Can a Cost Recovery Clause Survive the Small Claims Rules?

Case Study: Chaplair Ltd v Kumari [2015] EWCA Civ 798

In the case of Chaplair Ltd v Kumari [2015] EWCA Civ 798 (27 July 2015), the Court of Appeal held that legal costs incurred in the First Tier Tribunal and in situations where the case had been allocated to the small claims track, can be recoverable where the terms of the lease allows for recovery of costs.

This decision clarifies a long-standing issue for landlords regarding costs when a claim is allocated to the small claims track. A County Court Judge has the power to make a ruling for costs in the landlord's favour, despite the limitations imposed by the Small Claims Rules under Civil Procedure Rule 27.14.

The Implications for Landlords

It is a well established principle that, apart from issue fees and certain limited fixed costs, no costs are awarded to a successful party in a County Court small claims action (currently, with certain exceptions, claims of up to £10,000). This has the effect of deterring many landlords from commencing an action in the County Court for small claims such as rent arrears and service charges.

This judgment:

confirms the Court's approach to the issue of costs in cases such as Church Commissioners v Ibrahim [1997] EGLR 13 when what is pleaded is a contractual right to costs, here the tenant's covenants under the lease to indemnify the landlord in respect of the costs arising from the service charge challenge
that Civil Procedure Rule 44.5 exists to enable this
that in circumstances where a service charge issue is pursued before the Property Tribunal, but the Tribunal does not make an order on costs, the landlord may yet seek to recover its costs by applying to the court for an order pursuant to the lease terms

The Court of Appeals View

Lady Justice Arden's view the judge had applied the correct principle in this case concerned a claim for the landlord's contractual right to costs, ie a right to a full indemnity for the costs properly incurred and, therefore, the principles in Church Commissioners v Ibrahim applied, thus the matter within was the discretion of the court. The Court would generally give effect to a contractual right held by a party to proceedings.

The Leasehold Valuation Costs

The Court of Appeal also allowed the landlord to recover costs related to proceedings before the (then called) Leasehold Valuation Tribunal, to which the County Court had referred a claim for service charges even though the LVT ruled that the landlord’s costs could not be recovered. The Court of Appeal was clear that the decision of the LVT did not prevent a landlord applying to the court for an award of those costs under the terms of the lease.

Please contact Mark Oakley 0208 290 7337 or email moakley@judge-priestley.co.uk