Settlement Sum Not Determinative Of Track Allocation Under CPR 46.13

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The Senior Courts Costs Office’s decision in Smith v Wigan Borough Council [2026] EWHC 660 (SCCO) concerned whether a claimant’s recoverable costs should be restricted to Small Claims Track levels following settlement of a housing disrepair claim for £1,000 plus repairs.

Background

The Claimant, Gillian Smith, an elderly and vulnerable tenant, brought a claim against her landlord, Wigan Borough Council, for disrepair of her residential premises and associated damages. The parties reached settlement during pre-action correspondence in accordance with the Pre-Action Protocol for Housing Disrepair Cases. The Defendant’s final Part 36 offer (dated 30 January 2025) provided for specified repairs to be completed within 56 days and payment of £1,000 in damages, plus the Claimant’s reasonable legal costs to be assessed if not agreed. Following a clarifying phone call on 4 February 2025 confirming the costs term was “on a standard basis”, the Claimant accepted the offer. The Claimant subsequently commenced detailed assessment proceedings via a Part 8 costs-only claim, resulting in an order for costs to be assessed on the standard basis. Following provisional assessment by a costs officer, who rejected the Defendant’s argument that costs should be restricted to Small Claims Track levels, the Defendant requested an oral review. That review was ultimately confined to a single issue: whether CPR 46.13 required restriction of costs to those allowable on the Small Claims Track.

Costs Issues Before the Court

The sole issue was whether, pursuant to CPR 46.13, the court should restrict the Claimant’s recoverable costs to those allowable on the Small Claims Track. This required a hypothetical retrospective analysis of whether the underlying disrepair claim would have been allocated to the Small Claims Track had proceedings been issued rather than settled pre-action. The determination turned on the application of CPR 26.9(1)(b), which provides that the Small Claims Track is the normal track for tenant disrepair claims where “the cost of the repairs or other work to the premises is estimated to be not more than £1,000” and “the value of any other claim for damages is not more than £1,000”. The Defendant contended the £1,000 settlement sum was highly persuasive, if not definitive. The Claimant argued the true value of the damages claim exceeded £1,000 and that the Defendant’s conduct in making Part 36 offers demonstrated acceptance that the claim would not be allocated to the Small Claims Track.

The Parties’ Positions

The Defendant’s Position: Mr Munro submitted that CPR 46.13 entitled the Defendant to argue for Small Claims Track costs notwithstanding the earlier costs order on the standard basis. He contended the court must conduct the CPR 46.13 exercise by examining the evidence, with the agreed settlement sum of £1,000 being a highly persuasive factor. He argued that as the Claimant had provided no evidence to support a pleaded value exceeding £1,000, the court should find the claim would have been allocated to the Small Claims Track. He distinguished Birmingham City Council v Lee [2008] EWCA Civ 891 on the basis it did not address the specific retrospective analysis required by CPR 46.13.

The Claimant’s Position: Mr Poole accepted the settlement sum had some relevance but argued it could not be the sole consideration. He placed significant weight on the Defendant’s conduct during settlement negotiations, specifically its use of three formal Part 36 offers, each referring to costs “to be assessed if not agreed”. As Part 36 does not apply to small claims under CPR 27.2(1)(g), he submitted this demonstrated the Defendant’s implicit acceptance that the claim would not be allocated to the Small Claims Track. He further argued that, based on the duration of disrepair (from December 2023), the Claimant’s vulnerability, and applicable rent diminution principles, the true value of the damages claim would have been pleaded at over £1,000. He relied on the Claimant’s detailed contemporaneous calculation of £1,304.96 to support this valuation.

The Court’s Decision

Costs Judge Nagalingam upheld the costs officer’s decision and rejected the Defendant’s CPR 46.13 argument. The court’s reasoning was multi-faceted.

First, the judge noted that CPR 46.13 is discretionary (“it may restrict”) and requires a holistic, hypothetical assessment using the language of “would have” and “if”, not a mechanistic application of the settlement figure. Significantly, the judge observed at paragraph 80 that “There is no reference to the settlement sum within the rule, and one observes that such a provision would likely have been included by the legislature were the settlement sum intended to be a definitive measure of retrospective allocation.” The judge found that “where parties agree a financial dispute by way of compromise, the settlement sum may be one measure of value but it is not definitive”.

Second, the court conducted a detailed analysis of the pre-action correspondence and the circumstances of the claim. The Claimant was an elderly, vulnerable tenant with multiple health issues, acknowledged as such by the Defendant. The disrepair persisted for over a year, during which the Claimant paid full rent. The judge calculated that the £1,000 settlement, when spread over the 69-week period of disrepair, represented compensation of £14.49 per week from the £80 weekly rent—a diminution of around 18%. At paragraph 79, the judge noted the Defendant had provided no “cogent explanation” as to why the court should accept the claim would have been allocated to the Small Claims Track, save for the settlement sum agreed. Crucially, the judge found at paragraph 91 that the Claimant’s contemporaneous damages calculation of £1,304.96, based on rent diminution principles and the Claimant’s circumstances, was “compelling contemporaneous evidence” that was “uncontradicted by any valuation evidence from the Defendant”.

Third, the court attached importance to the Defendant’s conduct. The making of three Part 36 offers, each stating costs would be “to be assessed if not agreed”, was incompatible with Small Claims Track procedure and, as the judge found at paragraph 56, “might reasonably lead one to conclude that the Defendant acknowledged the likelihood of this case being allocated to the Fast Track had it been issued”. The judge found at paragraph 54 that the Defendant’s wording “likely led to the Claimant assuming that no form of fixed costs argument would be advanced”, and at paragraph 88 that the final offer’s terms “strongly inferred no intention to argue costs on the basis of allocation to the Small Claims Track”. Allowing the Defendant to resile from this position would, the judge stated at paragraph 89, “imperil future settlements” and encourage the “undesirable practice” of parties trading offers which “either by pennies or a few pounds exceed the threshold to escape ‘would-be’ allocation to the Small Claims Track”. The judge linked this directly to the overriding objective, observing at paragraph 90 that it “is not best served by an approach to litigation which, in effect, requires Claimants to issue proceedings in order to achieve certainty as to costs recovery”.

Applying CPR 26.9(1)(b), the judge was satisfied that, based on the evidence of the claim’s circumstances and value at the time, it would not have been allocated to the Small Claims Track. At paragraph 87, the judge concluded: “I am in no doubt that the facts and circumstances as at the date of acceptance were such that had proceedings instead been commenced, this claim would not have been allocated to the Small Claims Track on the basis that pursuant to CPR 26.9(1)(b)(iii) the Small Claims Track would not have been the normal track for a ‘claim which includes a claim by a tenant of residential premises against a landlord’ where the value of the claim for damages would have reasonably been pleaded at more than £1,000 based on the circumstances presented at the time.” The provisional assessment was therefore finalised, with the Defendant ordered to pay the Claimant’s costs of the assessment and the oral review.

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Costs Capping Inappropriate Where Unrecovered Costs Shift To Non-Party Tenants

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The Court of Appeal’s decision in Spender v FIT Nominee Ltd [2025] EWCA Civ 1319 establishes that costs capping orders must be refused where their effect would be to transfer costs risk from appellant parties to non-parties through service charge recovery provisions.

Background

The case concerned an application for a costs capping order under CPR rule 52.19 in a dispute between tenants and their landlords regarding service charges. The appellants were 70 of the 436 tenants at St David’s Square in London E14, and the respondents were the landlord companies, which were ultimate subsidiaries of NatWest bank. The substantive proceedings related to the reasonableness of service charges for the estate’s security system. [§1]

The First-tier Tribunal had found in favour of the tenants, holding that the sums were reasonably incurred only to the extent of 19% of the charges demanded by the landlords. [§1] On the landlords’ appeal, the Upper Tribunal allowed the appeal, finding (subject to a concession on one aspect which was irrelevant to this application) that the charges were reasonably incurred. [§1] The tenants then appealed to the Court of Appeal. [§1]

In their appellants’ notice, the tenants had initially sought an order that both sides bear their own costs of the appeal, which was refused. [§2] The current application under CPR r52.19 was supported by a witness statement from Mr Liam Spender, who represented himself and the other appellant tenants. [§2] The tenants’ position was that without a costs capping order, their appeal would be stifled due to the disproportionate costs risk compared to their individual financial interests in the dispute. The tenants estimated the landlords’ costs at £150,000; counsel for the landlords gave an estimate of £90,000, which the court accepted as reasonable. [§3]

Costs Issues Before the Court

The court was required to determine whether to exercise its discretion to make a costs capping order under CPR r52.19, which applies to appeals from proceedings where costs recovery is normally limited or excluded at first instance. [§5] The key issue was whether such an order was appropriate in the context of landlord and tenant litigation, particularly considering the interaction between the Civil Procedure Rules and the cost recovery mechanisms under the Landlord and Tenant Act 1985. [§15-16]

The tenants argued that the usual costs rules would stifle their appeal, as the landlords’ estimated costs of approximately £90,000 were disproportionate to the £480,000 total service charge in dispute, which represented approximately £1,500 per individual appellant tenant (based on the total divided by 70 tenants in the litigation, though the overall value was spread across all 436 tenants on the estate). [§3, §18] They emphasised the inequality of arms between ordinary homeowners and corporate landlords, and the need to facilitate access to justice. [§3]

The Parties’ Positions

The appellant tenants contended that a costs capping order was necessary to facilitate access to justice. They submitted that without protection from adverse costs, they would be unable to pursue their appeal to vindicate their rights. They highlighted their success at first instance and the reversal by the Upper Tribunal, leaving them in an invidious position. [§3] The tenants pointed to the significant disparity in financial resources between the parties and the relatively modest individual financial stakes for each tenant. [§3]

The court noted that while the evidence from the tenants as to their financial position was not extensive, and that in other circumstances this might have been important, the decisive consideration related to the interaction between costs capping orders and the provisions of the Landlord and Tenant Act 1985. [§5]

The Statutory Framework

Both parties acknowledged that sections 19 and 20C of the Landlord and Tenant Act 1985 are relevant because they have a bearing on costs in proceedings of this kind. [§16] The starting point is that when there is litigation between a landlord and tenants, the landlord can often (depending on the terms of the lease) recover incurred litigation costs as part of the service charge. [§16] The general provisions of s.19 apply, so that only costs reasonably incurred can be charged via the service charge. [§16] Section 20C then gives the court power to prevent that recovery from taking place if it would not be just and equitable. [§16]

It was common ground that orders under section 20C are commonly made where the tenant succeeds. In such circumstances, it is not difficult to see why it would not be just and equitable for the landlord to recover, through the service charge, the costs of unsuccessfully prosecuting proceedings. [§17] On the other hand, it was also common ground that such orders are rarely made where the landlord wins in the litigation. [§17]

The Court’s Decision

The Court of Appeal refused the application for a costs capping order. [§21] Lord Justice Birss (with whom Lord Justice Nugee agreed) confirmed that CPR r52.19 was engaged because the appeal was from proceedings where costs recovery was limited at first instance. [§14(i)] The court derived several applicable principles from the case law [§14]:

(i) The rule applies (and only applies) in appeals in which, at first instance, cost recovery was limited or capped;

(ii) Engagement of the rule does not automatically mean an order is warranted (Glass v Freyssinet) – it means there is power to make the order in the exercise of the court’s discretion;

(iii) The discretion involves considering all circumstances, including the means of both parties and the need to facilitate access to justice (r52.19(2));

(iv) The fact an appeal is wholly unmeritorious is a reason not to make the order (Blair v Wickes);

(v) Facilitating access to justice is a factor of substantial weight (Lewison LJ in Shorts v Google);

(vi) 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). Bare assertions in the evidence will be treated with scepticism and evidence of means will need to be full and frank (Shorts v Google). However, 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 and Shorts v Google). [§14]

The Effect of a Costs Capping Order in This Context

The decisive consideration was the interaction between costs capping under the CPR and the cost recovery provisions of the Landlord and Tenant Act 1985. [§19] The court found that if a costs capping order were made and the tenants lost the appeal, the 70 appellant tenants would pay costs up to the cap (for example, £25,000). The remainder of the landlord’s assessed costs (for example, £50,000 using a £75,000 total figure) would be unpaid. [§18-19]

In that case, no order under s.20C of the 1985 Act would be likely. Therefore, the landlord would be able to recover those unpaid costs as part of the service charge, from the tenants as a whole – that is, all 436 tenants. [§19] In other words, the effect of a capping order in these circumstances would be to shift the costs risk of this appeal from the 70 appellant tenants to the whole group of 436 tenants of the property. [§19]

As a result, the tenants who chose not to be involved in this appeal would bear the costs risk which the appellant tenants, who did wish to bring the appeal, did not wish to bear. [§19] Lord Justice Birss held: “That is not a result which accords with justice or the overriding objective.” [§19] Therefore, even if this was otherwise a proper case in which to make a costs capping order of some kind, the consideration of the operation of s.19 and s.20C of the 1985 Act undermined that position. [§19]

The “Real Contest” Analysis

Lord Justice Nugee emphasized this point in his concurring judgment. His Lordship observed that the purpose of the tenants seeking a costs-capping order was to limit their exposure to an adverse costs order if they lose the appeal. [§23] But the practical effect of such an order in the present case would mean that any costs not recovered from the appellant tenants would (so long as reasonable) be recoverable from the tenants on the estate as a whole. [§23]

Lord Justice Nugee stated: “So the real contest in the present case is not between the tenants who are appealing and their landlord; the real contest is between the 70 tenants who have brought the appeal and the other 366 tenants on the estate who have not. Once seen in that light, I think it inevitably follows that it would not be just to make the order that is sought.” [§23]

Distinguishing Prince of Wales Road

The court noted that in the landlord and tenant case of Prince of Wales Road RTM v Assethold Ltd [2024] EWCA Civ 1544, the problem identified in the present case did not arise, and so the fact there was a costs capping order in that case did not assist the appellants. [§20]

Implications for Practice

This decision establishes an important limitation on the availability of costs capping orders under CPR r52.19 in landlord and tenant appeals. Where the effect of a costs cap would be to transfer unrecovered costs from participating appellants to non-participating parties through statutory cost recovery mechanisms (such as service charge provisions), the court will refuse to make such an order even where the standard criteria for costs capping might otherwise be satisfied.

The decision demonstrates that courts will look beyond the immediate parties to an appeal and consider the collateral consequences of costs orders on non-parties who would be affected by the exercise of statutory cost recovery powers. This is consistent with the overriding objective’s requirement that cases be dealt with justly and at proportionate cost.

For practitioners advising tenant clients considering appeals from tribunal decisions, this decision highlights the importance of:

  • Understanding how costs may be recovered through service charge mechanisms under the relevant lease and the Landlord and Tenant Act 1985
  • Considering the impact of a costs capping application on non-participating tenants
  • Recognizing that inequality of arms and access to justice concerns may be outweighed by the risk of shifting costs to non-parties
  • Distinguishing cases involving RTM companies or other structures where the cost-shifting problem may not arise

The decision also reinforces that costs capping orders remain discretionary and fact-sensitive, requiring careful analysis of the statutory and contractual framework within which litigation costs may be recovered.

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Coogan v Taheri [2025] UKUT 293 (LC)

The Upper Tribunal has dismissed an appeal against a £70,000 costs order made by the First-tier Tribunal (Property Chamber), confirming that unrepresented parties pursuing serious allegations without foundation can face substantial costs sanctions under rule 13(1)(b) of the Tribunal Procedure Rules 2013.

The Costs Dispute

Steven and Louise Coogan, unrepresented tenants of residential premises in London, brought multiple applications before the FTT against their landlords. Following a two-day hearing where only one minor allegation from their section 22 notice was substantiated – a 17-year-old statutory declaration matter – the landlords applied for costs under rule 13(1)(b).

The FTT made a costs order for £70,000, finding the tenants had acted unreasonably in bringing and conducting their applications. The tenants appealed, challenging both the finding of unreasonable conduct and the tribunal’s exercise of discretion in making the order.

The Costs Arguments

The landlords’ costs application rested on two grounds. First, they argued the tenants had pursued obviously hopeless allegations, noting that beyond the single substantiated matter from 2007, other allegations were unsupported by documents, inherently implausible, legally flawed, or too historical to be relevant to a manager appointment application.

Second, they contended the tenants had pursued serious allegations vexatiously, pointing to repeated unfounded allegations of harassment and fraud culminating in Mr Coogan’s skeleton argument accusing them of Bribery Act offences and comparing their conduct to torture of prisoners of war.

The tenants countered that their position reflected a genuine dispute legitimately pursued over 17 years of poor landlord-tenant relations, emphasising their substantial property improvements and reasonable concerns about contributing 25% towards roof repairs affecting only upper floors.

The Three-Stage Willow Court Test

The Upper Tribunal confirmed the established approach from Willow Court Management Co v Alexander [2016] UKUT 290 (LC), which requires sequential consideration of three questions:

  1. Has the party acted unreasonably?
  2. Should a costs order be made given any unreasonable conduct found?
  3. What should be the terms of any order?

At stage one, unreasonable conduct follows the Ridehalgh v Horsefield definition – conduct that is vexatious and designed to harass rather than advance case resolution. The acid test remains whether the conduct permits a reasonable explanation.

Stage One | Finding of Unreasonable Conduct

The FTT had properly considered the tenants’ unrepresented status but located them within the spectrum of unrepresented litigants, noting Mr Coogan’s property experience and Mrs Coogan’s advocacy skills. The Upper Tribunal rejected the argument that this imposed a higher standard, finding the FTT was correctly assessing what behaviour could reasonably be expected from these particular unrepresented parties.

Crucially, the FTT made a finding of fact that Mr Coogan was “willing to say whatever suited his purpose, regardless of its truthfulness.” The Upper Tribunal confirmed this amounted to a finding of dishonesty, noting that recklessness about truth falls within the classic definition of deceit.

The costs judgment had to be read alongside the substantive judgment and underlying materials, including the skeleton argument containing allegations of deliberate falsehoods, harassment, unlawful eviction, fraud, bribery, and modern slavery. Without a hearing transcript, the tenants could not discharge their burden of proving the FTT’s evaluation was wrong.

Stage Two | Exercise of Discretion

The FTT characterised this as a “bad case” where “obviously bad points were pursued vigorously” and “serious allegations of fraud and bad faith were bandied about vexatiously.” The Upper Tribunal found this assessment was open to the FTT based on the evidence.

The tribunal confirmed that “vexatiously” was used in its ordinary sense – conduct designed to harass rather than advance case resolution. The skeleton argument’s extensive allegations of criminal behaviour and misconduct supported this characterisation.

While a different tribunal might have exercised discretion differently, the FTT had properly directed itself on the law, considered relevant matters, and reached a rational conclusion.

The Appeal Decision

The Upper Tribunal dismissed the appeal on both grounds. The fact that the landlords subsequently voluntarily appointed the same manager the tenants had proposed did not vindicate the tenants’ approach, particularly given the FTT’s evaluation of how the application had been conducted.

The £70,000 costs order stands as a significant exception to the FTT’s usual no-costs approach, demonstrating that pursuing serious allegations without foundation can trigger substantial costs sanctions even for unrepresented parties.

This decision reinforces that rule 13(1)(b) provides meaningful costs protection for respondents facing vexatious tribunal applications. The three-stage Willow Court framework remains the established approach, with unreasonable conduct assessed objectively against the Ridehalgh standard. While unrepresented status remains relevant at stage one, tribunals can properly differentiate between different types of unrepresented litigants when assessing reasonable expectations of conduct.

Unreasonable conduct and costs in the First-tier Tribunal

Costs Of And Incidental To Proceedings In The Case Of Compulsory Purchase – Upper Tribunal (Lands Chamber) guidance on costs awards and the scope of proceedings, relevant to tribunal costs jurisdiction principles.

The Power To Strike Out Points Of Dispute In The First-Tier Tribunal – Upper Tribunal decision addressing vexatious conduct and abuse of process in FTT proceedings.

Unreasonable conduct and costs in the First-tier Tribunal – Contains detailed analysis of the Willow Court three-stage test and unreasonable conduct standards for unrepresented parties.