Litigation costs: The winner takes it all......or do they?

We have reported previously on the First Tier Tribunal's ("FTT") decision in Carr v The Trustees of the JPMH Evelyn 1997 Settlement, where we acted successfully for the tenant, William Carr.

As a reminder, the FTT determined that William was entitled to a succession tenancy of the Holding and dismissed the landlords' application for consent to the operation of the notice to quit on grounds of sound estate management.

In April the FTT determined William's application for costs.

Costs in FTT Proceedings

In FTT proceedings, the convention that the loser usually has to pay the winner's costs does not apply. Instead, rule 13 of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules applies to agricultural land and drainage cases (which includes all Agricultural Holdings Act 1986 cases).

Those rules only provide the FTT with jurisdiction to make an order in respect of costs "if a person has acted unreasonably in bringing, defending and conducting proceedings." Therefore, a successful party will often not receive any contribution to their costs from the losing party. That can be a bitter pill to swallow when the costs of the proceedings have run to (often hundreds of) thousands of pounds.

Three-stage approach

When assessing whether to make a costs order, a 3 stage approach should be adopted (as laid down in Willow Court v Alexander [2016] UKUT 0290 (LC):

  • Has there been unreasonable conduct? That is not a matter of discretion but requires the FTT to apply an objective standard of conduct. If they do not find that the conduct has been unreasonable, they will not consider whether to exercise the power.
  • If there has been unreasonable conduct, the FTT should consider whether to make an order for costs in light of that conduct. Even if the FTT find that there has been unreasonable conduct, they must consider it appropriate to make an order.
  • The FTT must determine what the order for costs should be. If the FTT find there has been unreasonable conduct and an order for costs should be made, that does not automatically mean that the losing party is going to be ordered to pay the entirety of the winning party's costs.

 

  1. What will the FTT consider when determining whether there has been unreasonable conduct?

In exercising its discretion, the FTT is not "inhibited or constrained by the requirement of establishing a strict causal nexus between the unreasonable conduct and the costs said to be recoverable on the ground of that conduct".

The FTT must apply "a principle of relevance" and must have regard to the "nature, gravity and effect of the unreasonable conduct".

It must be remembered that the relevant conduct is the conduct in bringing the proceedings. Unreasonable conduct before the proceedings started will not be a factor, which the FTT is required to take into account. So it is the motive of the party bringing the proceedings,  that may be relevant in determining reasonableness.

A party will not be found to have been unreasonable because it was unsuccessful in the proceedings. The 'acid test' is "whether a reasonable person in the position of the party against whom costs are sought would have conducted himself, or herself, in the manner complained of."

The Objective Standard 

In Carr, the FTT said that the objective standard of conduct:

"should not be set at an unrealistically high level…costs ordered should be reserved for the clearest cases. A Tribunal should not be over zealous in detecting unreasonable conduct after the event. In particular… a Tribunal should be careful to guard against hindsight and against the determination of a costs application with the benefit of hindsight and with the ex post facto clarity that accompanies hindsight. Experience shows that that which is apparently obvious following analysis and determination is, often, very much less obvious prior to that determination."

If a party does not have legal representation then the objective standard would be that expected of a party in that position.

Where both parties have legal advice and representation, as was the case in Carr, then the objective standard being applied will have regard to that.

As to the level of costs to be paid, readers may have heard legal professionals refer to costs being assessed on the standard or indemnity basis.

The Standard Basis

The Court will only allow a party to recover costs which are proportionate to the matters in issue. Any doubt as to whether costs have been reasonably incurred or reasonable and proportionate in amount are resolved in favour of the paying party.

The Indemnity Basis

There is no requirement for the receiving party to establish that their costs are proportionate. The Court will resolve any doubt as to whether the costs were reasonably incurred or reasonable in amount in favour of the receiving party.

Indemnity costs inevitably means that the paying party will have to pay a significant amount more.             

  1. When the FTT establish unreasonable conduct, on what basis should the costs be paid?

Where the FTT finds that there has been unreasonable conduct then the losing party will have to pay the costs on the indemnity basis, where the conduct was not only unreasonable, but unreasonable to a high degree to take the case "out of the norm".

  1. What did the FTT determine?

In Carr, the landlord's behaviour was held to be outside the norm. The FTT found that not only was the landlords' application weak or speculative, it was one that should never have been brought, not least when the landlords had experienced legal representation throughout.

The FTT were particularly scathing of the landlords' conduct as regards one of its expert witnesses, who was found not to be truly independent and was a 'hired gun' put forward by the landlords to make their case, with evidence tailored to that purpose. This expert was seen as one of the landlords' team as opposed to a witness who should be impartial and independent.

The FTT ordered that the landlords should pay 80% of William's costs on the indemnity basis.

The FTT made the point that in a number of cases, where the conduct or lack of independence of an expert has necessitated an indemnity costs order, that does not extend to the entirety of the costs of the proceedings, but is limited to the costs incurred in connection with the expert and their conduct.

This FTT did not consider it appropriate in this instance, because the expert's conduct had "been at the heart" of the landlord's case.

Conclusion

When advising clients the costs of litigation must always be borne in mind. Clients' must always be forewarned that even if successful in litigation, they will not find themselves in a position where they will recover the entirety of the sums that they spend.

The decision in Carr is an extraordinary one. There have been few, if any cases, in recent years in which a party's conduct and the conduct of their main expert witness has been called into question and criticised so heavily.