonable, on the part of the three respondents, can be described as:

GPIMCL, the first respondent to the application, did not respond and has taken no part in the costs proceedings. A reply was filed for the second and third respondents, represented by Mr Allison; they engaged with the guidance in Willow Court, and also argued that since they were not parties to the service charge proceedings the second and third respondents were not “persons” against whom a costs order could be made under rule 13(1)(b).

The FTT heard the costs application on 6 May 2022 and gave its decision in writing on 14 June 2022; it is that decision that is now appealed. The FTT made the desired orders under section 20C and paragraph 5A (see paragraph 18 above). Turning to the application under rule 13(1)(b), the FTT dealt first with the argument that Mr Gubbay and Epworth SW Limited were not within the scope of rule 13(1)(b) and decided against them on that point. It said at paragraph 64:

“We are satisfied that within the context of Rule 13(1)(b) “person” does include those representing, particularly where they are not a legal representative or the like. In our judgment in the context of tribunal proceedings, often conducted by non legal qualified representatives, it must be correct that they may be a “person” within the scope of Rule 13 and against whom an Order for costs may be made in the exceptional circumstances envisaged by the Rule and endorsed in Willow Court.”

There is no cross-appeal on that point. From paragraphs 65 onwards the FTT considered the application itself.

As to the application itself the FTT said at its paragraph 66:

“We are not satisfied that simply bringing these proceedings, unsuccessful though they were, was of itself unreasonable. We would suggest it is plain the demands were going to be subject to challenge. We make reference in our original decision to what we consider to be the unsatisfactory nature of the leases. This is a classic situation where a management company may well apply to the Tribunal to seek clarity.

67.

We did find that the demands were invalid and so no sums were payable. We also determined on the facts that the sum claimed was not reasonable. We explained why we did not look to determine a reasonable amount, not least given the lack of evidence, but also given it seemed that this would be a pointless exercise.

68.

Standing back we accept that the actual issues for this Tribunal to determine were not unusual and were twofold: was the lease followed and was a reasonable methodology adopted to determine the amounts? We found the answer to both to be “no” but actually much of the information within the bundle and cross examination whilst giving background was not strictly relevant to this determination.”

We shall have to look again at paragraphs 67-8 in connection with the grounds of appeal. As to Mr Gubbay’s conduct the FTT said:

“69 We accept that Mr Gubbay believed in his own way he was doing the best for everyone. Whether this view is misguided is not a matter we need to determine.”

It is worth noting that in making that finding the FTT was well aware of a fact that was mentioned only obliquely in the application for costs, namely that Mr Gubbay had arranged for holiday lettings of residential units, through Ilfracombe Resorts Limited , which received some £1.2 million pounds in rent. The FTT was aware of this because it was the subject of cross-examination in the hearing of the service charge proceedings; Mr Gubbay’s position as he explained it on that occasion was that he was entirely willing to account for that rent to the leaseholders, and either to pay it to them as rent or to put it towards service charges.

The FTT found that Mr Gubbay had been candid about his position and about his views of Mr Spence and Mr Kewley. It found that Mr Gubbay failed to understand the case he was presenting. It found that his questioning of the leaseholder at the hearing was reasonable. It said at paragraph 75:

“Overall this Tribunal finds that the conduct of the proceedings, save as dealt with below, was not such that any further order for costs pursuant to Rule 13 should be made against the Applicant, Mr Gubbay or Epworth. We do not find that the overall conduct of these proceedings was unreasonable. The application was in our judgment a reasonable course of action and sadly the “noise” has led to many other matters conflating what essentially was a discreet and relatively straight forward issue to be addressed.”

The two matters that it went on to deal with were, first, that the FTT had already made an order that GPIMCL should pay the cost of preparation of the bundle for the hearing of the service charge proceedings, which it should have done itself but which the leaseholders did. The FTT declined to extend that order to Mr Gubbay and to Epworth SW Limited. Second, the FTT determined GPIMCL had behaved unreasonably in applying to withdraw its application and then asking to withdraw the application to withdraw, and it ordered GPIMCL to pay the leaseholders’ costs in respect of that application, which it summarily assessed in the sum of £864 so far as the 195 leaseholders were concerned.