[2024] UKUT 253 (LC)

I am able to substitute the Tribunal’s own decision on the appellants’ application for costs since I have all the parties’ arguments before me.

I bear in mind that the appellants’ application for a costs order was made on two alternative bases. They say first that the respondents acted unreasonably in issuing proceedings “out of abundance of caution” (as the respondents put it in their representations of 24 November 2022, paragraph 20 above) when they knew that the FTT had no jurisdiction in relation to the cluster rooms; they could not possibly be dwellings in the face of JLK Ltd v Ezekwe. And if they really thought there could be any argument about that they could have resolved the point by sending a letter before action. Alternatively, if the respondents were unaware of Ezekwe, their solicitors should have advised them about it and should be liable for wasted costs.

The two alternatives are mutually exclusive; either the respondents knew the legal position and took an unreasonable decision to issue proceedings without checking whether the appellants agreed with them about the cluster rooms, or the respondents were unaware of it because their solicitors had failed to advise them in which case the application is against the legal representatives. So I cannot decide the application on the first basis, and then decide it on the second on the usual “in case I am wrong about that” basis, first because the two alternatives lead to orders against two different parties, and second because any consideration of the second alternative basis could not proceed without giving the respondents’ legal representatives the opportunity to make representations.

In my judgment, however, that difficulty is resolved on examination of the respondents’ own stated position. The respondents told the Tribunal, in their representations of 24 November 2022 drafted by Mr Philip Byrne of counsel, that they had issued proceedings “out of abundance of caution”. In a second response to the appeal dated 31 May 2024 counsel for the respondents (this time Mr David Gilchrist) again argued that the application was made out of caution and that its purpose was to establish the legal position with certainty. The clear implication is that the respondents were aware of the law but wanted to check, and that is not consistent with the respondents’ solicitors having failed to advise them about Ezekwe.

I therefore proceed to determine the application for costs on its first basis, which is that the respondents were aware that the FTT had no jurisdiction in relation to the cluster rooms, because to do otherwise would be inconsistent with the position expressed by counsel for the respondents in argument to the FTT and to this Tribunal. That gives rise to a further inexplicable oddity which I have already noted (paragraph 21 above): in their application to the FTT the respondents gave no indication that they believed the FTT had no jurisdiction in relation to the cluster units, nor that they were aware of Ezekwe, nor that they made their applications only “out of abundance of caution”. But I accept what counsel has said in response to the application for costs and to the appeal.

Applying the three-stage enquiry set out in Willow Court, I have first to decide whether the respondents acted unreasonably in bringing the proceedings against “the owners of cluster units” in that circumstance. I quote those words from paragraph 18 of the costs application to the FTT in order to deal with a potential ambiguity. The appellants themselves are only some of the cluster unit holders; 77 of those whom Mishcon de Reya represented held cluster units (out of a total of 274), and 22 of them held studios (out of a total of 74). The appellants are a sub-set of those 99 and I do not know how many of them hold cluster units. The question arises whether the argument was that the respondents should not have brought proceedings against the 77 cluster unit holders whom Mishcon de Reya represented, or that they should not have brought proceedings against any cluster unit holders at all.

The answer to that question seems to me to be in the words I quoted: “the owners of cluster units”. The appellants did not say “those of us who hold cluster units”, but referred to all the cluster units, and so I take it that their argument was that proceedings should not have been brought against any cluster units at all.

Did the respondents act unreasonably in bringing proceedings against the owners of cluster units?

Going back to the events of August 2022, it is worth recalling that the appellants’ solicitors’ wrote to the respondents’ solicitors on 29 July 2022 (paragraph 15 above) seeking confirmation “that no attempt will be made to forfeit any lease on the basis of non-payment of service charge or breach of repair obligations without (a) service a s.146 notice (having first sought a determination from the FTT (where appropriate)); and (b) other than by proceedings”. On reading that letter the respondents and their representatives were not only reminded of the need for a determination under section 168 of the Commonhold and Leasehold Reform Act 2002 before service of a section 146 notice. They were also shown that the appellants’ solicitors were aware that such a determination would or might not be appropriate in all cases.

If therefore the respondents’ solicitors knew about the Ezekwe decision and had advised the respondents that there was no jurisdiction in respect of the cluster rooms (and as I said, I am deciding the costs application on this basis), the obviously prudent (as well as courteous) course of action in response to that letter would have been to write back and seek confirmation that the appellants agreed that there was no jurisdiction in relation to the cluster rooms. Why the respondents did not do so is unfathomable.

However, there were other leaseholders not represented by the same solicitors. As the respondents say, it might have been difficult to reach agreement about jurisdiction with all the leaseholders. That was not a reason not to send a letter before action, since to do so would be no less practicable than to serve service charge demands, for example, or indeed the FTT proceedings themselves. But I accept that correspondence before action might not have resulted in agreement with all the leaseholders.

Even if it had, the respondents might well have wanted to have the point confirmed by the FTT so as to make sure that the point could not be raised against them later. If all the leaseholders had agreed there was no jurisdiction in relation to the cluster units the respondents could have made their applications against all the leaseholders but could with the agreement of the leaseholders have asked the FTT to strike out the application in relation to the cluster units. That would have saved costs for everyone.

As it is, we do not know what would have happened if all the leaseholders had been asked to confirm that they did not regard the cluster units as dwellings. What we do know is that the respondents did not check with the very people who were in fact trying hard to communicate with them, and who had pointed out to them the necessity to make a section 168 application, namely the solicitors for these appellants. Had they done so the appellants would have agreed that the cluster units are not dwellings. If the respondents still felt the need to apply to the FTT, either because other leaseholders had not agreed the point, or even “out of abundance of caution” despite everyone’s agreement, then in that event the appellants who hold cluster units would not have experienced the stress of the application made in the form that it was, with no hint that there was actually no jurisdiction against them. Nor would they have needed to incur any costs in relation to jurisdiction; the respondents would have been asking the FTT to strike out the application with their consent.

Accordingly I agree in part with the appellants’ argument; I cannot go so far as to say that the respondents acted unreasonably in bringing proceedings against all 274 cluster units holders. But they did behave unreasonably in bring the proceedings in the form they did, without telling the FTT that they were aware of Ezekwe and knew that the cluster units could not be dwellings, and without first seeking to agree the position on jurisdiction of which their solicitors were aware. Had they done so, they would have been able to agree either not to bring proceedings at all, or to bring them on an “out of caution” basis and accompanied by an application, with the appellants’ agreement, to strike out the application as against the cluster units. Their behaviour was objectively unreasonable; it failed to meet the standard expected of parties who have taken legal advice.