Rule 13: Tribunal Procedure (First-tier Tribunal) (Property Chamber): Orders for costs, reimbursement of fees and interest on costs

(1) The Tribunal may make an order in respect of costs only—

(a) under section 29(4) of the 2007 Act (wasted costs) and the costs incurred in applying for such costs;

(b) if a person has acted unreasonably in bringing, defending or conducting proceedings in—

(i) an agricultural land and drainage case,

(ii) a residential property case, or

(iii) a leasehold case; or

(c) in a land registration case.

(2) The Tribunal may make an order requiring a party to reimburse to any other party the whole or part of the amount of any fee paid by the other party which has not been remitted by the Lord Chancellor.

(3) The Tribunal may make an order under this rule on an application or on its own initiative.

(4) A person making an application for an order for costs—

(a) must, unless the application is made orally at a hearing, send or deliver an application to the Tribunal and to the person against whom the order is sought to be made; and

(b) may send or deliver together with the application a schedule of the costs claimed in sufficient detail to allow summary assessment of such costs by the Tribunal.

(5) An application for an order for costs may be made at any time during the proceedings but must be made within 28 days after the date on which the Tribunal sends—

(a) a decision notice recording the decision which finally disposes of all issues in the proceedings; or

(b) notice of consent to a withdrawal under rule 22 (withdrawal) which ends the proceedings.

(6) The Tribunal may not make an order for costs against a person (the “paying person”) without first giving that person an opportunity to make representations.

(7) The amount of costs to be paid under an order under this rule may be determined by—

(a) summary assessment by the Tribunal;

(b) agreement of a specified sum by the paying person and the person entitled to receive the costs (the “receiving person”);

(c) detailed assessment of the whole or a specified part of the costs (including the costs of the assessment) incurred by the receiving person by the Tribunal or, if it so directs, on an application to a county court; and such assessment is to be on the standard basis or, if specified in the costs order, on the indemnity basis.

(8) The Civil Procedure Rules 1998, section 74 (interest on judgment debts, etc) of the County Courts Act 1984 and the County Court (Interest on Judgment Debts) Order 1991 shall apply, with necessary modifications, to a detailed assessment carried out under paragraph (7)(c) as if the proceedings in the Tribunal had been proceedings in a court to which the Civil Procedure Rules 1998 apply.

(9) The Tribunal may order an amount to be paid on account before the costs or expenses are assessed.

Willow Court Management Company (1985) Ltd v Alexander [2016] UKUT

• Guest post by Mark Loveday, barrister;
• Post I
• Post II
• Decision on the Upper Tribunal (Lands Chamber) website

I am not superstitious, but I cannot help observing that the Tribunal’s power to award costs falls under rule 13.

My mantra on this blog is neutrality, and as a neutral observer, instructed by both landlords and tenants, it has often seemed to me that the LVT is far from the no-costs jurisdiction that it was intended to be.

The contractual position between a landlord and a tenant, particularly under many of the more modern leases, tends to be that the landlord is entitled to recover the costs of proceedings to recover service charges either through the service charge, or directly from the lessee.

This has tended to put the lessee in a position where, even if successful on a determination of liability to pay a service charge, the best outcome that s/he/it can achieve is that both sides pay their own costs of the application. That same contractual position can put the landlord in a position where the best outcome is that the lessee pays the landlord’s costs. The lessee’s best outcome is the landlord’s worst. To my mind that does not stack up very well.

Welcome therefore rule 13, which applies to leasehold cases and therefore to service charge disputes before the Tribunal and arguably levels the playing field a little.

Structure of the rule

• Subrules (1) and (2) set out the circumstances in which an order for costs can be made by the new Tribunal;
• Subrules (3) – (6) explain how such an order is made, and
• Subrules (7) to (9) provide for quantification of the costs, interest and payments on account.

The key distinction between this rule and the previous legislation is however the disappearance of the £500 ceiling which governs the LVT’s power to award costs in paragraph 10 of Schedule 12 to the Commonhold and Leasehold Reform Act 2002. That provision will remain in force after 01 July 2013 in Wales, where the LVT and associated legislation will remain operational. In England however, under the new rules, if the Tribunal makes an order for costs, that order will be untrammelled, save by assessment on a case by case basis. 

When will an award of costs be made?

Subrule 1(a): Wasted costs

Representatives beware: subrule 1(a) allows the Tribunal to make wasted costs orders.

The rule refers to section 29(4) of the Tribunals Courts and Enforcement 2007, but for ease of reference, I have set out the whole section below.

Before I start typing it, a word of caution: subsections (1) and (2) of section 29 are not what they seem: they are limited by subsection (3).

The test for making a wasted costs order under subsection (4) is set out in subsection (5). It does not apply only to lawyers: it applies across the board to all representatives.

Section 29, Tribunals Courts and Enforcement Act 2007: Costs or expenses

(1) The costs of and incidental to–

(a) all proceedings in the First-tier Tribunal, and

(b) all proceedings in the Upper Tribunal, shall be in the discretion of the Tribunal in which the proceedings take place.

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

(3) Subsections (1) and (2) have effect subject to Tribunal Procedure Rules.

(4) In any proceedings mentioned in subsection (1), the relevant Tribunal may–

(a) disallow, or

(b) (as the case may be) order the legal or other representative concerned to meet, the whole of any wasted costs or such part of them as may be determined in accordance with Tribunal Procedure Rules.

(5)   In subsection (4) “wasted costs” means any costs incurred by a party–

(a) as a result of any improper, unreasonable or negligent act or omission on the part of any legal or other representative or any employee of such a representative, or

(b) which, in the light of any such act or omission occurring after they were incurred, the relevant Tribunal considers it is unreasonable to expect that party to pay.

(6) In this section “legal or other representative”, in relation to a party to proceedings, means any person exercising a right of audience or right to conduct the proceedings on his behalf.

(7) In the application of this section in relation to Scotland, any reference in this section to costs is to be read as a reference to expenses.

Subrule 1(b): Acting unreasonably

The question here is not whether it was unreasonable to bring, defend or conduct proceedings: as I read the rule, the question is whether the person doing that bringing, defending or conducting has acted unreasonably in the course of so doing.

This rule underpins rules 8 and 9 to the extent that even if a party escapes a strike out, the Tribunal can still show its disapproval by making an award of costs. It is a provision which may be particularly helpful to parties who have incurred the cost of professional representation, only to find, for example, that the other side produces relevant documents at the last minute, necessitating an application for an adjournment. Under the old rules, no real sanction could be visited upon the misbehaving party.

Subrule 2: Reimbursement of fees

The power to order the reimbursement of fees paid to the Tribunal existed under regulation 9 of the Leasehold Valuation Tribunal (Fees) (England) Regulations 2003/2098, and continues under the new rules, pretty much at the absolute discretion of the Tribunal.

What is the procedure for applying for an order for costs?

Subrule 3: An application

I anticipate that this will be the normal route for obtaining a costs order, and that most applications will be made orally. If however, the application is forgotten in the heat of the moment, the rules are forgiving, and allow an application to be made within 28 days of the events identified in subrule (5).

Subrule 4 requires that a written application for costs must be served on the intended paying party. It strikes me as advisable to send a schedule of costs detailing the amounts claimed with the application, since this will give the intended paying party an opportunity to deal with the sums claimed and/or to make quantifiable settlement proposals.

Subrule 3: The Tribunal’s own initiative

In similar style to new rule 9, the Tribunal can make an order for costs without an application being made, but under subrule 6 here the party within the Tribunal’s sights must be given an opportunity to make representations.

This rule therefore differs from the power under rule 9, because it only entitles the potentially paying party to make representations: rule 9 requires that all parties be given the opportunity to make representations when the Tribunal is considering a strike out.

How are costs quantified?

Subrule 7 sets out three methods, two forums and two bases for quantifying costs under the new rules.

The methods

These are summary assessment, agreement and detailed assessment.

• Summary assessment is a broad brush calculation carried out at the end of a hearing.
• Agreement speaks for itself, and
• Detailed assessment is a more lengthy procedure which effectively becomes its own litigation. It is not carried out at the hearing of the dispute, and is normally the route used by the courts for hearings which last more than a day.

The forums

An application for costs can be dealt with by the Tribunal or the county court. I do not know whether this means that the Tribunal will beg borrow or steal specialist costs judges from the Senior Courts Costs Office to carry out detailed assessment, or whether it will that expertise from its own number.

The bases

Broadly speaking:

• The standard basis is the normal basis:
• The indemnity basis is not such good news.

On circumstances which warrant an order for costs on the indemnity basis, the then Lord Chief Justice Lord Woolf in Excelsior Commercial and Industrial Holdings [2002] EWCA Civ 879, said, at §32: “…there is an infinite variety of situations which can come before the courts and which justify the making of an indemnity order [for costs] … In my judgment it is dangerous for the court to try and add to the requirements of the CPR which are not spelt out in the relevant parts of the CPR. This court can do no more than draw attention to the width of the discretion of the trial judge and re-emphasise the point that has already been made that, before an indemnity order can be made, there must be some conduct or some circumstance which takes the case out of the norm. That is the critical requirement”.

How do the two bases of assessment differ when the amount payable is being calculated?

The Civil Procedure Rules are useful here:

Under CPR r.44.3:

(1) Where the court is to assess the amount of costs (whether by summary or detailed assessment) it will assess those costs –

(a) on the standard basis; or

(b) on the indemnity basis,

but the court will not in either case allow costs which have been unreasonably incurred or are unreasonable in amount.

(2) Where the amount of costs is to be assessed on the standard basis, the court will –

(a) only allow costs which are proportionate to the matters in issue. Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred; and

(b) resolve any doubt which it may have as to whether costs were reasonably and proportionately incurred or were reasonable and proportionate in amount in favour of the paying party.

(3) Where the amount of costs is to be assessed on the indemnity basis, the court will resolve any doubt which it may have as to whether costs were reasonably incurred or were reasonable in amount in favour of the receiving party.

(4) Where –

(a) the court makes an order about costs without indicating the basis on which the costs are to be assessed; or

(b) the court makes an order for costs to be assessed on a basis other than the standard basis or the indemnity basis,

the costs will be assessed on the standard basis.

(5) Costs incurred are proportionate if they bear a reasonable relationship to –

(a) the sums in issue in the proceedings;

(b) the value of any non-monetary relief in issue in the proceedings;

(c) the complexity of the litigation;

(d) any additional work generated by the conduct of the paying party; and

(e) any wider factors involved in the proceedings, such as reputation or public importance.

Factors to be taken into account in deciding the amount of costs

These are set out in CPR 44.4:

(1) The court will have regard to all the circumstances in deciding whether costs were –

(a) if it is assessing costs on the standard basis –

(i) proportionately and reasonably incurred; or

(ii) proportionate and reasonable in amount, or

(b) if it is assessing costs on the indemnity basis –

(i) unreasonably incurred; or

(ii) unreasonable in amount.

(2) In particular, the court will give effect to any orders which have already been made.

(3) The court will also have regard to –

(a) the conduct of all the parties, including in particular –

(i) conduct before, as well as during, the proceedings; and

(ii) the efforts made, if any, before and during the proceedings in order to try to resolve the dispute;

(b) the amount or value of any money or property involved;

(c) the importance of the matter to all the parties;

(d) the particular complexity of the matter or the difficulty or novelty of the questions raised;

(e) the skill, effort, specialised knowledge and responsibility involved;

(f) the time spent on the case;

(g) the place where and the circumstances in which work or any part of it was done; and

(h) the receiving party’s last approved or agreed budget.

Amount of costs where costs are payable under a contract

Another situation considered by the CPR in r.44.5:

(1) Subject to paragraphs (2) to (3), where the court assesses (whether by summary or detailed assessment) costs which are payable by the paying party to the receiving party under the terms of a contract, the costs payable under those terms are, unless the contract expressly provides otherwise, to be presumed to be costs which –

(a) have been reasonably incurred; and

(b) are reasonable in amount,

and the court will assess them accordingly.

(2) The presumptions in paragraph (1) are rebuttable.

(3) Paragraph (1) does not apply where the contract is between a solicitor and client.

CPR r.44.5 is very relevant to service charge disputes where the lease provides for the lessee to pay the landlord’s costs of proceedings.

Neither CPR r.44.4 and r.44.5 apply however to a decision as to whether a lessee is liable for costs: they only apply to the quantification of those costs.

Interest

Pursuant to subrule 8, interest is only applicable under the rules to detailed assessments of costs. It is worth bearing in mind that, since 26 April 1999 and by virtue of section 17 of the Judgments Act 1838, the rate of interest payable on a debt under this provision is 8%.

Payments on account

Subrule 9 is applicable when the costs of proceedings are to be subject to detailed assessment: the length of the assessment process means that a party can be kept out their costs for months, and so the Tribunal has the power to order that the paying party makes a contribution up front.

If this is likely to happen, it is sensible to have a reasonably accurate idea of the total amount of the legal costs which are to be claimed: the payment on account is often a guesstimate of the amount that will be ordered for payment on detailed assessment – amounts between 50 and 70% of the costs claimed are broadly benchmark percentages for payments on account.

And finally

Does all this immediately apply to existing cases from 01 July?

Paragraph 7 of Schedule 3 to the Transfer of Tribunal Functions Order 2013 provides that “an order for costs may only be made if, and to the extent that, an order could have been made before 1st July 2013”.

A long set of observations, and there is undoubtedly more than can be written, but I will spare my keyboard. There are still 19 days to go until 01 July.