In this article, we examine two recent decisions highlighting how unreasonable conduct in tribunal proceedings can impact costs awards. While refusal to mediate is a well-known example, other behaviours can also qualify as unreasonable. We focus on the cases of Alothman Holdings Ltd & Ors v Better Intelligent Management Ltd & Anor and Ulster Metal Refiners Ltd v Commissioners for His Majesty’s Revenue and Customs (COSTS [2024] UKUT 184 (TCC)), where courts analysed unreasonable conduct in the Lands Tribunal and its implications for costs awards.
Case 1: Alothman Holdings Ltd & Ors v Better Intelligent Management Ltd & Anor
Background
The case involved leaseholders at Phoenix Place, Liverpool, who appealed against the First-tier Tribunal’s (FTT) decision to deny costs despite finding it lacked jurisdiction in part of the proceedings. Phoenix Place, a student accommodation complex, included 348 units comprising studios and cluster rooms. Disputes arose in 2022 when the respondents, a freeholder and managing agent, issued breach notices after leaseholders refused to pay service charges for urgent window replacements.
The respondents sought determinations from the FTT on alleged breaches and requested dispensation from consultation requirements under the Landlord and Tenant Act 1985. The FTT determined it lacked jurisdiction over cluster rooms but retained jurisdiction over studio units.
The FTT’s Costs Jurisdiction
Under Section 29 of the Tribunals, Courts and Enforcement Act 2007, the FTT has discretionary power to award costs, further limited by Rule 13 of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013. Costs can only be awarded for:
1. Wasted costs due to improper, unreasonable, or negligent conduct.
2. Unreasonable conduct in proceedings.
3. Certain specified proceedings where costs follow the event.
In Willow Court Management Co v Alexander [2016] UKUT 290 (LC), “unreasonable” conduct was defined as actions lacking reasonable explanation, distinguishing between professional unpreparedness and mistakes by laypersons.
Decision on Appeal
The Upper Tribunal overturned the FTT’s decision, finding the respondents acted unreasonably by initiating proceedings regarding cluster rooms despite being aware of jurisdictional issues. The Tribunal ordered the respondents to pay 90% of the costs incurred by appellants holding cluster rooms (£19,327) while denying costs for studio-related proceedings due to legal uncertainty.
Case 2: Ulster Metal Refiners Ltd v HMRC
Background
Ulster Metal Refiners Ltd (UM), a Northern Ireland-based company, appealed HMRC’s denial of input tax credits due to suspected VAT fraud connections. UM successfully overturned 90% of HMRC’s claim in the FTT, securing a £427,278 VAT credit.
FTT Costs Decision
UM sought costs under Rule 10 of the FTT Rules, asserting it was the clear winner. The FTT denied costs, citing:
1. No clear winner in the case.
2. Untruthful evidence from UM’s director, Mr. Donaldson.
3. Mr. Donaldson’s litigation tactics, which the FTT deemed unreasonable.
Upper Tribunal Appeal
The Upper Tribunal (UT) granted permission to appeal, concluding that the FTT erred by failing to identify UM as the “clear winner.” The UT emphasized that under CPR 44.2, costs generally follow the event, with dishonesty by the successful party not necessarily overriding this principle.
Final Costs Decision
The UT deemed UM the overall winner but reduced its costs recovery to 40%, reflecting HMRC’s partial success and Mr. Donaldson’s dishonesty. The UT ruled that Mr. Donaldson’s conduct increased HMRC’s preparation time and warranted a significant costs reduction.
Key Legal Principles on Costs
1. Statutory Framework: Costs in tribunal proceedings are governed by the Tribunals, Courts and Enforcement Act 2007 and procedural rules specific to each tribunal.
2. Unreasonable Conduct: Defined as actions lacking justification, potentially leading to costs orders. Layperson errors are treated more leniently than professional negligence.
3. “Clear Winner” Rule: Under CPR 44.2, courts identify the successful party to determine costs. Partial success or misconduct can influence the final award.
Case Law Highlights
• Willow Court Management Co v Alexander (2016): Established the threshold for “unreasonable” conduct.
• Kidsons v Lloyds Underwriters (2007): Emphasized the importance of identifying a clear winner to ensure costs awards reflect overall justice.
• Hutchinson v Neale (2012): Confirmed dishonesty does not automatically negate costs recovery.
Conclusion
These cases underline the critical role of conduct in tribunal proceedings. Both the Alothman and Ulster Metal cases highlight that while costs awards often reflect success, unreasonable conduct—whether procedural missteps or deliberate dishonesty—can significantly alter outcomes. Legal representatives and litigants must approach tribunal proceedings with diligence and integrity to avoid adverse costs consequences.