Mr Jose and Mrs Rosa Nogueira & ors v The Lord Mayor and Citizens of Westminster [2014] UKUT 0327 (LC)

For example, if it is an advance demand, is it being demanded at the time provided for?

If it is a one-off demand for major works, is the landlord entitled to raise it or is he/she restricted to making one advance and one balancing demand per year?

Geographically, we are on the Brindley and Warwick Estates in London, W2 for this case. From a service charge perspective, we are back in major works country.

You may remember from Jastrzembski that Westminster has a habit of numbering its major works contracts. This one was H127, and was completed in 2009.

The works, for the record, included roof and lift works, cladding, balcony and window works. They resulted in Mr and Mrs Nogueira receiving a bill a little shy of £42,000 in 2011.

That figure was significantly reduced during the proceedings before the LVT, but, on any analysis, the total amount chargeable to the 750 lessees remained eye-watering, at over £24,000,000.

Many of the points determined by the Tribunal were unappealed, but the issue of general importance was the FTT’s determination of the amount that was payable, because it did not include any reduction for defects in the works.

The FTT made that determination because Westminster gave undertakings to remedy the defects within a certain period of time. In the FTT’s view, the lessees could enforce those undertakings if Westminster was not true to them.

Permission to appeal was granted by the Upper Tribunal on the following grounds:

1. Whether the FTT was entitled to accept the undertaking offered by Westminster;
2. Whether the FTT should have determined the standard of work carried out and assessed the amount by which the sums claimed by Westminster should have been reduced if the works were not up to standard;
3. Whether the FTT should have provided more detailed information about the defects in individual flats;
4. Whether the FTT was mistaken in refusing to grant dispensation from the requirement to consult on condition that Westminster meet the costs incurred by the lessees’ (non-legally qualified) representative in preparing and appearing at the hearing.

The first three of these are wrapped up in the question of the undertaking. The fourth is separate.

The appeal was by way of a review, not a re-hearing.

Thirty seven lessees made the section 27A application to the FTT. Only fourteen of those were parties to the appeal.

The lessees and Westminster agreed that the aim of the hearing before the FTT had been to determine the amount of service charge payable.

HHJ Huskinson reminded himself of the wording of section 19 of the Landlord and Tenant Act 1985:

          “(1) Relevant costs shall be taken into account in determining the amount of a service charge payable for a period –

(a)    only to the extent that they are reasonably incurred, and

(b)    where they are incurred on the provision of services or the carrying out of works, only if the services or works are of a reasonable standard;

and the amount payable shall be limited accordingly.”

The lessees had complained of:

• The quality of the works to the main structure of the building (defects which could potentially affect all of the appellants) and
• Defects present in their individual flats. These were listed in a schedule.

The lessees argued that the FTT had to assess the standard of works to the common areas of the building, and to each individual flat.

The practicalities of determining the liability of each leaseholder struck the FTT as next to impossible because different lessees argued that there were different defects – and each lessee argued that his/her own flat had its own individual issues.

By assuming that Westminster would rectify the defects in line with the undertaking, the FTT was able to determine that the works had been carried out to a reasonable standard.

 “In other words”, said HHJ Huskinson, “the FTT in fact did not find that the works were carried out to a reasonable standard – instead the FTT found that the works were not carried out to a reasonable standard but would become works to a reasonable standard if and when the undertakings had been fully complied with.  It will also be seen that the FTT made no specific finding about the extent of the alleged defects in each of the appellant’s flats”.

I am not sure whether I hear Sir Humphrey Appleby or Lewis Caroll – or both – in that reasoning. HHJ Huskinson did not adopt it.

Instead, he observed that it was “proper to sympathise” with the FTT’s predicament:

• It was faced with 35 lessees in the application – although, as he added rather darkly, it could have been faced with all of the lessees concerned, which would have brought the applicant total to 750, and
• In such situations, the practicalities and proportionality of dealing with each case on its own facts and merits can be overwhelming.

There is however (local) authority at hand to help.

Westminster City Council v Allen [2013] UKUT 0460

In Allen, the Upper Tribunal held that, in multi-lessee cases, practicality and proportionality can be preserved if the FTT decides – even against the parties’ wishes – to deal with the application on a global basis.

It involves the FTT taking an overall view of the position, and reducing the amount payable by all of the lessees by a certain percentage in recognition of a failure to achieve a reasonable standard of work.

This is not necessarily a one-size fits-all solution. If, for example, if the facts justify it, lessees’ flats could be divided into three categories, with different reductions applying, depending on whether a defect was serious, moderate or slight. Those reductions may be by percentage, or an absolute figure.

In the Nogueiras’ case, HHJ Huskinson, Westminster, Mr and Mrs Nogueira all agreed that the FTT had made a mistake because it had determined that the works were defective, but did not make any reduction in the amount payable by the lessees on the basis that:

• Westminster had given undertakings to put right the defects, and
• Those undertakings could be enforced “in the normal manner in which an order made by this Tribunal can be enforced”.

There was, in HHJ Huskinson’s mind, no alternative but to remit the case to the FTT so that it could work out the appropriate reduction to be applied to the lessees’ service charge account pending rectification of the defective works, if necessary on a Westminster v Allen basis.

In his view, there was no need for the same panel of FTT members to hear the remitted case, but either party had strong feelings on the issue, he reminded them that they would be able to make representations on the point once back in the jurisdiction of the FTT.

“This”, said HHJ Huskinson, “is not the case to examine the question of the extent to which undertakings can properly be given to a FTT or an LVT”.

It would appear however that he did consider that it was the case to examine the question of the extent to which undertakings cannot be given. These are his reasons in this case:

1) Neither county court nor FTT has any inherent jurisdiction to grant an injunction;

2) The FTT has no inherent jurisdiction to accept an undertaking either, if undertaking is used in the sense of being an alternative to an injunction;

3) Even if an undertaking were given, the FTT would be unable to police it because it does not have the power to compel the giver of the undertaking to honour the promise;

4) In this case, the undertaking unenforceable: its terms were not precise enough.

The FTT had not strayed far from the right track. For example, where:

• A service charge is claimed for five elements of work;
• An application under section 27A has been made for a determination of the amount payable;
• The FTT has determined that four of the five elements were payable in full but there are substantial defects in the quality of the work for the fifth element;
• In HHJ Huskinson’s view, the FTT is entitled to conclude that “£X was recoverable in full and that £Y was a reasonable sum for the final category of works once they were done properly and to conclude that therefore this additional £Y would be recoverable once the outstanding defects had been cured”.

“In such circumstances”, he said, “a landlord might, using loose language:

• “Undertake to the FTT to remedy the defects in the fifth category of work and
• “The FTT might in its decision conclude that £X was recoverable immediately through the service charges, and
• “The further sum of £Y would be recoverable once the landlord had honoured its undertaking.

“However,” he cautioned, “that would not in my view be an undertaking strictly so-called.  All that would in effect be happening is that the FTT would be deciding, as regards the £Y, that this was not payable immediately but would become payable at a future date, namely the date by which the landlord made good its promise to carry out the remedial works”.

A quick recap of Daejan Investments Ltd v Benson [2013] UKSC 14 on dispensation and conditions: If dispensation is to be granted it should ordinarily be made conditional upon payment of the tenant’s reasonable costs in relation to the dispensation issue. The benefit of the doubt as to whether costs were reasonably incurred should be given to the tenant.

In the FTT, the lessees were represented by Mr and Mrs Nogueira’s daughter, but they did not put any evidence before the FTT about the costs that they had incurred in connection with the work that she had done.

The lessees also instructed a surveyor, Mr Byers, but the FTT decided that Mr Byers had not been instructed to deal with consultation matters, and that his costs were therefore not recoverable.

The appeal being by way of review, HHJ Huskinson was not in a position to consider evidence which had not been before the FTT.

On the costs relating to Ms Nogueira therefore, he had no material which suggested that the FTT had been mistaken in refusing to require Westminster to pay the costs of accommodating and supporting Ms Nogueira as a condition of dispensation. This he concluded, despite it seeming “clear that Ms Nogueira did substantial work and was of substantial assistance to the appellants in general and to her parents in particular in the presentation of the case before the FTT”.

Mr Byers’s costs were however a different kettle of fish. If a person did not give evidence to the FTT on a topic, that did not mean that, as a matter of principle, no costs had been incurred in connection with that person.

The FTT had therefore reached an erroneous conclusion on Mr Byers’s costs. Its decision should therefore be quashed and the issue sent back to the FTT, so that the Tribunal could determine whether dispensation from the consultation provisions should be granted on condition that Westminster pay some of the costs incurred by the lessees in connection with Mr Byers.

HHJ Huskinson allowed the appeal – and sent the case back to the FTT for determination of:

• The amounts payable for the major works, and
• The appropriate conditions – if any – for the grant of dispensation.

Injunctions and undertakings

This case does not close the door on undertakings in the FTT, but it seems to me that it would be a brave Tribunal that imposed them in the light of HHJ Huskinson’s decision here.

I have to say that I have not come across many service charge-related injunctions or undertakings in the county court, which does have the powers to grant injunctions and accept undertakings.

An interim injunction is normally granted without the court hearing live evidence. It is a temporary – ie interim – remedy really designed to hold the fort – the status quo – while the parties prepare for the trial at which the court will hear live witness evidence and will make a final decision as to whether to grant the injunction.

At an interim injunction hearing, the court will generally start by considering:

• Whether there is a viable claim, and, if so,
• Whether the applicant can be compensated in damages if an injunction is not granted.

If damages will adequately compensate the claimant, the court will be reluctant to grant an interim injunction.

Examples of cases where damages are unlikely to adequately compensate are incidents of noise nuisance, harassment and reputational damage – think drilling at 7am on a Sunday morning on a neighbour’s property, or footballer alleged to have been caught in compromising position with unknown woman in smart hotel.

More often than not in service charge cases, the question of whether to apply for an interim injunction arises when major works are about to begin. It is often also the case that the primary issue is the cost of the works.

In this respect lessees have the comfort of knowing that a section 27A application can always be made on receipt of an advance demand – and/or after the works are complete. This means that an injunction is not necessarily the most appropriate course of action, particularly if, by obtaining it, a lessee would be causing a landlord to breach a contract.

The protection afforded by section 27A also means that the court is less likely to grant the injunction because the lessee can be compensated in money – by a reduction in the cost of the works.

Why would the landlord’s breach of contract an issue for the lessee? Because when applying for an interim injunction in the county court, the applicant is required to provide an undertaking in damages if the court grants the injunction.

If the grant of the injunction causes the landlord to breach the contract for the works, the lessee may ultimately be liable for any damages which the landlord is liable to pay to his/her contractor if, at the trial of the claim for an injunction, the court decides not to grant it.

Inherent jurisdiction

The High Court has an inherent jurisdiction, which exercises alongside its statutory powers, which are contained in the Senior Courts Act 1981.

What is inherent jurisdiction? In the broadest of terms, it is a power vested in the High Court to hear any case, unless statute restricts or prevents it from doing so.

The county court and the First-tier Tribunal have no inherent powers. They are creatures of statute. In other words, they have no power that is not given to them by Acts of Parliament.

In the case of the county court, its power is mainly contained in the County Courts Act 1984 and the Civil Procedure Rules 1998.

The First-tier Tribunal and the Upper Tribunal were created by the Tribunals Courts and Enforcement Act 2007. The main source of the First-tier Tribunal’s power is the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013/1169.

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