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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