Lea & Ors v GP Ilfracombe Management Company Ltd

Factual and Procedural Background

This appeal concerns an order made by the First Tier Tribunal Property Chamber ("FtT"), upheld by the Upper Tribunal Lands Chamber ("UT"), refusing the costs of proceedings to a group of residential leaseholders ("the appellants") who successfully defended against a £2.4 million service charge claim brought by the managing agents, Company A. The appellants were leaseholders at a holiday park managed by Company A. The original proceedings commenced shortly after service charge demands were issued, and the FtT ultimately found the service charge claims to be invalid and unreasonable. The appellants sought their costs, but the FtT refused to award them against Company A. Permission to appeal this costs decision was granted, leading to the present appeal.

Legal Issues Presented

1. What is the appropriate test to determine whether a party has acted unreasonably such that it should be liable for costs in proceedings that would otherwise be costs-neutral?
2. Did the FtT err in law in concluding that Company A did not act unreasonably and therefore was not liable to pay the appellants’ costs?

Arguments of the Parties

Appellants' Arguments

• Company A’s claim was an abuse of process, being a large, unsupported demand with no genuine belief in its validity.
• Company A failed to disclose any supporting documentation despite references to such documents.
• The conduct of Company A and its representative was objectively unreasonable, warranting an order for costs.
• The FtT failed to apply the correct legal test and to consider relevant factors demonstrating unreasonableness.
• The appeal court should exercise its discretion to award costs rather than remit the matter back to the FtT.

Respondent's Arguments (Company A’s Representative)

• The proceedings were reasonable as they clarified lease interpretation and recoverability of service charges.
• The FtT’s findings on lease interpretation provided benefits to all parties.
• The claim was not unreasonable simply because it was unsuccessful.
• If the appeal court finds unreasonable conduct, the matter should be remitted to the FtT for reconsideration of costs.

Table of Precedents Cited

Court's Reasoning and Analysis

The court first established the correct legal test for unreasonable conduct in costs proceedings, adopting the well-established Ridehalgh test as clarified and applied in subsequent cases such as Willow Court and Dammerman. The test requires an objective assessment of whether the conduct complained of permits a reasonable explanation; mere failure or an unsuccessful outcome does not suffice to establish unreasonableness. Unreasonable conduct may include but is not limited to vexatious or harassing behaviour.

The court then examined the facts of this case, noting that Company A’s claim for £2.4 million was unsupported by any disclosed budgets, accounts, or professional reports. The sole witness and representative of Company A admitted he did not genuinely believe in the sums claimed and that the claim was intended to "elicit dialogue," which the court found to be an abuse of process. The FtT had found the claim to be invalid, unreasonable, and not payable in any part.

The court identified errors in the FtT’s costs determination, including a failure to apply the objective test for unreasonableness, treating the matter as discretionary rather than factual, and considering subjective beliefs of Company A’s representative rather than objective standards. The FtT’s acceptance that the claim was a reasonable course of action because it raised lease interpretation issues was rejected as an improper justification for commencing an unsupported and hopeless claim.

On appeal, the court concluded that no reasonable tribunal could have reached the decision that Company A’s conduct was not unreasonable. The court also rejected the suggestion to remit the matter back to the FtT for reconsideration, finding it appropriate for the appellate court to exercise the discretion to award costs directly given the delay and clear facts.

Holding and Implications

The court ALLOWED THE APPEAL and ordered Company A to pay all the appellants’ costs of the FtT proceedings, including the hearing, with costs to be assessed if not agreed.

The direct effect of this decision is that Company A is liable for the appellants’ costs due to its unreasonable conduct in commencing and conducting the service charge claim. No new legal precedent was created; rather, the court reaffirmed the established test for unreasonable conduct in costs proceedings and emphasized the importance of applying it objectively. The decision underscores that bringing unsupported claims without genuine belief in their validity constitutes unreasonable conduct warranting adverse costs orders.