Costs – First-tier Tribunal – Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 – Respondent RTM company claiming right to manage building – Appellant landlord initially resisting claim but withdrawing final objection on the second working day before hearing – FTT awarding costs in favour of respondent – Appellant appealing – Whether late withdrawal of objection to claim objectively unreasonable – Appeal allowed
The respondent RTM company sought to acquire the right to manage a building known as the Piano Works, 28-34 Fortess Road, London, NW5, under Part 2 of the Commonhold and Leasehold Reform Act 2002. The premises were part of a longer terrace of early 19th century buildings and were formerly in commercial use but they had been converted to create nine flats on four floors. The claim was initially disputed by the appellant landlord and the respondent applied to the First-tier Tribunal to resolve the dispute. A hearing date was fixed.
Eleven days before the hearing, the respondent sent additional evidence to the appellant’s managing agent. A week later, on the second working day before the hearing, the appellant withdrew its final objection to the claim.
At the hearing before the FTT, which only the respondent attended, it applied for an order for the payment of its costs under rule 13(1)(b) of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013; after receiving written submissions from both parties the FTT ordered the appellant to pay all the respondent’s costs of the proceedings (totalling £9,120) because it considered that the appellant’s “failure to engage in any dialogue or communication” with the respondent amounted to unreasonable conduct.
The appellant appealed. The issue for determination was whether the conduct found by the FTT to have been unreasonable met the objective standard of unreasonable behaviour capable of justifying an order under rule 13(1)(b).
Held: The appeal was allowed.
(1) The word “unreasonable” described conduct which was vexatious and designed to harass the other side rather than advance the resolution of the case. It made no difference that the conduct was the product of excessive zeal and not improper motive. But conduct could not be described as unreasonable simply because it led in the event to an unsuccessful result or because other more cautious legal representatives would have acted differently. The acid test was whether the conduct permitted a reasonable explanation. If so, the course adopted might be regarded as optimistic and as reflecting on a practitioner’s judgment, but it was not unreasonable: Lea v GP Ilfracombe Management Co Ltd [2024] EGLR 37 applied.
In assessing whether behaviour was unreasonable within rule 13(1)(b), a three-stage approach was suggested in Willow Court Management Co (1985) Ltd v Alexander [2016] EGLR 48: (i) whether a person had acted unreasonably. A decision that the conduct of a party had been unreasonable did not involve an exercise of discretion but rather the application of an objective standard of conduct to the facts of the case. If there was no reasonable explanation for the conduct complained of, the behaviour would properly be adjudged to be unreasonable, and the threshold for the making of an order would have been crossed: (ii) whether, in the light of the unreasonable conduct found to have been demonstrated, it ought to make an order for costs; if so (iii) what the terms of that order should be.
However, because of the fact-specific nature of the test, general guidance as to what constituted unreasonable behaviour could not be given. Unreasonable conduct could include conduct which was vexatious or designed to harass, but it did not require such conduct; that is just one way in which unreasonable conduct might be established. An assessment of whether behaviour was unreasonable required a value judgment on which views might differ. For an appellate tribunal to interfere, it had to be satisfied that it was not an assessment which a tribunal, properly directing itself in law, could have reached.
(2) The 2002 Act laid down a procedure which, if it applied and was followed by an RTM company, would have the consequence that the right to manage was acquired and rights, which might be valuable, would be transferred to the company without compensation. It was for the RTM company to show that the procedure applied and that it had been followed. The landlord or other party which received a claim notice was not required to volunteer its agreement to hasten the process. Nor was it required to rebut the RTM company’s case; it was entitled to see if the RTM company managed to prove it. It was not unreasonable for the recipient of the claim notice to allow the statutory process of acquisition to play out according to the timetable set by Parliament and by the FTT.
In the present case, the appellant did not require the respondent to prove its whole case. It limited its grounds of opposition and then conceded all issues except that the premises were self-contained. That was not unreasonable. The premises and the buildings in Fortess Grove were physically connected and it was not self-evident that the division between them was vertical. Putting the respondent to proof, meant putting it to proof that the property was a self-contained building or a self-contained part of a building.
(3) The FTT’s directions did not require the parties to engage in informal dialogue with each other. The FTT suggested that a lack of communication was not what would reasonably be expected from a respondent or its legal representative. However, that was not true of litigation generally, when there were often lengthy periods when directions had been complied with when nothing passed between the parties. It was even less true of RTM proceedings, where one party had nothing to gain by dialogue except to incur expense and hasten its loss of control.
(4) The absence of dialogue was readily explicable on both sides. The FTT had not required the parties to take any formal steps; the respondent’s solicitors had not initiated any communications; the appellant was entitled to put the respondent to proof of the entitlement to the right to manage, and there was no incentive for the appellant’s solicitors to initiate communication, at least until some evidence had been supplied. Nothing which happened between 6 March and 17 April amounted to unreasonable conduct on the part of the appellant.
Looked at objectively, none of the conduct on the part of the appellant or its solicitors relied on by the FTT was unreasonable. It followed that the FTT did not have discretion to order the payment of the respondent’s costs and its decision to do so had to be set aside.
The appeal was determined on written representations
Eileen O’Grady, barrister
Click here to read a transcript of Assethold Ltd v Piano Works Building RTM Co Ltd
