Zaid Alothman Holdings Limited & Ors v Better Intelligent Management Limited & Anor

Under rule 13(1)(b), whether conduct in bringing, defending or conducting proceedings is unreasonable is determined objectively. The question is whether there is a reasonable explanation for the conduct. If unreasonable conduct is established, the tribunal must separately decide whether to make a costs order and, if so, its terms.

A legally advised party acts unreasonably if, while aware that the tribunal lacks jurisdiction over a class of respondents, it brings proceedings in a form which conceals that position and fails first to seek agreement on it. A costs order should compensate only costs caused by that conduct.

The appellants were long leaseholders of student accommodation at Phoenix Place, Liverpool. The respondents, respectively the freeholder and managing agent, applied to the First-tier Tribunal for breach determinations and dispensation from consultation requirements in respect of studios and cluster rooms.

The First-tier Tribunal held that the cluster rooms were not separate dwellings and that it lacked jurisdiction over them. It nevertheless refused the appellants’ later application for costs under rule 13(1)(b) of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013.

The appellants appealed against that refusal. The central issue was whether the respondents’ issue of proceedings against cluster-unit holders, despite their stated awareness of the jurisdictional position, was unreasonable conduct warranting costs.

1. Appeal allowed. The First-tier Tribunal’s costs decision was set aside because it misunderstood the application. It addressed uncertainty about the jurisdiction over studios, whereas the application concerned the clear and undisputed absence of jurisdiction over cluster rooms.

2. The three-stage approach in Willow Court Management Company (1985) Ltd v Alexander [2016] UKUT 290 (LC) applied. First, unreasonable conduct is assessed objectively and is not discretionary. Secondly, if the threshold is crossed, the tribunal decides whether a costs order ought to be made. Thirdly, it determines the order’s terms.

3. The respondents had maintained that their applications were made out of caution to establish the legal position. The Tribunal therefore proceeded on the basis that they knew that, under JLK Ltd v Ezekwe [2017] UKUT 277 (LC), the cluster rooms could not be separate dwellings and the First-tier Tribunal had no jurisdiction over them.

4. It was not unreasonable merely to seek confirmation of jurisdiction in respect of all leaseholders. It was, however, objectively unreasonable to issue the proceedings in their chosen form: they did not disclose their jurisdictional position to the First-tier Tribunal and did not first seek agreement from solicitors who had invited communication and would have agreed the point. A consensual application to strike out the cluster-room claims could have avoided hostile proceedings and jurisdictional costs.

5. The conduct caused unnecessary stress and expense, so a costs order was appropriate. The respondents were ordered to pay 90% of the costs of appellants holding cluster units, summarily assessed at £19,327. No costs were awarded to studio holders for the jurisdiction issue because they would in any event have had to address the genuine dispute about jurisdiction over studios.

• Upper Tribunal (Lands Chamber): allowed the appeal, set aside the First-tier Tribunal’s refusal of costs, and substituted a costs order under rule 13(1)(b).
• First-tier Tribunal (Property Chamber): on 1 November 2023 refused the appellants’ costs application after earlier determining that it lacked jurisdiction over the cluster rooms.