Kathryn Anne Lea & Ors v GP Ilfracombe Management Company Limited

In a costs-neutral tribunal regime, unreasonable conduct under rule 13(1)(b) is an objective and fact-specific question. It need not be vexatious or harassing. The tribunal should ask whether a reasonable person acting reasonably would have acted in that way and whether there is a reasonable explanation. It must first decide whether the conduct was unreasonable, then exercise its discretion on whether to order costs and on the terms of any order. A service-charge claim commenced without adequate supporting information, or for negotiation rather than determination of a bona fide dispute, may be unreasonable even if the legal issues are straightforward or likely to be challenged. An appellate court may exercise the costs discretion itself where remittal would serve no useful purpose.

The appellants were leaseholders at Ilfracombe Holiday Park. GP Ilfracombe Management Company Limited had demanded approximately £2.4 million in service charges and commenced proceedings in the First-tier Tribunal (Property Chamber). The FtT rejected the demands in full but refused to order GPIMC to pay the appellants’ costs under the Tribunal Procedure (First Tier Tribunal) (Property Chamber) Rules 2013.

The Upper Tribunal (Lands Chamber) upheld that decision. Permission was granted for a second appeal. The Court of Appeal had to determine the correct test for unreasonable conduct and whether the FtT had erred in concluding that GPIMC’s conduct did not justify a costs order.

Appeal allowed. GPIMC was ordered to pay all the appellants’ costs of the First-tier Tribunal proceedings, with assessment under rule 13(7) if not agreed.

1. Section 29 of the Tribunals, Courts and Enforcement Act 2007 gives the tribunal a broad costs discretion, subject to the Tribunal Procedure Rules. Rule 13(1)(b) does not require conduct to be vexatious, harassing or oppressive. Such conduct may be unreasonable, but it is not a necessary condition. The contrary suggestion in Assethold Limited v Lessees of Flats 1-14 Corben Mews [2023] UKUT 71 (LC) was wrong.
2. The applicable test is fact-specific. The tribunal should ask whether a reasonable person acting reasonably would have acted in the manner complained of and whether there is a reasonable explanation. This approach was adopted from Ridehalgh v Horsefield & Anr [1994] Ch 205, Willow Court Management Co (1985) Limited v Alexander [2016] UKUT 290 (LC) and Dammerman v Lanyon Bowdler LLP [2017] EWCA Civ 269. The inquiry has three stages: objective unreasonableness, discretion whether to order costs, and determination of the order’s terms.
3. An appeal against the finding of unreasonable conduct is an appeal against an evaluative decision, not simply the exercise of discretion. The appellate court gives the tribunal considerable latitude and intervenes only for a relevant omission, reliance on an irrelevant matter, or a conclusion which no reasonable tribunal could reach. The focus is the FtT’s original decision, rather than the Upper Tribunal’s refusal of the first appeal. The approach was consistent with Volpi and Another v Volpi [2022] EWCA Civ 464, SCT Finance Ltd v Bolton [2003] 3 All E.R. 434, Hislop v Perde [2018] EWCA Civ 1726 and Thakkar v Mican [2024] EWCA Civ 552.
4. The FtT failed to apply the correct objective approach. It did not directly address whether GPIMC had a reasonable explanation for demanding £2.4 million. It treated Mr Gubbay’s subjective belief that he was acting for the best as relevant without asking whether the conduct was objectively misguided. It also treated the straightforward nature of the legal issues and the likelihood of challenge as relevant when the claim was unsupported, known to be unjustified and incapable of succeeding. A bona fide service-charge dispute requires adequate supporting explanation and information and a reasonable period for consideration. Commencing proceedings without those matters was an abuse of process.
5. The potentially useful legal observations made by the FtT did not make the claim reasonable. GPIMC could instead have sought a determination under clause 27A(3) of the Landlord and Tenant Act 1985. Having found the conduct unreasonable, the Court of Appeal exercised the second-stage discretion itself. Remission would serve no useful purpose and would cause further delay.

• Court of Appeal (Civil Division): allowed the second appeal and ordered GPIMC to pay the appellants’ First-tier Tribunal costs.
• Upper Tribunal (Lands Chamber): dismissed the appeal from the FtT’s costs determination dated 14 June 2022.
• First-tier Tribunal (Property Chamber): rejected GPIMC’s service-charge demands in full, but refused the appellants’ application for costs.