The case of Connell & Lynn v Beal Developments Ltd, Eastman Securities Ltd and Burton Waters Management Company [2024] UKUT 54 (LC) considered the potential costs risk for leaseholders who wish to challenge service charges already determined by another neighbour’s application.
A copy of the Upper Tribunal’s decision can be found here.
Background
In a residential service charge dispute, the Tribunal has power to award costs under rule 13 of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 (“Rule 13”). Rule 13 has a high threshold. Pursuant to this rule, costs are awarded where a person has acted unreasonably in bringing, defending or conducting proceedings.
Section 27A(1) Landlord and Tenant Act 1985 permits leaseholders (and others) the right to apply to the Tribunal for a determination whether a service charge is payable and, if it is, as to the person by whom it is payable, the amount which is payable, and the date at which it is payable.
Landlords, management companies and Right-to-Manage companies can encounter multiple applications brought either jointly or separately by leaseholders challenging the level of service charges sought. This can be frustrating, particularly when similar issues are raised by leaseholders.
This case concerned a service charges dispute in relation to service charge for the years from 2013 to 2020. This was deemed “the 2020 application” within the decision. The leaseholders that applied under the 2020 application (“the Leaseholders”) were also joined by a separate leaseholder (“the Separate Leaseholder”).
The Separate Leaseholder had already brought an application in 2018 to challenge the service charges for the years 2015, 2016, 2017 and part of 2018. This was deemed “the 2018 application” within the decision. The 2018 application challenged circa £4,000.00 worth of service charges but was only successful in reducing this sum by £10.44. The 2018 application was only successful in challenging circa 0.3% of the sums sought. The Separate Leaseholder was ordered to pay the costs of the landlord for the 2018 application. It is important to note that the Leaseholders were not a party to the 2018 application.
Pursuant to the 2020 application, the Leaseholders and the Separate Leaseholder sought to challenge sums already determined in the 2018 application. In response to this overlap, the Tribunal struck out the parts of the application in relation to the sums that had already been determined. The Tribunal considered the challenge to the already determined 2018 application as amounting to frivolous or vexatious litigation.
On appeal the question before the Upper Tribunal was whether the overlap should have been struck out in relation to the Leaseholders i.e. should the Leaseholders be prevented from challenging sums already determined as payable (except for £10.44) due to the Separate Leaseholder’s 2018 application.
Upper Tribunal’s findings
The Upper Tribunal provided a short answer to this appeal which summarised that every leaseholder is entitled to a determination by the Tribunal of the service charges that they are liable to pay. That right cannot be removed from them by a decision made by the Tribunal about the service charge payable by someone else, whether or not the expenditure on which both service charges are based was the same. Therefore, the result from the Separate Leaseholder’s 2018 application, would not prohibit the Leaseholders from also challenging the sums under the 2018 application. The Upper Tribunal referred to the principle of everyone being entitled to a fair and public hearing under Article 6(1) of the ECHR as a factor in reaching this decision. The case was remitted back to the Tribunal for consideration.
The Upper Tribunal did warn the Leaseholders that the Tribunal can consider making a Rule 13 costs order against them, if the Tribunal is satisfied that the Leaseholders have behaved unreasonably in bringing or conducting proceedings. The warning went as far as pointing out to the Leaseholders that they should consider the Separate Leaseholder’s 2018 application and that they may not wish to bring the same issues, to avoid the risk of suffering a costs order.
Comment
The case makes it is obvious that a party cannot seek a second bite at the cherry and attempt to challenge a decision already determined by the Tribunal (a concept known as res judicata). However, in the context of a different party, the res judicata principle would not apply for the same sums. However, if there has already been a decision surrounding similar issues on the same service charge years in question, then a different party may wish to carefully consider what has and has not been determined in that decision to avoid a Rule 13 costs order being made against them. Should landlords, management companies and Right-to-Manage companies encounter similar issues being raised by their leaseholders to those issues already determined (in the favour of the payee), then it may assist to provide an early Rule 13 costs warning. This may prevent them from having to waste time and costs litigating over similar issues that are already subject to a previous Tribunal’s decision.
