The recent case of Avon Ground Rents Limited v Sarah Louise Child concerned an appeal against a costs award made by the First Tier Tribunal (Property Chamber). The appeal was successful in that it prompted the Upper Tribunal to revisit the costs award. However, in a somewhat ironic result, the Upper Tribunal issued an identical costs award, meaning that the Appellant's success will have come at significant cost with no monetary benefit.
Whilst the Upper Tribunal's determination may not have been of great practical value to the Appellant, it did offer the rest of us some welcome clarification as to how costs should be addressed when a judge is exercising "dual powers".
There is a clear theoretical divide between the jurisdiction of the County Court and the First Tier Tribunal, however in practice the issues raised in certain property claims can overlap this boundary. As a result the Courts and Tribunals Service has, in recent years, developed a flexible approach to the deployment of judges to allow matters which straddle the boundary between the County Court and the FTT to be dealt with in one fell swoop rather than being endlessly referred back and forth.
The most recent development has been the introduction in 2016 of a pilot scheme which allows a judge to sit "wearing two hats" – i.e. exercising both the jurisdiction of the County Court and the First Tier Tribunal. Whilst this offers increased efficiency, it also blurs the lines between the jurisdictions and can lead to procedural uncertainty. This is particularly true with regard to costs, where the rules in each jurisdiction are markedly different.
The Defendant was the tenant of residential premises pursuant to a long lease which contained straightforward covenants to pay a proportion of the service charge for the estate. From November 2015 to August 2016 the claimant landlord issued numerous demands for service charge and ground rent, however no payment or response was received. A money claim was issued in the County Court in October 2016 and the Defendant disputed her liability on the basis that the Claimant had not followed the required procedure in demanding the charges. Disputes of this type fall within the FTT's jurisdiction, and the County Court made an order transferring proceedings to the FTT (as it is empowered to do by virtue of the Commonhold and Leasehold Reform Act 2002).
Prior to the final hearing the Claimant's solicitors asked the FTT to clarify the basis upon which it planned to assess costs and asserted that the costs of the proceedings were not within the FTT's jurisdiction. The FTT stated that the judge would act as a County Court judge in assessing costs but offered no further clarification when the Claimant's solicitors subsequently pressed for more detail of the powers under which the FTT planned to make the costs assessment.
At the hearing the FTT determined that a reduced level of service charge was payable. It then went on to address the issue of costs, awarding the Claimant £2,796.96 of its total costs of £4,425. In making this assessment the FTT stated that it was determining "the costs claimed contractually as administration charges". A Court Order was produced separate to the FTT determination setting out the judgment on costs.
The Claimant appealed to the Upper Tribunal on four grounds:
- The FTT did not have jurisdiction to make a determination in respect of the litigation costs the Claimant had incurred as such costs did not form part of the specific issues referred to it for determination and neither party had made a separate application for the FTT to determine these costs.
- If the FTT did have jurisdiction to determine the matter the judge did not have power to produce a court order giving effect to the determination. The correct approach should have been for an FTT decision to be issued and for the Claimant to then apply to the Court for permission to enforce if required.
- The FTT failed to make clear the procedure it was adopting and the jurisdiction it was exercising in making the costs award. The judge had apparently moved between the roles of the Tribunal and County Court District Judge at will, without any clarity as to how he was acting at any given time.
- There was a breach of natural justice and due process in that the Claimant was not afforded the opportunity to put forward any detailed submissions regarding costs.
In its determination the Upper Tribunal set out the following principles regarding dual powers:
- Although flexible deployment of judges is to be welcomed they are still subject to the statutory provisions which govern the jurisdictions of the County Court and the FTT and must properly follow these rules at all times.
- Given the difference between the costs regimes in the FTT and the County Court, a judge exercising dual powers must be clear in his/her own mind as to which "hat" is being worn at each step of the decision making process. The lines between the two must not be blurred.
- The FTT erred in stating it had determined "the costs claimed contractually as administration charges" as although a tenant can make an application in this regard pursuant to schedule 11 of CLRA 2002 no such application had been made in this claim.
- Grounds 1 and 3 of the appeal were upheld. The statutory provisions which permit issues to be transferred to the FTT from the County Court only empower the FTT to address those discrete issues. Anything falling outside those issues (including costs) remains to be determined by the County Court unless any separate application is properly made to the FTT.
- Where the FTT is not empowered to assess costs, a judge exercising dual powers can make a costs assessment sitting as a District Judge in the County Court. This can be done on the same day, however the parties must be advised of the procedure in advance and the assessment must be entirely separate from the FTT hearing.
The Upper Tribunal did not need to assess grounds 2 and 4 of the appeal but did so anyway to provide further procedural clarity. Ground 2 was rejected and it was determined that the FTT judge sitting as a District Judge is entitled to give effect to the FTT's decision by way of a Court order. Ground 4 was upheld with the Upper Tribunal determining that a receiving party should be afforded the opportunity to make representations on costs as part of any assessment.
The Upper Tribunal set aside the FTT's costs initial costs determination of £2,796.96. Appropriately the Upper Tribunal then went on to sit as the County Court (making it clear it was doing so) and made a separate costs award of £2,796.96 on the basis that it had not been presented with compelling arguments to either increase or decrease the award. It was further determined that the parties should bear their own costs of the appeal.
The flexible deployment of judges is to be welcomed insofar as it can streamline the dispute resolution procedure and deliver cost and time savings for all involved, but the efficiency should not come at the expense of procedural certainty. The lines between the County Court and the First Tier Tribunal had become somewhat blurred in practice, and whilst this appeal did not lead to any tangible benefit for the Claimant, it did offer useful procedural clarification.
It is now clear that where a matter is referred to the FTT from the County Court its jurisdiction will be strictly limited to the specific issues referred to it. Unless parties are able to make an application regarding costs (or argue unreasonable conduct pursuant to the FTT rules) then the costs will fall to be assessed pursuant to the County Court rules which are a lot more favourable to a successful party.
Parties (and indeed judges) may have previously assumed that claims referred to the FTT from the County Court would be subject to the FTT costs rules, which carry a much lower costs risk. Going forward parties will have to be aware that if a claim originated in the County Court then there could potentially be a much greater costs risk attached to an unsuccessful outcome and this will be an important factor in determining the appropriate litigation strategy.