Liam Philip Spender & Ors v FIT Nominee Limited & Anor

A costs-capping order on an appeal is discretionary, even where costs recovery was limited or excluded at first instance. The court must consider all the circumstances, including both parties’ means and the need to facilitate access to justice. That need carries substantial weight, but deterrence from an adverse costs order is not, by itself, sufficient. The evidence must be full and frank. A costs cap may be inappropriate where the appeal is wholly unmeritorious or where it would transfer unrecovered costs from participating tenants to other tenants through the service charge. The interaction between the costs rule and Landlord and Tenant Act 1985, sections 19 and 20 C, may therefore make a costs-capping order unjust.

The appeal arose from service-charge proceedings concerning security-system costs at an estate. The First-tier Tribunal found that the charges were reasonably incurred only to the extent of 19 per cent of the sums demanded. On the landlords’ appeal, the Upper Tribunal allowed the appeal, subject to an immaterial concession, and found the charges reasonably incurred.

Seventy tenants appealed to the Court of Appeal and sought a costs-capping order under CPR rule 52.19. They argued that the landlords’ estimated appeal costs would stifle the appeal, given the tenants’ individual exposure and the inequality of means. The central issue was whether limiting the landlords’ recoverable costs would facilitate access to justice consistently with the statutory service-charge regime.

1. Application refused. CPR rule 52.19 was engaged because costs recovery had been limited below, but that engagement merely conferred a discretion. It did not create an automatic entitlement to a costs-capping order.
2. The discretion requires consideration of the means of both parties, all the circumstances and the need to facilitate access to justice. Access to justice has substantial weight, but the ordinary deterrent effect of adverse costs is insufficient by itself. Evidence of means must be full and frank. Evidence that modest means would otherwise prevent pursuit of an appeal, while the opposing party could bear the risk, may justify an order. A wholly unmeritorious appeal weighs against one.
3. The court also noted that an order under the rule applies to the costs of the winning party on the appeal, whoever wins; it is not one-way costs shifting.
4. The decisive circumstance was the operation of Landlord and Tenant Act 1985, sections 19 and 20 C. A landlord may, subject to the lease and the statutory requirement that costs be reasonably incurred, recover litigation costs through the service charge. Section 20 C permits the court to prevent that recovery where it would not be just and equitable.
5. If the appealing tenants lost without a cap, they would bear the landlords’ assessed appeal costs. If a cap were imposed, the balance might be recoverable through the service charge from all tenants on the estate, including those who had not appealed. The proposed order would therefore shift the costs risk from the tenants pursuing the appeal to the wider tenant group. That consequence was inconsistent with justice and the overriding objective.
6. Prince of Wales Road RTM v Assethold did not assist because the same cost-shifting problem did not arise there. Nugee LJ agreed, observing that the real contest was between the appealing tenants and the other tenants. The application was refused.

• Court of Appeal (Civil Division): The application for a costs-capping order was refused.
• Upper Tribunal (Lands Chamber): The Upper Tribunal allowed the landlords’ appeal from the First-tier Tribunal and held, subject to an immaterial concession, that the service charges were reasonably incurred. No neutral citation is stated in the judgment.
• First-tier Tribunal: The tribunal held that the charges were reasonably incurred only to the extent of 19 per cent of the sums demanded.