Category: Service Charges

Categories
Service Charges

ARNOLD V BRITTON [2015] UKSC 36; [2015] 2 W.L.R. 1593 (SC)

My article ‘Arnold v Britton – why the tenants lost’ is out in the Landlord & Tenant Review (L. & T. Review 2015, 19(5), 209-211).

In it I consider whether the Supreme Court’s decision has made “commercial absurdity” arguments harder to run in cases concerning the interpretation of leases and explain how the particular circumstances of how the case proceeded at first instance may limit the apparent impact of the decision.

I also hint at an interesting point on a landlord’s entitlement to retain surpluses, which wasn’t run at first instance. There wasn’t space to cover the point in detail in the article and it’s probably worth another article in itself.

Categories
Service Charges

IS A SURPLUS FROM A FIXED SERVICE CHARGE THE LANDLORD’S?

In my recent article on Arnold v Britton in the Landlord & Tenant Review, I only had space to allude briefly to the question of whether a surplus from a fixed service charge accrues to the landlord but the answer is by no means as clear as a casual look at Woodfall would suggest. The decision of Walton J in Frobisher (Second Investments) Ltd v. Kiloran Trust [1980] 1 WLR 425 is often cited as authority for the proposition that a landlord has an absolute right to any surplus but the case actually decided that any right of recoupment rested in contract rather than trust: see 430B.

It is true that in Arnold v Britton on the first appeal Morgan J and in the Court of Appeal Davis LJ expressed the view that if payments made under the fixed service exceeded the amount of the landlord’s expenditure, the benefit of any surplus would accrue to the landlord for her own benefit but their comments, strictly, were obiter and are contrary to the Court of Appeal’s decision in Brown’s Operating System Services Ltd v. Southwark Roman Catholic Diocesan Corporation [2007] EWCA Civ 164, [2007] L&TR 25.

The contrary view was also expressed in Friends Life Management Services Limited v. A & A Express Building Limited [2014] EWHC 1463 (Ch), which is notable for being a decision of Morgan J, who decided in that case that a landlord is not necessarily entitled to retain surpluses for his own use: see 43.

Whether a contractual right to retain a surplus exists would appear to depend on the particular terms of the lease in question, although this is bound to be something that will be tested in future litigation.

A big problem for tenants would appear to be that if a right of recoupment is found to exist in their favour, on existing case law, it would appear to arise only at the end of the lease, which would make any right to recoupment problematic even in a lease of relatively short duration, not least because a lessee would lose the right in the event of a lease’s being terminated prematurely, for example by reason of a tenant’s breach of covenant — see Brown’s Operating System Services per Smith LJ 33.

Insofar as a right to recoupment may rest on an implied term, the ability to imply a term in a lease has recently been the subject of argument in the Supreme Court in Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited. The point under consideration was whether a term could be implied to entitle a tenant to a repayment of rent paid before but partially attributable to a period after the tenancy had been determined by the exercise of a break clause.

The submissions can be viewed at https://www.supremecourt.uk/watch/uksc-2014-0158/071015-am.html.

 
 
Categories
Service Charges

OOOPS – THAT SHOULDN’T HAVE HAPPENED, LET ALONE TWICE.

The appeals of Jarowicki & Prokhorova [2016] UKUT 435 (LC)

Paragraph 3 of Martin Rodger QC’s judgment in these two service charge appeals says all one needs to know about the cases of Prokhorova v Old Ford Housing Association and Jarowicki v Freehold Managers (Nominees) Limited which came together on appeal:

“ Each of these short appeals concerns a decision of the FTT under section 27A in a dispute over the amount of the service charge payable by the tenant of a leasehold flat. Although there is no other connection between the appeals we have determined them together because they share one striking feature, that is that in neither case did the decision of the FTT determine the fundamental question raised by the application, namely what amount was payable by the tenant to the landlord as a service charge.”

As to what should happen, the answer is at paragraph 11:

” We do not underestimate the practical difficulty of quantifying the sum payable in certain cases. In this case, for example, the FTT stated that the necessary information had not been made available by the Housing Association during the hearing. Nevertheless, the FTT has adequate case management powers under rule 6 of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 to direct at any time that a party should provide the information necessary to enable the tribunal to determine the amount of the service charge payable. Where the necessary information is not available at the hearing, or where it is not reasonable to expect the FTT to devote its own limited resources to the task of calculating what may be a large number of individual figures, the appropriate course is likely to be to direct the landlord or management company to recalculate the service charge in light of the tribunal’s decision and then to submit it to the leaseholder for agreement, giving both parties the right to apply to the tribunal if agreement cannot be reached. In all cases, however, the final responsibility for determining the sum payable lies with the FTT.”

Interestingly the landlord in the Jarowicki appeal resisted it on the basis that the sum owing could be worked out easily enough or could be corrected under the slip rule; both arguments were given short shrift at paras 17 & 18:

“17. … In circumstances where the potential for confusion and uncertainty was so great, it was incumbent on the FTT to make clear the answer to the statutory question posed by section 27A(1)(c) by determining the amounts payable as service charges. It should have stated those amounts as absolute figures rather than as percentages or proportions of unspecified sums which it left to the parties to interpret. Its omission to do so is was a breach of its duty to record its decision clearly and to provide proper reasons. If it was unable to do so on the basis of the information provided (which we think likely) it should have followed the course suggested in paragraph 11 above.

“18 Nor do we accept that the omission of the FTT to state the amount of the service charges payable is a matter which could have been dealt with under the slip rule. That failure was not a clerical mistake or an accidental slip or omission. It was fundamental to the statutory question which the FTT was required to determine. For that reason we allow the appeal.”

It is noteworthy that in Jarowicki, the Upper Tribunal did not simply remit the case to the the FTT for the appropriate figures to be calculated, at 19, Martin Rodger QC said this:

“In this case we consider it appropriate not simply to remit the decision to the FTT for further consideration, but to set it aside and require that the application be re-determined. It is apparent from the tribunal’s inability to specify figures, from the appellant’s application for permission to appeal and from the request of the respondent to provide further documents that the material presented to the FTT was incomplete and confusing. At the joint request of the parties the FTT made its decision on the basis of their written representations alone, without either party or the tribunal having the opportunity to seek or provide clarification of disputed facts. Many of Mr Jarowicki’s complaints concerned the quality of services provided and his evidence consisted of his own first hand observations supported in some cases by photographs. The FTT did not explain why it did not accept that evidence and it is difficult to see how it could evaluate it without hearing from the parties in person. In all of these circumstances we consider that the parties should be given the opportunity to present their cases in full, before either the same or a differently constituted tribunal.”

The two decisions must be seen as welcome in making clear the need for the rigour which should be applied by FTT in determining service charge liabilities.

One Way of avoiding the Problem

In the latest leg of the Phillips v Francis litigation – PCTA v Francis – before the FTT in October, it proved possible to deal with a 5 year tranche of service charges in a little under 5 days (notwithstanding that the trial bundle ran to 20 lever arch files)  by using Scott Schedules, which, I would suggest, ought to be the norm in larger service charge disputes. Furnishing the FTT with an electronic copy may not save it from having to determine individual liabilities but it should ensure that when a judgment is produced there will be no doubt about what has been awarded and in respect of which invoice.

Don’t Forget Service Charges are Contractual

My only slight carp about this otherwise admirably robust judgment is that the opportunity was not also taken to remind the FTT that whereas there is no burden of proof on landlord or tenant in relation to determining reasonableness, service charge claims are claims for a contractual liability and the burden of proving that a sum is contractually due in the first place lies on the landlord.

Although there is no direct authority on the point in relation to the FTT, I would suggest that the reasoning in Foilagen v Ritjo Properties (1981) The Times, 12 October 1981 (CA) applies which means that, in cases where what is contractually due is at issue, it is the landlord who should go first, regardless of by whom the application has been made.

Categories
Service Charges

SERVICE CHARGES: CONTRACTUAL LIABILITY UNDER THE LEASE; FAIRNESS & ESTOPPEL BY CONVENTION

I’ve made this observation before but the starting point of any determination under Section 27A of the Landlord & Tenant Act 1985 of the amount of a service charge liability ought to what is prima facie contractually due under the lease.

However in the FTT where one or both parties may be unrepresented, the terms of the lease are not always uppermost in the minds of the landlords  and tenants in dispute, something conveniently illustrated by Admiralty Park Management Company Limited v Ojo [2016] UKUT 421 (LC) which was decided in September 2016. The case also offers some useful guidance as to how the FTT should proceed where the parties have neglected to apply their minds to something so basic as: what is actually due under the lease?

Ojo also offers useful guidance on procedural fairness and rather less useful guidance on the application of estoppel by convention (by which I mean, it employed a slightly flawed analysis of estoppel by convention albeit to produce the right result).

In Ojo the FTT of its own motion raised for the first time at the start of the hearing decided that the service charges had not been calculated in accordance with the method prescribed by the lease and, having refused the management company, to which the service charge was payable an adjournment, to deal with the point, it went on to hold that the tenant was not liable to pay service charges for the years 2010 to 2014 for services provided by the appellant.

On appeal it was argued that there had been a serious procedural irregularity in the conduct of the proceedings in that the FTT should only have decided the issues raised by the parties and not raised the impermissibility of the mode of calculation of its own motion or, as a fall-back position, that the requested adjournment should not have been refused.

Essentially what had happened in relation to the calculation was that the managing agent had apportioned charges equally between a number of different properties it managed for the same landlord, whereas, under the lease, what should have been charged was a proportion of the service charge expenditure on the single property in which the tenant’s flat was situated.

The exact consequence of apportioning the service charges in this way was impossible to ascertain and was likely to have varied from year to year.The method of accounting adopted by the appellant (which the appellant’s managing agent inherited from a previous agent) was more simple and convenient because it avoided the need to keep separate accounts for each of nine buildings, but it was accepted that it did not conform to the scheme laid down by the lease. No objection to the appellant’s mode of accounting had ever been taken by the tenant nor any other tenant on the estate.

The FTT had asked the appellant’s representative how the method of apportionment it had adopted could be reconciled with the charging provisions of the lease and it its decision had dealt with the exchange which had ensured as follows:

“The short answer appeared to be: this is the way the respondent has run the estate. In other words the respondent could not submit that it had followed the service charge regime outlined above. Later, after a substantial adjournment for [the appellant’s representative] to take full instructions, he sought to justify the respondent’s position by seeking to argue that it was entitled to charge Mr Ojo on this basis by virtue of an estoppel by convention as this was the way in which the service charge had been calculated for a number of years. All blocks, he argued, were treated to the same regime and there were useful and beneficial economies of scale. That, with respect, arguably confuses management with charging for it, though it might well be for Mr Ojo’s benefit. But it also runs the risk that a tenant in one building is charged for works carried out in another building for which he has no liability. That much is clear from the schedule submitted by the respondent which starts with a charge for another block for which Mr Ojo has no liability. Further, it would be wholly unacceptable to allow a litigant to put forward such an argument at this late stage, without pleadings, evidence, and advance notice to Mr Ojo that the respondent was claiming the service charge on some variation of the contractual basis.”

Having refused to allow the appellant any further opportunity to attempt to answer the point it had raised, the FTT went on to determine that, because the appellant was unable to justify the charges it sought to recover by reference to the terms of the lease, the tenant’s liability was nil for the four years in issue. It described this outcome as “inevitable though regrettable” because it was clear that the tenant should owe something but the amount was impossible to determine on the limited evidence available.

Three issues arose on appeal:
(1) Whether the FTT had acted without jurisdiction, or in a way which was procedurally unfair, by reaching its decision on the basis of a new point which had not been relied on by the tenant or identified before the hearing, and without the appellant having been allowed an effective opportunity to consider and address it.
(2) Whether the tenant was prevented from objecting to the manner in which the Management Charges had been calculated in the past, because he had not raised any such objection since at least 2009.
(3) What Management Charge, if any, was the tenant liable to pay in respect of the years 2010 to 2014.

On the first issue, the Upper Tribunal (The deputy President, Martin Rodger QC) in relation to the FTT’s having raised the terms of charging provisions of its own motion was robust and cited the following passage from Regent Management Limited v Jones [2012] UKUT 369(LC) the Tribunal (His Honour Judge Mole QC) on the entitlement of the LVT (the FTT’s predecessor tribunal) to raise issues which had not occurred to the parties:

“The LVT is perfectly entitled, as an expert tribunal, to raise matters of its own volition. Indeed it is an honourable part of its function, given that part of the purpose of the legislation is to protect tenants from unreasonable charges and the tenants, who may not be experts, may have no more than a vague and unfocussed feeling that they have been charged too much. But it must do so fairly, so that if it is a new point which the tribunal raise, which the respondent has not mentioned, the applicant must have a fair opportunity to deal with it.”

Although the Deputy President did not demur from the decision in Birmingham City Council v Keddie [2012] UKUT 323 (LC) in which it had been said that the LVT was not “an inquisitorial tribunal”and that:

“… where an LVT does feel compelled of its own volition to raise an issue not raised by the application or the parties, it must as a matter of natural justice first give both parties an opportunity of making submissions and if appropriate, adducing further evidence in respect of the new issue before reaching its decision.”

he went on to say:

“28 Where an application is made to the FTT for a determination under section 27A of the 1985 Act the overarching question to be addressed is, usually: what sum, if any, is payable as a service charge by leaseholder. In order to answer that question a number of sub-questions or individual issues are likely to have to be addressed, but the tribunal’s most important task is to determine that amount.

29 Bearing in mind the FTT’s overriding objective of dealing with cases fairly and justly, avoiding unnecessary formality, seeking flexibility and using its expertise effectively, care should be taken by tribunals to avoid adopting an approach which is too narrow, technical or fixated on adherence to procedure for its own sake. This is especially the case where one or more of the parties is unrepresented and where the FTT is likely to be very much better equipped than the parties to identify all of the important issues which need to be considered before the correct sum due from the leaseholder can be identified. An experienced tribunal, guided by the overriding objective, will have no difficulty in distinguishing between a point of significance which the parties may have overlooked, and a point with no real merit which it would be in nobody’s interest to raise for consideration.

30 In this case the appellant’s departure from the scheme of accounting required by the lease was so fundamental that it was both proper and inevitable, in my judgment, that the FTT should raise the issue at the hearing. When it appeared to the tribunal that sums had been claimed and included in the service charge which fell outside the scope of the fifth schedule because they related to other buildings, it was undoubtedly entitled to ask for an explanation. The fact that Mr Ojo may not have appreciated that the service charges were being demanded on a different basis from the lease did not require the FTT to shut its eyes to an obvious and potentially fatal irregularity. It was, in any event, part of Mr Ojo’s challenge to the service charges that they included at least one item of expenditure, on the employment of a caretaker, which was not wholly for the benefit of his building or even of his estate. It was within both the broad question which the FTT was required to determine, namely the quantum of Mr Ojo’s liability, and this more specific issue, for it to consider the extent to which the charges were consistent with the contractual scheme.

31 I therefore do not accept that part of Mr Fain’s argument which suggests the FTT was simply not entitled to raise the issue of the compatibility of the appellant’s practices with the contractual charging provisions.”

As to the refusal of the adjournment, however – and perhaps inevitably given the history outlined above – the Deputy President was equally clear, saying, at 32:

“… As was emphasised in both Regent Management and Keddie , where a tribunal raises a new point which has not previously been referred to by either party, before reaching its decision it must as a matter of natural justice give both parties an opportunity of making submissions and, if appropriate, adducing further evidence in respect of the new issue. The FTT regarded it as unacceptable to allow the appellant to put forward an argument based on long practice without giving notice in advance to Mr Ojo. I agree that that would have been unfair, but the same unfairness was visited on the appellant by its not being given adequate notice of, or a sufficient opportunity to respond to, the point taken by the FTT.”

He therefore agreed that the FTT’s decision had been arrived at on a basis which was unfair.

The Deputy President went on to hold at 45:

“It would be unfair for Mr Ojo now to be allowed to dispute his liability in those circumstances on grounds which he had chosen not to raise for many years. For him to be permitted to do so would require the appellant to recalculate the service charges back at least to 2009 in order to ascertain Mr Ojo’s correct contribution, which may be more or less than the sums he has actually been charged. If Mr Ojo has been overcharged (and there is no basis for the conclusion that he has) it would mean that other leaseholders in the estate have been under charged, but it would be difficult for the appellant to recoup the shortfall after so prolonged a lapse of time. In all of those circumstances I accept the appellant’s case that Mr Ojo’s liability should be ascertained on the assumption that the lease allowed the appellant to apportion liability for costs incurred in relation to the estate as a whole amongst all of its leaseholders, rather than requiring it to apportion liability for work to an individual building only amongst the leaseholders of that building.estoppel by convention”

and determined his service charge liability accordingly.

The modern law of estoppel has been bedevilled by a laxity of expression and a failure of analysis; something I examined a few years ago in an article in Landlord & Tenant Review – The fraudulent tenant: equity, estoppel and statutory purpose (Case Comment on Newport City Council v Charles [2008] EWCA Civ 1541; [2009] 1 W.L.R. 1884) L. & T. Review 2010, 14(2), 63-66. The result is that the main species of the ‘modern’ estoppels, proprietary estoppel, promissory estoppel and estoppel by convention have often been misidentified and the law applicable to each has been subject to a degree of cross-contamination. Estoppel by convention is the one modern estoppel of which it is probably correct to say that it is a “shield and not a sword” (as I explained in the L&TR Article, there is a long history of the phrase having been used of “infancy” but the evidence of its ever having been applied to estoppel of any kind before 1975, when it was said in Crabb v Arun DC [1976] Ch. 179 is dubious to say the least).

Estoppel by convention thus operates regularly and quite properly as a defence to recovery of historically overpaid sums but it does not conventionally assist in establishing a future (or currently unpaid or disputed) liability. The difference between estoppel by convention and proprietary and promissory estoppel, I would suggest (although I would accept this is implicitly suggested rather than being explicitly stated by the authorities) is that because it relates to past actions, reliance and detriment  is presumed, whereas the two latter require reliance and detriment to be proved

The Deputy President’s summary at 45 does, however, suggest that because the exercise of going back and calculating the tenant’s actual liability was, in all probability, if not impossible, prohibitively expensive, recovery on the basis of promissory estoppel might well have been justifiable on the basis of actual detriment, which is why I am not critical of the result, only the route by which it was reached.

On the need to consider first the tenant’s contractual liability and on fairness, Admiralty Park Management Company Limited v Ojo is an exemplary decision.

Categories
Service Charges

RENT, SERVICE CHARGES AND LIMITATION: DO S.48 OF THE LTA 1987 AND S.66 OF THE CLRA 2002 AFFECT THE ACCRUAL OF THE CAUSE OF ACTION?

There is probably a longer and more considered article to be written on this point but, in the light of the recent High Court decision in Ice Architects, these are my initial thoughts on the current state of the law in relation to knotty issue of whether limitation is affected by the procedural bars on bringing claims for rent and service charges.  

This is something to which I alluded in an article Ibrahhem Dumeer and I wrote in Property in Practice, the Magazine of the Law Society Property Section (Issue 59; June 2017 www.lawsociety.org.uk/property).

Under section 19 of the Limitation Act 1980, the limitation period for recovery of rent is six years, but, in relation to claims against guarantors for arrears of rent due from the tenant, the cause of action has been held to arise not when the tenant’s default occurred, but when payment was demanded under the guarantee.

There is a requirement under section 48 of the Landlord and Tenant Act 1987 (LTA 1987) for the provision of the name and address of the landlord, or an address within England and Wales at which documents can be served on the landlord. Neither the ground rent nor the service charges demanded will be payable until this information has been provided.

Under section 166 of the Commonhold and Leasehold Reform Act 2002 (CLRA 2002), a leaseholder under a long lease is not liable to pay ground rent unless the landlord has first given a notice in the prescribed form, which contains information about the dates for payment and consequences of non-payment.

It has not definitively been resolved whether a landlord’s failure to have complied with section 48 of the LTA 1987 or section 166 of the CLRA 2002 might have the incidental effect of delaying the start of the limitation period for the recovery of rent.

Insofar as there is any authority, there is a seeming conflict.

In Wrigley v Landchance Property Management Limited [2013] UKUT 0376 (LC) Judge Huskinson, without subsequently criticising the proposition, summarized a submission put by the respondent’s counsel in the following way:

“Mr Morrell pointed out that the point was in fact of only academic interest bearing in mind the LVT’s finding that sections 47 and 48 of the 1987 Act and sections 21 and 21A of the 1985 Act had not been complied with. The result of this finding is that whatever amounts the respondent may be entitled ultimately to recover by way of service charge had not become due and would not become due until those sections had been complied with. Accordingly time will only start to run from the date when these sections have been complied with.”

On the other hand, in the first instance decision in Eastaugh v Crisp [2006] EWHC 2298 (Ch), in a passage not affected by the subsequent appeal, John Randall QC said, from para 181 et seq:

181 (a) Two preliminary points arise as to the period for which rent is recoverable, and the rate at which it is payable.

182 As for the first, s.19 of the Limitation Act 1980 suggests that only arrears of rent which accrued due within six years before the service of (in this case) the counter-claim, which was on 20 July 2005, are recoverable. However Mr Brett ingeniously seeks to turn the claimant’s reliance on the absence of a notice under section 48 of the Landlord and Tenant Act 1987 to his client’s advantage. He submitted that, by virtue of the service of that notice, the rent in this case is to be treated, and he emphasises the statutory words “for all purposes”, as not being due until 20 October 2005. Thus, he submits, none of the arrears of rent claimed in the action, which go right back to 1972, are statute barred. (See further section C of his opening skeleton argument, at p.6).

183 It is convenient here to note, as I have ascertained for myself, that the case of Dallhold Estates v Lindsay Trading [1994] 1 EGLR 93 CA establishes, first, that s.48 applies to an agricultural holding which includes a dwelling house, and, second, that s.48 does not itself destroy the right to claim rent due before the service of the notice which it requires (see at 97A–B and J).

184 If s.48 is read literally there is some force in Mr Brett’s submission, particularly given the inclusion of the words “for all purposes”. The point has been shortly argued before me without citation from either Hansard, under Pepper v Hart [1993] AC 593 , or the report of the Nugee Committee. However, in my judgment a purposive approach to the construction of s.48 is appropriate to avoid what would otherwise be a considerable hardship to tenants, taking away protection hitherto offered by s.19, Limitation Act 1980 . In Hussain v Singh , a correct reference to which is [1993] 2 EGLR 70 , Beldam LJ giving, in effect, the judgment of the court, said this (at 71D–E and 71J–K):

“The 1987 Act was intended as a sequel to the Landlord and Tenant Act 1985 , with the object of improving the position of tenants by ensuring that proper and full information of the identity of the landlord together with an appropriate address was available should it prove necessary to serve any notices on him — being in part intended to implement the recommendations of the Nugee Committee … In my view it is clear that the provisions of Part II of the Act were intended to be a sanction to persuade the landlord to comply with the provision of subsection (1) — it being a very easy matter for a landlord to give the requisite notice and the rent which he was prevented from recovering until such a notice had been given would then once more be treated as being due.”

185 It would be most undesirable that I should construe an enactment intended to improve the position of tenants, and to apply a persuasive sanction to landlords, in such a way as to expose tenants to a potentially indefinite liability to pay arrears of rent, from which they were previously protected by s.19, Limitation Act 1980 . Looking closely at the words of s.48 I do not find it necessary to do so. I construe the words “otherwise due from the tenant to the landlord” in s.48(2) as excluding from its operation arrears no longer recoverable by virtue of s.19, Limitation Act 1980 .

The recent decision in Ice Architects v Empowering People Inspiring Communities [2018] EWHC 281 (QB), decided on the 16th February 2018, although not directly on point, arguably lends support to the latter view. The case concerned a contractual claim in which limitation had been run to, and, as it turned out, beyond the wire, Proceedings had been issued out of time if limitation ran from the date work was done but in time if the contractual period of grace before payment fell due was taken into account. HHJ Parfitt at first instance had found the claim was time-barred; his reasoning summarized by Lambert J in the subsequent appeal in the following way:

9. …, HHJ Parfitt found, as follows (at paragraph 26 of his judgment):

i) on the authority of Coburn v Colledge [1897] 1 QB 702, in the absence of agreement to the contrary, the starting point is that a provider of services is entitled to be paid once the work has been done and so its cause of action for payment arises at that time;

ii) the agreement reached between the parties in Henry Boot Construction Ltd v Alstom Combined Cycles Ltd [2005] EWCA Civ 814 provided an illustration of an agreement to the contrary;

iii) in Coburn the Court of Appeal identified a material distinction between (as described by HHJ Parfitt) “facts which are a necessary part of the right to be paid and those matters which might bar that right (such as limitation itself but also facts such as a failure to comply with statutory requirements eg statutes about solicitors bills in Coburn).”

10. HHJ Parfitt considered the authority of Legal Services Commission v Henthorn [2011] EWCA Civ 1415, noting the obiter statement of Lord Neuberger MR that, save where it is the essence of an arrangement between the parties that a sum is not to be paid until demanded, “clear words would normally be required before a contract should be held to give a potential or actual creditor complete control over when time starts to run against him”. He considered Levin v Tannenbaum [2013] EWHC 4457, albeit briefly, commenting that the case was an application of the so-called Coburn principle. He then set out the question which he considered was at the heart of identifying the time of accrual of the cause of action: “what has to happen for an entitlement to be paid to arise?”. He said that in a case where the right to payment is based on a demand, or the issue of a certificate, then it was those facts which are essential to the cause of action; when however the entitlement to be paid is based on work having been done then, once that work is done, the entitlement and right to be paid for it arises.

11. It was against this legal framework that HHJ Parfitt considered the construction of the relevant section of the letter of July 2007. He set out in paragraph 30 of the judgment the following: “the invoicing arrangements provided for by the 10th July 2007 letter are to invoice monthly for work completed to date. The issuing of the invoice is not the fact which entitles the Claimant to be paid (although the non-issue of the invoice might provide the Defendant with a defence to the claim) but the fact that work has been done both entitles the Claimant to be paid and the Claimant to issue an invoice”. He concluded that the fact that invoices were to be paid monthly made no relevant difference as the invoices related to work done; nor did it make a difference that the 30 days were given for payment. He considered that this provision may be a matter of “potential defence” but it did not impact on the Claimant’s substantive right to be paid for what it has done. Accordingly, the Judge ruled the Claimant’s cause of action to be statute barred.

Lambert J concluded this reasoning was correct and dismissed the appeal. Strictly the ratio of the decision is that clear words are required before a contractual term can affect the accrual of the cause of action.

Of the cases cited, Coburn v Colledge [1897] 1QB 702 is, perhaps the closest to guidance on the effect of section 48 of the LTA 1987 and section 166 of the CLRA 2002 because it concerned the effect of statutory provisions. The Claimant in Coburn was a solicitor who was suing for outstanding fees. He appealed a ruling that his claim time-barred by the relevant statute of limitations on the basis that the effect of Section 37 Solicitors Act 1843, which provided that:

“no solicitor shall commence an action for recovery of fees until the expiration of one month from delivery of the bill”

was to delay the accrual of his cause of action until one month following his delivery of the bill of costs and thus  extended the limitation period. Lord Esher MR rejected the argument, observing that in the case of a person “who does work for another person at his request on the terms that he is to be paid for it, unless there is some special term of the agreement to the contrary, his right to payment arises as soon as the work is done”. Lord Esher said that section 37 did not delay the accrual of the cause of action but rather set up a procedural bar to the right of the solicitor to bring an action directly the work was done; it did not “take away his right to payment for the work, which was the cause of action”.

It is of note that when Lambert J said the following at para 24:

“In these circumstances, it seems to me that clear words are needed if the Court is to construe an agreement between the parties in such a way as to give the creditor control over the start of the limitation period and/or to avoid the Courts becoming engaged in determining satellite issues which deprive the limitation provisions of their central purpose: certainty and the avoidance of stale claims. Such clear words do not appear in the letter.“

the case from which he derived the proposition was the decision in Coburn on statutory interpretation and, if in that passage, “Act” is respectively substituted for “agreement between the parties” and “letter“, the argument that ss. 48 and 166 do not affect the limitation period would appear to have the edge.