Mr Z Virani -and- Chelsea Harbour Limited LON/00AN/LSC/2013/0467

April is the cruellest month, breeding

Lilacs out of the dead land, mixing

Memory and desire, stirring

Dull roots with spring rain.

Winter kept us warm, covering

Earth in forgetful snow, feeding

A little life with dried tubers.                TS Eliot

The Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 were sown in well-tilled soil: now, eight months after the germination of the First-tier Tribunal, there is a first hint of lilac.

In the absence to date of any appeals in the Upper Tribunal on the new costs rules, this decision, given by Professor James Driscoll, Mr Chris Gowman MCIEH and Mr Leslie Packer in the First-tier Tribunal, is useful and thought-provoking.

The substantive application

The lessee, Mr Virani, applied under section 27A for a determination of the estimated service charge payable for the year 2012-13 to Chelsea Harbour Limited, his landlord. The landlord resisted any reduction in the charges.

Mr Virani owned two apartments in Chelsea Crescent, a block containing 64 apartments, and itself located in a development with other blocks, houses, a hotel, marina, design centre, offices and an underground car park.

After a pre-trial review, the case was set down for a two day hearing.

A week before the hearing Mr Virani applied for an adjournment of the hearing on the grounds of stress. The application was refused.

Two days later Mr Virani repeated his application for an adjournment. The FTT responded that he would have to make the application on the first day of the hearing.

The landlord was represented at the hearing by Ranjit Bhose QC. Mr Virani did not attend the first day of the hearing, but his employee, a surveyor named Mr Hunt, represented him. Mr Hunt sought an adjournment on the grounds that Mr Virani was at an appointment with his consultant.

The landlord resisted the application.

The FTT refused to adjourn.

Mr Hunt took instructions, and informed the FTT that Mr Virani was withdrawing his application.

The costs application

The question of costs hove into view. Chelsea Harbour’s costs totalled some £20,000. It applied under rule 13 of the new rules for an order that Mr Virani pay its costs.

The FTT gave directions so that Mr Virani could make representations before it determined the application.

Mr Virani made no section 20C application, even though the landlord informed the Tribunal that if its application for costs was unsuccessful – either wholly or in part – the costs of the proceedings would be put through the service charge. The Tribunal noted that any such charges would be susceptible to a challenge as to their reasonableness under section 27A.

The FTT’s decision

The FTT granted the landlord’s application under rule 13. The order was limited to the costs of the hearing because Mr Virani “could have quite easily withdrawn his application at an earlier stage.”

The FTT’s costs powers

Professor Driscoll observed that: “the tribunal system is sometimes referred to as a ‘cost-free’ jurisdiction for, unlike court proceedings, the losing party cannot be ordered to pay the successful party’s legal costs. Common sense and experience has shown that leaseholders may have been deterred from using litigation to assert their rights by the prospect of losing the case and having to pay the other party’s costs”.

He compared the LVT’s powers with those of the FTT:

  • The LVT’s powers to make costs orders are subject to a £500 ceiling. They are contained in paragraph 10 of Schedule 12 to the Commonhold and Leasehold Reform Act 2002;
  • By contrast, if the FTT decides to make a costs order, there is no limit to the sum which it can require a party to pay;
  • Both jurisdictions are empowered to make a section 20C order, and
  • Both have one further power to “order one party to reimburse the other for the fee payable in making an application”.

The basis for making a costs order under new rules

In summary the FTT has the power to make:

  • An order for wasted costs under section 29(4) of the Tribunals Courts and Enforcement Act 2007;
  • An order for costs if a person has acted unreasonably in bringing, defending or conducting proceedings in … a leasehold case.

It was on the second point that the FTT was asked to adjudicate in this case.

The FTT’s approach

The FTT held that costs orders “under rule 13 should only be made in exceptional cases where a party has clearly behaved unreasonably. This is because the tribunal remains essentially a costs-free jurisdiction where an applicant should not be deterred … from fear of having to pay the other party’s costs should she or he fail in their application. Rule 13 costs should, in our view, be reserved for cases where on any objective assessment a party has behaved so unreasonably that it is only fair and reasonable that the other party is compensated by having their legal costs paid”.

Determination of the landlord’s application

The Tribunal determined that:

  • Mr Virani had been entitled to challenge the budgeted costs;
  • The landlord’s very detailed statement of case, drafted by a silk, was insufficient to justify an order for costs on the unreasonable behaviour basis, as was
  • Lack of success on the application.

The Tribunal looked considerably less favourably at the week or so leading up to the hearing.

By then Mr Virani:

  • Had received the landlord’s detailed paperwork, but by contrast
  • Had prepared little evidence of his own, and
  • Did not appear to have engaged anyone to represent him at the hearing.

Mr Virani came truly unstuck when the day of the hearing arrived:

  • No one was briefed to represent him if the application for an adjournment – already once refused – was refused again.
  • The withdrawal of the application was the final straw.

All this from a party who, to the Tribunal, seemed “to be a man with considerable involvement and experience in property matters”, owning as he did a company named LRP Richmond Properties Ltd, and sending his costs submissions in on the company’s headed paper. The Tribunal continued:

“Even though [he] may have been indisposed and unable to attend the first part of the hearing, he could have arranged legal or other representation, or he could have withdrawn his application in a timely fashion… in these circumstances, it is reasonable to conclude that the leaseholder could have withdrawn his application several weeks before the hearing…”

The order and its basis

Mr Virani could have withdrawn his application sooner. The Tribunal therefore ordered that he must pay the landlord’s costs of instructing counsel and attending the hearing, since those costs could have been saved by an earlier withdrawal of the application.

What the order was not

The Tribunal was at pains to emphasise that it had not found the lessee to be behaving unreasonably in challenging the budgeted costs, nor in continuing the application on receipt of the landlord’s evidence.

The amount of costs

The senior solicitor

The Tribunal allowed the rate of £250 per hour for Roger Hardwick of Brethertons solicitors. It considered that the case was sufficiently complex and the sums at stake sufficiently high to justify the experience brought by a senior solicitor.

It ultimately allowed six hours’ work at £250 per hour, plus £540 for a junior solicitor to attend the hearing.

Leading counsel

The Tribunal was less impressed with the decision to instruct leading Counsel, even though Ranjit Bhose QC was already familiar with the Chelsea Harbour development.

There were in the Tribunal’s view no complex legal issues to be argued, a point which would have become all the clearer as the hearing date approached.

Whereas the fee sought was £4,000 plus VAT, having been reduced by reason of the shorter hearing, the Tribunal reduced it still further to £2,500 plus VAT.

The amount payable

The lessee was required to pay £4,540 plus VAT to the landlord by 28 April 2014.

Observations

Three big points before I go anywhere with my observations:

1)    The new costs rules only apply to England. The LVT continues to exist in Wales, and the old LVT procedure rules apply there;

2)    First-tier Tribunal decisions, like LVT decisions, are not binding on other tribunals or courts, and

3)    Whilst I agree that the LVT and FTT may technically be costs-free jurisdictions, to my mind the playing field is not quite as level as it could be. Here is a second opportunity to read the article I wrote earlier this year on the subject.

Putting the balance through the service charge

The landlord intended to put through the service charge those costs which it did not recover directly from Mr Virani.

That may be entirely understandable for the costs which were not assessed by the Tribunal, but what about the £1,000 of Ranjit Bhose QC’s fee which the Tribunal did not allow?

It strikes me that a landlord runs the following risk if it applies for its costs under rule 13:

  • If, having carried out an assessment of costs, the Tribunal determines that, say, £1,000 is not recoverable under rule 13;
  • The landlord may have difficulty arguing that the £1,000 has been reasonably incurred and/or is reasonable in amount as required by section 19 of the Landlord and Tenant Act 1985.

This risk is thrown all the more sharply into focus by Martin Rodger QC’s observations about the FTT’s assessment of costs in the context of variable administration charges in Christoforou v Standard Apartments Ltd [2013] UKUT 0586 (LC).

It may just be me, but I have never seen an LVT or FTT carry out any assessment of the amount of costs payable on a section 20C application.

Tempting as it may therefore be to make a rule 13 application, a landlord may be better advised to rely on his/her contractual entitlements to put costs through the service charge under the lease.

Punitive costs

Siobhan McGrath, the President of the First-tier Tribunal (Property Chamber), spoke at the LEASE conference earlier this month. She described the costs provisions in the new rules as punitive.

In one of those rather Proustian moments which blend memory with external reality – in this case my fuzzy recollection of criminal law with the idea of FTT rules used punitively – it occurred to me that if the new costs rules are intended to be punitive, perhaps they should be couched, as are fines in the criminal courts, in such a way as to accommodate the misbehaving party’s ability to pay.

If that were the case, a landlord could put the balance of its legal costs through the service charge and argue that they were justified because they were not measured by reference to their reasonableness in the FTT.

The rules are not however framed that way: by rule 13(7) they are to be assessed pretty much in the same way that costs are assessed under the Civil Procedure Rules.

I’m not expecting a call any time soon from the Tribunal Procedure Committee.

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