Spender & others v (1) FIT Nominee Limited and (2) FIT Nominee 2 Limited [2025] EWCA Civ 1319 (Spender)
Background of the case
Spender concerned an application for a costs-capping order under CPR 52.19 in a service charge dispute relating to properties at St David’s Square in London.
The dispute began in the First-tier Tribunal which found in favour of the leaseholders. However, on appeal, the Upper Tribunal found in favour of the landlords. The leaseholders then brought an appeal to the Court of Appeal and simultaneously sought a costs-capping order under CPR 52.19. Crucially, only 70 of the 436 leaseholders chose to partake in the appeal.
The leaseholders’ position was that a costs capping order was required to facilitate access to justice. They argued that they could not vindicate their rights in court without running the risk of severe financial consequences, disproportionate to the total value of the service charges in dispute, should they lose the appeal. They also pointed to the inequality of arms between themselves, ordinary homeowners, and the landlord companies, who were ultimate subsidiaries of NatWest bank, although the evidence put forward by the leaseholders as to their financial position was not extensive.
The Regulatory Framework
Residential long leases often permit landlords to recover legal costs incurred in connection with a service charge dispute as part of the service charge. This was the case in Spender.
A landlord’s ability to recover such costs through the service charge is subject to the relevant court or tribunal’s power under Section 20C of the Landlord and Tenant Act 1985 to prevent that recovery from taking place if it would not be just and equitable.
It was noted that orders under Section 20C are commonly made when a leaseholder succeeds. In such circumstances, a losing landlord cannot equitably and justly recover their costs of litigation from a winning leaseholder through their service charge. By contrast, such orders are rarely made where the landlord wins in the litigation.
The Court’s Decision
The court derived the following principles from existing case law on the application of CPR r52.19:
- The rule only applies in appeals in which, at first instance, cost recovery was limited or capped (r52.19(1));
- Engagement of the rule does not automatically mean an order is warranted, rather that there is power to make the order in the exercise of the court’s discretion (Floyd LJ in Glass v Freyssinet);
- The discretion involves considering all the circumstances, including the means of both parties and the need to facilitate access to justice (r52.19(2));
- The fact that an appeal is wholly unmeritorious is a reason not to make the order (Blair v Wickes);
- Substantial weight must be given to facilitating access to justice (Lewison LJ in Short v Google); and
- Simply showing that the risk of adverse costs in the Court of Appeal is a deterrent is not enough, because that risk is meant to be a deterrent (Glass v Freyssinet). Evidence demonstrating that a party’s modest means has the result that they would not pursue the appeal due to the risk of adverse costs, whereas the other party can take that risk, would support making the order (Manchester College v Hazel andShorts v Google).
The Effect of a Costs-Capping Order in Spender
In Spender, if a costs-capping order were made and the leaseholders lost the appeal, those leaseholders would only have been liable for the landlords’ costs to the extent allowed by the order.
However, the remainder of the landlords’ costs would have been recoverable (so long as they were reasonable) as part of the service charge from the leaseholders as a whole class (i.e. all 436 leaseholders of St. David’s Square) and there would have been no basis for court to prevent such recovery under Section 20C Landlord and Tenant Act 1985.
In other words, the practical effect of a capping order would have been to shift the costs risk from the 70 appellant leaseholders to the whole group of 436. This outcome would unfairly distribute the adverse costs risk to those who played no part in the decision to appeal. It was held that this was not a result which accords with justice or the courts’ overriding objective, and therefore the appeal was denied.
Implications Going Forward
Spender establishes important limitations on the availability of costs-capping orders in the landlord and tenant context. In particular, a costs-capping order is unlikely to be made where its effect would be to transfer the costs risk from participating parties to non-participating parties.