July 15, 2016

Costs Recovery in Property Disputes

In the civil courts, the general rule is that the loser pays the winner’s reasonable and proportionate costs. A similar rule applies in Land Registration cases (previously known as Land Registry Adjudication). However the award of costs is always at the discretion of the judge. If a party wins their case, but at an early stage they refused to accept a reasonable settlement offer, the court is likely to reverse the general rule and order the winner to pay towards the loser’s costs.

Most disputes between residential flat owners and their freeholder/management company are now dealt with by the Property Chamber of the FTT. Examples are service charge disputes, leasehold enfranchisement and lease extension claims. The general rule on costs in the FTT is that each side should pay their own costs, whatever the outcome. This clearly differs from the civil courts, but the FTT rules do permit recovery of ‘wasted’ costs, and costs arising because of unreasonable conduct by the other party.

So what does acting “unreasonably” mean? For example, what if one party refused to accept a reasonable settlement offer, could the Tribunal make an adverse costs order against them? If a party pursues a case with low prospects of success, without taking legal advice, are they acting unreasonably? Until recently the position was unclear.

In the recent decision of the Upper Tribunal (which hears appeals from the FTT) in June 2016 of Willow Court Management Company (1985) Limited v Mrs Ratna Alexander and Others, it has been reaffirmed that an adverse costs order will be only be made in limited circumstances.

The Willow Court decision provides the following guidance:

  1. The Tribunal could order a representative to pay wasted costs. An example would be where a solicitor failed to prepare for a Tribunal hearing which results in the Tribunal being unable to hear the case properly, and ordering everyone to come back another day.
  2. There is a separate power to make a costs order where a party has acted unreasonably. In making this assessment the Tribunal must ask whether ‘there is no reasonable explanation for the conduct complained of’. Failing to accept a reasonable settlement offer on its own is unlikely to pass this test. Further, it is unlikely a lay person will be ordered to pay costs because s/he is unfamiliar with the law or rules of the Tribunal.

Even if the Tribunal is satisfied a party has acted unreasonably, it still has discretion whether or not to make an adverse costs order.

Finally, if the Tribunal decides to make a costs order, it has discretion as to the amount.

The Tribunal must always comply with its overriding objective to deal with cases fairly and justly. This includes recognising that many parties to tribunal proceedings are not legally represented.

It is clear this decision will make it harder for legally represented parties to recover costs in tribunal proceedings. The message is that costs in Tribunals should not become as significant as they are in the Civil Courts, to uphold the principle that those without legal representation should be able to bring and defend cases without fear of being ordered to pay costs to the other party. However there is a limit to the indulgence of the Tribunal.

Landlords and tenants should always check what the lease says when deciding whether to bring a claim. If the lease provides for landlords to recover costs, then that may take precedence over the tribunal rules.

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