(1) Alexander Christoforou (2) Diogenis & Costas Diogenous v Standard Apartments Ltd [2013] UKUT 0586 (LC)
RRAdmin Administration Charges, Service Charges 0
There is something for everyone in this case:
- It is primarily an exploration of the ambit of the LVT’s statutory costs jurisdiction, with some observations on the First-tier Tribunal’s jurisdiction;
- It gives a reverse nod to Keddie in the sense that one ground of appeal arose on the basis that the LVT failed to deal with an argument addressed to it, and
- For the procedurally minded, it considers the amendment of grounds of appeal by adding a ground after the expiry of the time for seeking permission to appeal.
Both sides were represented by Counsel: the lessees by Paul Letman, and the landlord by my colleague Carl Fain.
Martin Rodger QC’s decision runs to just about sixteen pages. These are the relevant statutory materials to which he referred.
Irrespective of how I approached it, it demanded a review at least a dozen pages long if it were not to suffer a significant loss of content.
That length is, I think, justified. Costs in the LVT/FTT can be highly contentious and hotly disputed. When I ran a discussion workshop at the Annual Conference of the Federation of Private Residents’ Associations late last year, questions about costs arose again, and again, and again, and …the message was unmistakeable.
I have therefore decided to use this case as the canvas from which I can draw the two threads on which a landlord can rely to claim costs following a hearing in the LVT or the FTT.
In order to do that, I have tinkered a little with the order in which Martin Rodger QC dealt with the grounds of appeal in this case so as to unite the questions of statutory interpretation.
This is the order in which they will appear in this post, with their order in Martin Rodger QC’s decision in brackets:
- The jurisdiction to add grounds of appeal (a prelude to ground 4);
- Arguments of principle revolving around interpretation of:
- section 27A of the Landlord and Tenant Act 1985 (ground 1) and
- Schedule 12 to the Commonhold and Leasehold Reform Act 2002 (ground 4);
- Hommage to Keddie (ground 2), and
- The difference between proportionality and reasonableness (ground 3).
My observations on the whole case will follow in my next post, and will include a comparison and discussion of the difference between LVT and FTT costs.
Please note: where I refer to the LVT here I really do mean the LVT, not the FTT.
This then is the first of two posts on this case. Are you sitting comfortably?
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tandard Apartments Ltd was the freehold owner of Standard Apartments, Crescent Road, London N8. Mr Christoforou of flat 3 and Messrs Diogenis & Costas Diogenous of flat 10 were the leaseholders of two of the sixteen flats in the Building.
The leases were fairly standard in terms of their service charge provisions: the landlord covenanted to provide services and the lessees covenanted to pay for them.
They did not however pay any service charges for 2006 and 2007, nor did they pay the estimated charge for 2008.
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The landlord retained solicitors in December 2006, and eventually made a section 27A application to the LVT.
Not all of the service charges were disputed, but none of the lessees paid or offered to pay anything while the application continued.
The LVT determined that all of the unpaid service charges were reasonable, with the exception of £50 per flat on the management charges. The landlord made some reductions by way of concession.
By the time the landlord had engaged with the 2009 proceedings and recovered the unpaid service charges, it had incurred legal costs of £20,833.11. This case arose from its attempts to recover those costs.
Relevant term of the lease
The costs were sought under the following clause, by which the lessees covenanted:
“To be responsible for and to keep the Landlord fully indemnified against all damage, damages, losses, costs, expenses, actions, demands, proceedings, claims and liabilities made against or suffered or incurred by the Landlord arising directly or indirectly out of – …
3.22.2 Any breach or non-observance by the Tenant of the covenants conditions or other provisions of this lease or any of the matters to which this demise is subject.”
The lessees disputed their liability. The landlord therefore applied again to the LVT, this time under paragraph 5 of Schedule 11 of the 2002 Act. It sought a determination of the lessees’ liability to pay the legal costs as an administration charge under paragraph 1(1) of Schedule 11 to the 2002 Act.
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The LVT concluded that:
- The charges were within the scope of clause 3.22.2 of the lease;
- The lessees’ failure to pay the service charge was a breach of their leases;
- The charges were a variable administration charge within the ambit of Schedule 11 of the 2002 Act;
- The costs of the 2009 hearing had resulted from the non-payment of the service charges and were payable by the lessees, and
- The approach taken by the landlord to the apportionment of the costs on an equal basis to each of the leaseholders who had been a party to the 2009 proceedings was reasonable, proportionate and fair.
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Permission to appeal was granted to the lessees – somewhat unusually – in three stages.
From the LVT on one ground
Whether the landlord’s costs of the 2009 proceedings were recoverable as an administration charge.
From the Upper Tribunal (George Bartlett QC, President) on two additional grounds
Whether the LVT:
- Addressed the challenge to the amount of legal costs,
- Ought to have made an overall assessment of the reasonableness of the costs and whether it had regard to the proportionality of the amount of costs.
Permission was granted on the proviso that “the contentions will only be arguable if the [lessees] establish that they did challenge the amounts claimed and submit to the LVT that there were disproportionate.”
Martin Rodger QC’s permission
The lessees had invited the LVT to find that the landlord was precluded by paragraph 10(4) of Schedule 12 to the 2002 Act from recovering any of the costs of the 2009 proceedings. The LVT declined.
The lessees did not seek permission to appeal the point… until Martin Rodger QC “opportunistically” (his adverb, not mine) encouraged them to do so. Why?
“Shortly before this appeal,” he said, “I … heard another appeal in which none of the parties was professionally represented and in which the same point was taken. I was therefore interested in the argument which had been presented to the LVT and I am very grateful to both Mr Letman and Mr Fain for their considerable assistance in enabling me to consider it as an additional point in this case”.
Do not however imagine that the landlord was with Martin Rodger QC on his quest: it was decidedly not on side, and argued that the Upper Tribunal had no jurisdiction to give permission to appeal on a ground of appeal for which the permission of the LVT had not previously been requested.
Jurisdiction to give permission to appeal without an application to the LVT
Rule 21(1) is one of three rules in Part 3 of the Tribunal Procedure (Upper Tribunal)(Lands Chamber) Rules 2010 which governs applications for permission to appeal:
Where permission to appeal to the [Upper] Tribunal against the decision of another tribunal is required, a person may apply to the [Upper] Tribunal for permission to appeal to the [Upper] Tribunal against such a decision only if—
(a) They have made an application for permission to appeal to the tribunal which made the decision challenged; and
(b) That application has been refused or has not been admitted.
Martin Rodger QC held that:
- The landlord’s argument interpretation of rule 21(1) was unattractively inflexible, and
- The language of the rule only referred to an application for permission to appeal: it made no mention of the proposed grounds of appeal.
Endearing himself permanently to all those who wake up in the middle of the night with a flash of inspiration as to the strongest ground of appeal, two days after submitting their application for permission to appeal to the First-tier Tribunal just before the expiry of the time limit, Martin Rodger QC explained that: “It is not uncommon for parties to add to their proposed grounds of appeal in light of further thoughts”.
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Martin Rodger QC considered:
1) Whether the costs were recoverable under the terms of the lease, and
2) Whether they were recoverable as administration charges under the 2002 Act.
In Martin Rodger QC’s judgment the answer to both questions was yes.
Causal relationship
The lessees argued that costs were only recoverable under the lease and by way of administration charge if there was a causal relationship between:
- The relevant breach of covenant, and
- The incurring by the respondent of the costs.
As a matter of principle, there could never be a causal relationship in proceedings under section 27A. This was because it was not necessary for there to have been a breach of covenant or failure to pay for the LVT to be able to determine the liability to pay a service charge under section 27A.
The landlord responded that there was an inevitable and direct causal connection. The only reason that the landlord brought the section 27A proceedings in 2009 was to recover the service charge.
It could not be said that the costs of a section 27A application were never caused by a failure to pay a service charge in breach of covenant. Each case had to be considered on its facts.
The fact that the LVT decision did not result in a judgment had no effect on the question of what caused the application to be made.
His concluding words on the issue were: “There may be other cases in which costs incurred in proceedings under section 27A could not be recovered under a clause drafted in the terms of clause 3.22.2, but those cases would have to be considered on their own facts”.
Parliament’s intention
The lessees continued: Parliament intended that the only way that costs of LVT proceedings could be recovered was either:
- Under Schedule 12 of the 2002 Act, roughly in cases of unreasonable behaviour, and
- By way of service charge, subject to section 20C of the 1985 Act.
To include the costs of proceedings under section 27A within the scope of administration charges would “drive a coach and horses through the statutory regime”, and “undermine the no costs environment of the LVT in relation to service charge determinations”.
Martin Rodger QC disagreed:
- That argument “would have serious consequences for the scope of the statutory control of administration charges. It would restrict the scope of paragraph 1(1)(c) and (d) of Schedule 11 to a very narrow category of charges, possibly only to obligations to pay interest on late payments under a lease or penalty charges payable in the event of a breach”;
- Part 1 of Schedule 11 of the 2002 was a scheme which, on the whole, benefited residential lessees more than their landlords: it was intended to limit variable sums which may be recovered from lessees by their landlords, and
- On its wording, paragraph 1(1) “was wide enough to encompass costs payable by a tenant under commonplace tenant covenants to indemnify a landlord against costs of proceedings or costs incurred as a result of a breach of covenant. It would include costs incurred in the preparation of section 146 notices or schedules of dilapidations which are routinely the subject of indemnity covenants in residential leases”.
Conclusion on this issue
The appeal on this issue was dismissed.
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Did paragraph 10(4) of Schedule 12 to the 2002 Act prevent the landlord from recovering the costs of the 2009 proceedings?
This was the point which Martin Rodger QC raised, and his decision has a general embrace: here was the chance to give some thought to the true scope of the “no cost environment” of the LVT.
Paragraphs 10(2) and (4) of the 2002 Act in context
Martin Rodger QC began his consideration of the issues by reviewing the context in which paragraph 10(4) operates:
- The Civil Procedure Rules, which applied to the costs of civil litigation in the courts, whereby the loser paid the winner’s costs, did not extend to the LVT;
- On 01 July 2013, the context of paragraph 10(4) had changed for England, but not for Wales, when the First-tier Tribunal (Property Chamber) and its new rules came into existence, and
- The LVT’s power to order costs continued to be governed by paragraph 10 of Schedule 12 (“Leasehold Valuation Tribunals: Procedure”) to the 2002 Act.
The wording
Paragraph 10(2) enables the tribunal to determine that a party should pay another’s cost in the event of frivolous, vexatious, disruptive, abusive or otherwise unreasonable behaviour.
In paragraph 10(4), the phrases:
…“a determination under this paragraph”:
- Was a reference to paragraph 10(2), and
… “provision made by any enactment other than this paragraph” accommodated, in practice:
- The statutory power to order reimbursement of fees under the Leasehold Valuation Tribunals (Fees) Regulations 2003 (and its 2004 Welsh equivalent) and
- The power of the tribunal under section 88(4) of the 2002 Act to determine in right to manage cases the costs payable by an RTM company which had failed in its application.
Paragraph 10(4) otherwise prohibited the LVT from requiring one party to pay another’s costs.
This was not however a general and far reaching prohibition. It is here that Martin Rodger QC’s analysis becomes really gripping and his language rather Conan Doylesque.
The uninitiated applicant and the jurisprudence
“An uninitiated applicant”, said Martin Rodger QC, “on being told that he “shall not be required to pay costs incurred by another person in connection with [LVT] proceedings” except in accordance with a determination under paragraph 10 or under an alternative statutory provision, might be forgiven for feeling confident that if he commenced such proceedings to dispute a service charge, and conducted them reasonably, he would not be at risk of having to pay costs incurred by his landlord if his complaint was eventually dismissed”.
The confidence of that uninitiated applicant would however be misplaced. This was because costs can be payable not only as a matter of LVT procedure under the rules, but also as a matter of contract between the parties to the proceedings under the lease.
Paragraph 10(4), viewed in isolation, would appear to emasculate any contractual obligation to pay costs. “However”, continued Martin Rodger QC, “as the jurisprudence of the Tribunal already establishes, that appearance is deceptive”.
He turned therefore to that jurisprudence, which related to putting the costs of LVT proceedings through the service charge.
Paragraph 10(4) to Schedule 12 and service charges
Two cases stand as authority for the proposition that paragraph 10(4) did not interfere with contractual rights under a lease to add the costs of LVT proceedings to the service charge:
1) Staghold Ltd v Takeda [2005] 3 EGLR 45, County Court (HHJ Levy QC), and
2) Canary Riverside Pte Ltd v Schilling LRX/65/2005, Lands Tribunal (HHJ Rich QC).
The proposition was given traction by its history:
- Section 31A(4) of the Landlord and Tenant Act 1985 was the predecessor to paragraph 10(4) of the Commonhold and Leasehold Reform Act 2002;
- It provided that “no costs incurred by a party in connection with proceedings … before a leasehold valuation tribunal shall be recoverable by order of any court.”
- The purpose of section 31A(4) was to prevent a court ordering a party to pay the costs incurred before the tribunal;
- Given that lineage, and despite its different language, paragraph 10(4) had to be given the same limited effect;
- It must also be read as limited by its context and by its title (“Leasehold Valuation Tribunals: Procedure”) to matters of procedure. It did not extend to substantive interference with contractual entitlements, and
- Finally, it was impossible to give paragraph 10(4) a wider meaning without rendering largely redundant the section 20C power to order that costs incurred in proceedings before the LVT were not to be regarded as relevant costs to be taken into account in determining the amount of any service charge.
The Tribunal’s conclusion in Canary Riverside was that “properly construed [paragraph 10(4)] does not prevent the recovery of costs incurred before leasehold valuation tribunals which are otherwise recoverable by way of service charge.”
Paragraph 10(4) to Schedule 12 and administration charges
If paragraph 10(4) of Schedule 12 did not prevent the landlord recovering the costs of proceedings as part of the service charge, did the same or similar reasoning apply in the case of recovering the costs of proceedings by way of an indemnity covenant as an administration charge?
The lessees’ case was simple: the language of paragraph 10(4) was clear. The reference to a person not being “required” to pay costs was perfectly general.
The landlord responded that:
- Schedule 12 was described in Canary Riverside as a set of procedural rules;
- The statement in paragraph 10(4) that “a person shall not be required to pay costs” meant only that a person could not be required by the LVT to pay costs, and
- The difference in this case was that the requirement to pay was not imposed by the LVT, but by a contractual indemnity covenant in the parties’ own contract, ie the lease.
The Upper Tribunal’s decision
Martin Rodger QC agreed with the landlord.
To the landlord’s arguments, he added two further points: one bringing section 20C into play, and the other explaining the restricted orbit of paragraph 10(4).
First, section 20C of the Landlord and Tenant Act (itself amended by the 2002 Act) showed that Parliament understood that:
- Many leases provide for the costs of tribunal proceedings to be recoverable through the service charge, and
- It was appropriate to provide tenants with protection against being required to meet those costs when the tribunal found it to be just and equitable so to do.
Second, even though his conclusion admittedly required him to interpret paragraph 10(4) in a more restricted fashion than its words individually would appear to indicate, Martin Rodger QC determined that, in the light of Canary Riverside, it was “impossible to read paragraph 10(4) as imposing a blanket prohibition on the recovery of costs of tribunal proceedings through a service charge”. The parties’ contractual arrangements were beyond its grasp.
The narrower reading of paragraph 10(4) was an oddity (again, Martin Rodger QC’s words, not mine) because the LVT has no power to do anything which is not given to it by statute. In the absence of any inherent jurisdiction, there was no reason to state expressly that the LVT had no power to award costs.
The oddness could however be explained again by its predecessor, section 31A(4) of the Landlord and Tenant Act 1985, which prevented the recovery of costs incurred in tribunals “by order of any court”.
Finally, if paragraph 10(4) was intended to bear the more obvious and wider meaning for which the lessees argued, the new, First-tier Tribunal rules, which have applied in England since 01 July 2013, would have contained a provision equivalent to paragraph 10(4). The new rules did not contain such provision.
Conclusion on this issue
Martin Rodger QC was “therefore satisfied that no protection is afforded to the appellants against the sums claimed by the respondent by paragraph 10(4) of Schedule 12 to the 2002 Act”.
Next up: the easier points and my observations.
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