(1) Alexander Christoforou (2) Diogenis & Costas Diogenous v Standard Apartments Limited [2013] UKUT 0586 (LC) Part II

This issue turned on the solicitor’s practice of recording time in six minute units, rather than charging for actual time spent.

The lessees argued that the practice resulted in the landlord’s legal costs being inflated, because it meant that five minutes’ work would be billed as six, ten minutes’ work as twelve and so on.

It was common ground that the issue had been discussed before the LVT, but not evaluated in the LVT’s decision. It was unclear whether it had been part of the lessees’ case – or indeed quite how it had come up at the LVT hearing.

In an observation for which most of us at the Bar would give our eye teeth, Martin Rodger QC decided that “it seems most likely that the point arose out of the comment by a member of the Tribunal, which was then picked up by Mr Letman and weaved with characteristic resourcefulness into his general argument that the amount of the costs claimed was manifestly excessive”.

Having given with one hand however, Martin Rodger QC then took away with the other: the point was not one which the LVT had been obliged to address in its decision, because it was not key to the LVT’s reasoning.

He continued:

“The task of a tribunal judge is to explain clearly why the successful party has won and the unsuccessful party has lost and to deal with the substantial points which are determinative of the parties’ rights and on which the argument has focussed.  The First-tier Tribunal is entitled to adopt a proportionate approach to its decisions, giving greatest attention to points which matter most and limited or no attention to those which matter less, or not at all.  Were it otherwise, decisions would become impossibly unwieldy”.

He gave three reasons why the LVT was not obliged to address the six-minute billing argument:

• It is usual for solicitors to bill their time in six minute units;
• The point was not presented in the forefront of the lessees’ case, and
  • The argument was rendered nugatory because the solicitors for the landlord had only claimed payment for £14,000 of their time, rather than the £28,000-worth that they had actually spent.

Is proportionality relevant to reasonableness?

Martin Rodger QC was not keen on the landlord’s suggestion, relying on Lownds v The Home Office [2002] 1 WLR 2450, that the proportionality of costs was not relevant to an assessment of their reasonableness.

Rather daringly, he reframed the landlord’s argument in these terms: “to put it another way, [the landlord argues that] paragraph 2 [of Schedule 12 to the 2002 Act] is concerned with whether the amount was reasonable, not with whether it was reasonable to incur that amount”.

He observed that in most contexts, the idea that proportionality had nothing to do with reasonableness would seem unreal or counter-intuitive. I think that it is fair to say that he determined that this was one of those contexts:

“The LVT routinely has to consider whether the costs of professional or other services are reasonable or have been reasonably incurred, and routinely it does so by examining closely the work undertaken, the result achieved, and the magnitude and importance of the object to which the work was directed. Those considerations are all relevant to an assessment of the reasonableness of professional costs and I do not think that paragraph 2 of Schedule 11 to the 2002 Act requires a different approach to the reasonableness of administration charges”.

Did the LVT address proportionality?

The lessees alleged that the LVT had failed to address their argument on the proportionality of the costs: only a few items were disputed, and yet the landlord had raised a bill for £21,000. The LVT should have reduced the bill by half.

The LVT recorded the parties’ arguments on proportionality. It did not however expressly determine the merits of those arguments in its decision. It said that they had carefully examined the schedules of costs and they concluded that they were satisfied that the costs were reasonable in amount.

Martin Rodger QC agreed with the LVT, and held that in the light of the way that it had expressed its conclusions, the question of proportionality had been in its collective mind: “While more might have been said, no more was necessary”.

Were the costs proportionate?

In a word: yes.

Martin Rodger QC accepted the landlord’s argument that, although smallish sums had been at stake in the 2009 proceedings, if the LVT determined that those sums were not payable, it was likely that other lessees would have made a section 27A application.

If that happened, the LVT’s determination would have had a wider impact. In the face of that risk, the landlord’s costs were not disproportionate.

Schedule 12 to the 2002 Act

Schedule 12 to the Commonhold and Leasehold Reform Act 2002 was untouched by the whirlwind that was the arrival of the First-tier Tribunal on 01 July 2013.

Schedule 12 is still entitled “Leasehold Valuation Tribunals: Procedure” and refers to the LVT throughout. Why? Because Wales remained unchanged in the face of the English LVT’s regeneration. This means that whilst Schedule 12 remains in force and applies in Wales, those of us with a mainly English practice need no longer concern ourselves with it.

Relevance of Schedule 12 to the 2002 Act in a First-tier Tribunal world

It might therefore be said that the arguments that the lessees advanced about Schedule 12 to the 2002 Act are rather otiose.

Whilst I can see the force of such an observation, there are two reasons why I have dedicated so much time and blogspace to them:

1)    The First-tier Tribunal rules do not catch applications which were begun before 01 July 2013. The FTT is therefore still likely to hear cases where Schedule 12 will be the relevant Schedule for the purposes of any costs decision;

2)    Wales is not very far away, and

3)    I have a smidge of a weakness for statutory history.

Causation

The lessees’ argument on causation was an interesting one, even if it was unsuccessful.

I am completely with Martin Rodger QC that, if the lease entitles the landlord to recover the costs of and occasioned by a breach of covenant directly from the lessee, it cannot be right that as a matter of principle a landlord is precluded from recovering the costs of section 27A application from a lessee.

It is true that section 27A does not require a breach of covenant to have been committed for the Tribunal’s jurisdiction to be invoked. However, many actions breathe the air of the LVT/FTT after being transferred there by the county court. Those county court actions are generally founded on the lessee’s breach of covenant in failing to pay service charges, and the LVT/FTT then generally deals with the matter as if it were a section 27A application.

It would be an odd system that resulted in the following:

• The landlord brings a county court claim for breach of covenant for non-payment of service charges;
• The lease provides for the lessee to pay the landlord’s costs of any breaches of covenant;
• The claim is tried in exactly the same way as a section 27A application, and
• The landlord was able to recover his costs pursuant to the lease in the county court, whereas
• He would not have been able to do so in the LVT.

Variable administration charges

The future looks more rosy for the lessee faced with a claim for a variable administration charge than it might have done, had these lessees failed on the section 27A point and succeeded on their argument that costs payable directly by a lessee under a lease cannot be variable administration charges.

If that had been the outcome, as I read the position, lessees would have been deprived of statutory protection in respect of legal costs which would otherwise be variable administration charges.

Hommage: Keddie

2012 and 2013 were peppered with appeals, of which Keddie is the archetype, arising from the LVT having raised a point of its own volition without giving the parties an opportunity to respond to it.

Here, by contrast, the appeal was brought on the ground that the LVT had failed to take account of an argument which had been ventilated before the LVT.

It strikes me that there is a poetic reverse Keddicity to grounds 2 and 3 above.

Daring?

In this second post on the case, I described Martin Rodger QC as having been daring (see Ground 3 above) because he drew service charge section 19 wording into the world of the service charge.

If I have read his reasoning aright, his conclusion is that the test of reasonableness in Schedule 11 is pretty much akin to the test of reasonably incurred and reasonable in amount in section 19 of the Landlord and Tenant Act 1985.

Does that mean that although the wording of section 19 is different to the wording of Schedule 11 to the 2002 Act, the test is in fact the same? Will we be heading off to hearings for the determination of variable administration charges with copies of Forcelux v Sweetman [2001] 2 EGLR 173 tucked into our files?

More on costs

Shortly after this decision was handed down, Bradys solicitors in Nottingham invited me to contribute an article for publication on their website.

As I noted at the beginning of my first post on this case, my experience is that costs often needle the parties – and in a big way. So – for more on costs – here is my article.

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