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31 October 2016

New costs guidance for unreasonable behaviour - the 'carrot and stick' approach

The Upper Tribunal (Lands Chamber) (UT) has recently issued guidance on when costs will be awarded against a party for unreasonable behaviour  in bringing, defending or conducting proceedings.  You can now expect such orders to be the exception rather than the rule with the emphasis being on encouraging good behaviour but not discouraging claims. This could well be bad news for some.

The appeal in the case of Willow Court Management Company (1985) Limited v Alexander sets out clear guidance on the application of the First Tier Tribunal’s (FTT) power to award costs against a party for unreasonable behaviour in bringing, defending or conducting proceedings. 

Unreasonable behaviour

To answer the question of what is unreasonable, the UT referred to Sir Thomas Bingham’s “acid test” of “Would a reasonable person in the position of the party have conducted themselves in the manner complained of?”.

The test is objective but we are to take into account the legal knowledge of the actual party.  So, a different standard of conduct is to be expected of lay parties before a tribunal compared with professionally represented parties. The standard of behaviour to be expected of lay parties is not to be set at an unrealistic level.

Once behaviour is judged unreasonable the FTT should consider whether it ought to make an order for costs or not and finally what the terms of the order should be.  The Tribunal is exercising judicial discretion and there is no rule that the unsuccessful party should pay all of the other party’s costs (unlike in the courts). Instead, the nature and seriousness of the conduct will be taken into account.  It also appears that the FTT can take into account the personal circumstances of the party whose conduct is judged unreasonable when considering the amount of any award. 

The guidance is clear: such orders are not to be routine. 

Tribunal’s Responsibility

The UT emphasised the FTT’s responsibility to use their case management powers actively to encourage preparedness and co-operation. Unrepresented parties are to be helped to make sensible concessions. 

Our view The UT was clearly concerned that the costs jurisdiction should not discourage access to justice for unrepresented parties.  If there were a widely applied rule that a party judged unreasonable can be ordered to pay thousands of pounds worth of costs then it could be used to discourage members of the public from seeking redress for genuine disputes.

However it is a concern that unrepresented parties will have a lower standard of conduct expected of them than professionally represented parties.  Those who regularly deal with unrepresented parties find that the conduct of some can significantly increase costs and that a more routinely applied rule on costs may in fact encourage parties to drop weak points and settle earlier.

If we compare this approach to that of the courts, where it is routine for costs orders to be made against parties who are unsuccessful in their case, the costs risk can be a sobering prospect which can discourage unmeritorious claims or encourage a litigant in person to accept an early settlement once he or she realises that their case has little prospect of success. 

The UT’s answer to this problem appears to be to encourage the tribunals themselves to actively manage cases.  In the right cases the FTT should be reminded of the UT guidance on this point to ensure that unrepresented parties do not behave in a way that causes costs to be incurred unnecessarily.  We can expect the success of this policy to vary considerably depending upon the personalities involved in each case.

This article was written by Natalie Johnston. For more information please contact Natalie on +44 (0)20 74275210