Tag: November 2016

Categories
Forfeiture

COSTS ON RELIEF AGAINST FORFEITURE

Although a case involving a commercial lease, Pineport Limited v Grangeglen Limited [2016] EWHC 2170 (Ch) offers useful general guidance about costs in relief against forfeiture cases and, in particular, when it may be right for a court in exercising its discretion as to costs not to award a landlord costs on an indemnity basis in accordance with Patel v K&J Restaurants Ltd [2010] EWCA Civ 1211 (see esp paras 100-104).
Senior Master Marsh summarised the chief provisions of CPR 44.2 thus:
i) Under CPR 44.2(1) the court has a broad discretion to decide whether costs are payable by one party to the other.
ii) Under CPR 44.2(2) the general rule is set out that the successful party is entitled to an award of costs but it is no more than a general rule and may, or may not, be appropriate depending on the particular circumstances of the case.
iii) CPR 44.2(4) provides three matters to which the court must have regard, namely the conduct of all the parties, the extent to which the party has been successful, and any admissible offers.
iv) CPR 44.2(5) provides guidance about what conduct includes.
v) CPR 44.2(6) provides a non-exclusive menu of orders which the court may make.

Before observing at 8:
“…To my mind it is clear that there is no principle of law which constrains the court necessarily to grant the defendant landlord its costs of the claim. To take an extreme example, in the event of a lease being forfeited for non-payment of rent, but before the tenant’s application for relief is issued, the tenant offers to pay all the landlord’s reasonable costs and expenses, as well as the arrears, and the landlord declines to accept that offer, it might well be the case that the court would exercise its discretion as to costs and require the landlord to pay all the tenant’s costs of the claim. All the more so where the forfeiture is by peaceable re-entry, the claimant does not dispute that the forfeiture was lawful and the terms of relief make provision for the landlord’s costs and expenses of the forfeiture (including reasonable legal costs associated with the forfeiture).”

He went on to identify two factors of particular relevance to costs in relief from forfeiture cases:
(1) whether the tenant had provided the landlord with such information as the landlord may reasonably require in order to consider the application, and
(2) whether the landlord had behaved reasonably in relation to the application.

The second criteria was “of particular significance” where the tenant had made an offer, although the landlord was not under “an obligation … to ‘make the running’ on seeking to resolve the tenant’s application for relief … [it] need only act reasonably and respond to the application as it is put forward.”

The circumstances of the case were somewhat unusual (for the judgment on the substantive application, see Pineport Limited v Grangeglen Limited [2016] EWHC 1318 (Ch)) and neither the landlord nor the tenant could be described as having covered themselves in glory in the course of the proceedings; the tenant had made a very late application for relief but had, in the end, made an offer to pay the landlord more than the landlord was ultimately ordered to be paid as a condition of relief. The landlord had, among other things, been very slow to respond to the offer (particularly having regard to the proximity of the trial) and had effectively stood by and allowed events leading to the contested trial of the claim for relief to unfold. The result was a split costs order made by reference to a date after the date of the offer but before the date of trial, with each side’s costs being assessed on the standard basis.

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.