The Court of Appeal has clarified the rule on payment of costs where one party acts unreasonably
In Lea & Others v GP Ilfracombe Management Company [2024] EWCA Civ 1241, the leaseholders of properties at Ilfracombe Holiday Park had successfully challenged a claim for £2.4m service charge brought against them by the managing agents.
The first tier tribunal (FTT) can make an order for costs against a party if that party has acted unreasonably in bringing, defending or conducting the proceedings. Otherwise, proceedings are cost-neutral.
The leaseholders’ appeal concerned, first, the appropriate test to be applied where one party claims the other has acted unreasonably. Second, it concerned whether the FTT erred in law by concluding the management company did not act unreasonably.
Delivering the main judgment, Lord Justice Coulson noted the relevant case law states that unreasonable conduct ‘can include conduct which is vexatious or designed to harass, but it does not require such conduct’. He said deciding whether conduct was unreasonable was a fact-specific exercise.
Coulson LJ said: ‘A good practical rule is for the tribunal to ask: would a reasonable person acting reasonably have acted in this way? Is there a reasonable explanation for the conduct in issue?’
On the second question, Coulson LJ said the service charge demand was ‘an abuse of the process: a claim for a huge sum of money that was unsupported by anyone, unjustified by any independent documentation, and known by its creator… to be invalid. Unsurprisingly, the claim failed in its entirety. In such circumstances, the bringing of the claim by [the management company] in the first place, and its conduct throughout the FTT proceedings, would prima facie appear to have been unreasonable’.
Coulson LJ ordered the management company to pay all the leaseholders’ costs of the tribunal proceedings, including the hearing.
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