Unreasonable Conduct in the First-tier Tribunal

Willow Court v Alexander et al [2016] UKUT 0290 (LC)

On 22 June 2016, the Upper Tribunal (Lands Chamber) gave judgment in three conjoined appeals concerning the proper interpretation of Rule 13 of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013; four members of Hardwicke appeared in the case. The appeals shared a number of facts: each arose out of a dispute over service charges payable under the lease of a flat; each concerned a dispute between a lessee and a tenant owned management company; and in each the award of costs was greater than the amount of service charge in issue in the proceedings.

The Rule

Rule 13(1)(b) provides that a tribunal may make an order in respect of costs only if a person has acted “unreasonably in bringing, defending or conducting proceedings” in, amongst others, a residential property case. This is distinct from a tribunal’s power in Rule 13(1)(a) to order wasted costs against a legal or lay representative. In considering whether to make an order under either of these rules a tribunal is required by Rule 3(3) to give effect to the overriding objective. Thus, in construing Rule 13 a tribunal must do so in a manner consistent with its obligation to "deal with cases fairly and justly".

The Proper Interpretation of the Rule

In considering the proper interpretation of Rule 13(1)(b) and particularly the scope of the term "unreasonable" the tribunal borrowed heavily from the Court of Appeal in Ridehalgh v Horsefield [1994] Ch 205; a decision concerning wasted costs. The essential characteristic of wasted costs for the purposes of Rule 13(1)(a) is that, pursuant to section 29(5) of the Tribunals, Courts and Enforcement Act 2007, they are costs incurred by a party ‘as a result of any improper, unreasonable or negligent act or omission’ on the part of a representative. In Ridehalgh, guidance was given as to what amounts to "unreasonable" for the purposes of the court’s wasted costs jurisdiction. In brief, the "acid test" of what amounts to unreasonable is whether the conduct complained of "permits reasonable explanation".

The Upper Tribunal, whilst conceding that the decision in Ridehalgh was one made in the context of the wasted costs regime, held that in considering Rule 13(1)(b) a tribunal should ask itself whether a reasonable person in the position of the party would have conducted themselves in the manner complained of, alternatively, whether there is a reasonable explanation for the conduct complained of. In doing so the Upper Tribunal considered that the identification of unreasonable conduct should be the exception rather than the rule. It emphasised that litigants in person are often unfamiliar with both law and procedure and Rule 13(1)(b) should not be used to penalise them.

Having concluded that there has been unreasonable conduct, a decision which involves the application of an objective standard of conduct to the facts of the case, a discretionary power is then engaged in which a tribunal must 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. If so, the focus then moves, inexorably, to the terms of any order. At both these latter stages the tribunal is exercising a judicial discretion in which it is required to have regard to "all the circumstances".

Particular considerations

The Upper Tribunal continued by giving direction as to the weight to be given to certain circumstances.

1. The Upper Tribunal ruled that the fact that a person has acted without legal advice is relevant to the determination of whether their conduct is unreasonable or not. When considering objectively whether a party has acted reasonably or not, the question is whether a reasonable person in the circumstances in which the party in question found themselves would have acted in the way in which that party acted. Accordingly, the behaviour of an unrepresented party with no legal knowledge should be judged by the standards of a reasonable person who does not have legal advice. Moreover, the fact that a party acts without legal advice will be a mitigating factor in the assessment of whether a costs order should be made and the terms of that order.
    
2. The withdrawal of a claim even after the point at which it should have been clear to the relevant party should not of itself warrant a cost sanction under Rule 13(1)(b); admissions and withdrawals, even late in the day, should be encouraged rather than deterred for fear of a costs sanction.
    
3. The Upper Tribunal noted that unreasonable conduct is a condition of the Ft-T’s power to order the payment of costs by a party, but once that condition has been satisfied the exercise of the power is not constrained by the need to establish a casual nexus between the costs incurred and the behaviour to be sanctioned (in contrast to the wasted costs jurisdiction).

In the final section of its decision, the Upper Tribunal emphasised that applications under Rule 13(1)(b) should not be regarded as routine, should not be abused to discourage access to the tribunal, and should not be allowed to become major disputes in their own right. Moreover, any application is best considered in light of the tribunal’s decision. Only if the tribunal considers that there is a case to answer should the respondent be invited to respond to the criticisms made and to offer any explanation or mitigation.

Comment

The guidance given is welcome in many respects. In particular, the principled 3 stage test to be adopted in determining Rule 13 applications provides useful structure for litigants and tribunals alike. Further, the advice as to the timing and procedure to be adopted when an application is made is plainly a sensible way to prevent unnecessary costs and time being incurred on applications that, even on their face, do not cross the threshold for unreasonable conduct.

Other aspects of the decision are, however, open to question. The threshold at which the bar for conduct to be deemed ‘unreasonable’ for the purpose of rule 13 has been set very high indeed, with it reserved for only the ‘clearest of cases’. In effect, anything much less than evidence of deliberately unreasonable conduct will now not be good enough. Further, the creation of different standards of conduct depending on whether or not a party has had the benefit of legal advice is very difficult to apply in practice – is there to be cross examination as to what (privileged) advice has been given, or is the tribunal simply to make assumptions as to what a party might have been advised as to its position? And if there is to be a truly objective test of reasonable conduct, how can that objective test vary depending upon the individual circumstances of a party?

The decision is likely to be seen by represented parties as unfair in some circumstances. It is an all too regular occurrence in the First-tier Tribunal for an unrepresented party (more often, but not always, a tenant) to take points wholly outside the jurisdiction of the Ft-T, to turn up to a trial not having looked at the trial bundle, or to pursue a case simply to buy time or create mischief. There is a strong risk that in none of those instances would a Rule 13 costs application succeed – the first two instances not meeting the high threshold set, and the last not succeeding because a tribunal is very unlikely at trial to be interested in proper cross examination on the relevant points (motive for an application being of no assistance to the tribunal in determining most cases) – such that no factual determination on the relevant points to found a later Rule 13 application will be made.

No doubt some of the practical difficulties will need to be ironed out in due course. A considerable number of Rule 13 applications were placed on hold pending the outcome of this case. It would be interesting to know how many will now be abandoned…

Simon Allison and Rupert Cohen both appeared for the Respondent in Sinclair v 231 Sussex Gardens (one of the conjoined appeals).