Sinclair Gardens Investments (Kensington) Ltd v Charles Lyn Clemo [2015] UKUT 0573 (LC)

Leafy Wimbledon provides the background to this case, which flies between court and LVT/FTT rather like rather like the ball in that epic tie-breaker between Bjorn Borg and John McEnroe in the 1980 Wimbledon final.

McEnroe won the tie-breaker 18-16, but Borg took the title.

On the September quarter day in 2011, Sinclair Investments, the landlord, issued a claim against Mr Clemo for unpaid insurance rent of £446.77, and an administration charge of £146.70.

The county court transferred the issue of Mr Clemo’s liability to pay, and the amount payable, to the LVT.

The LVT:

• Determined that both sums were payable;
• Refused to make an order under section 20C of the Landlord and Tenant Act 1985, and
• Stated that the Tribunal had no jurisdiction over county court costs, which should be determined by the county court.

The parties then returned to the county court where the landlord applied for judgment in the amount claimed.

A hearing date was listed.

Before the hearing date, the landlord served a statement of costs:

• It was described as “the Claimant’s costs of the claim as at the issue of this Application [for judgment]”, and
• It set out only the costs of the county court proceedings.

The parties then managed to settle. They agreed a consent order in the following terms:

“Upon the defendant having paid to the Claimant the sum claimed in the Application returnable on 9^th August 2013 of £593.47 plus interest thereon in the sum of £67.65 together with the Claimant’s costs of the action in the sum of £811 being in aggregate the sum of £1472.12

BY CONSENT IT IS ORDERED:-

The Application returnable on 9^th August 2013 be vacated.”

Some seven months later, Sinclair Investments asked Mr Clemo to pay the costs of the LVT proceedings by way of an administration charge.

It relied on the following covenant on the part of Mr Clemo:

“To pay all expenses including Solicitors costs and surveyors fees incurred by the Lessor incidental to the preparation and service of a notice under Section 146 of the Law of Property Act 1925 notwithstanding that forfeiture is avoided otherwise than by relief granted by the court.”

For the purposes of this post, I will call that clause the section 146 provision.

Mr Clemo refused to pay.

Sinclair Investments therefore brought another claim in the county court.

The county court transferred the issue of Mr Clemo’s liability to pay, and the amount payable, to the FTT.

The FTT determined that Sinclair Investments had settled its claim to all of its costs in the consent order and was not entitled to any further payment from Mr Clemo.

Sinclair Investments appealed that decision.

Elizabeth Cooke, sitting as a deputy judge of the Upper Tribunal, heard the appeal. She summarised the task before her:

“I am concerned only with whether the consent order of 9 August embodied a compromise of all the landlord’s costs, or whether it remained open to the landlord to make an additional claim, later, for its expenses in the LVT phase of the action. I am not concerned with whether those expenses fall within the terms of the lease, and for the present purposes I assume that they do”.

The purpose of the section 146 provision

Elizabeth Cooke began by identifying the purpose of the section 146 provision. It was, in her view, designed to protect the landlord from bearing its own legal costs when taking action against a tenant in breach of covenant, even if the court did not make a costs order.

She continued:

“Even when a court makes an order for costs”, she said, “that does not preclude further recovery by the landlord under the terms of the lease.

“Where costs are limited in the court proceedings, by virtue of their being small claims, the court can nevertheless make an order that reflects the landlord’s contractual right to further costs under the lease: Chaplair Ltd v Kumari [2015] EWCA Civ 798.

“Had the county court made an order for costs after a contested hearing the landlord would nevertheless have been able to recover further costs under [the section 146 provision], unless the court order expressly dealt with that entitlement”.

In Mr Clemo’s case, the FTT decided that the court order had expressly dealt with that entitlement. It had therefore declined to allow the recovery of any further sums from Mr Clemo.

The statement of costs

Elizabeth Cooke drew three points from the statement of costs.

First, it may not have been obvious that to Mr Clemo, or to a reasonable lay person in the same position as Mr Clemo, that the statement of costs was limited to the costs of the county court proceedings.

Second, by describing the statement as containing “the Claimant’s costs of the claim as at the issue of this Application [for judgment]”, it could be said that the landlord was clearly saying that all of the costs that it wished to recover were set out on the statement of costs.

Mr Clemo argued that he had agreed the consent order in reliance on that statement. That gave rise to an estoppel which prevented the landlord from claiming further costs.

Third, the Claimant’s statement of costs was a clear indication of the terms on which the parties intended to settle the claim. In other words, it was evidence of the scope of the parties’ agreement.

Why had the landlord failed to include the costs of the LVT proceedings? Elizabeth Cooke speculated that it may have been an oversight.

“… at any rate”, she said, “it appears that both parties thought they were bringing the proceedings as a whole to an end; that is clearly what anyone in the tenant’s position would have understood”.

The long and winding road

The next consideration was the wording of the consent order, which referred specifically to “the action”.

Elizabeth Cooke held that it was correct to refer to the “action” in the singular, not the plural.

The parties had only been engaged in one action. They had taken “a winding road from court to tribunal and back again”, but that is how the legislation is structured.

The process that they had followed was therefore not wrong or bad… It is just drawn that way.

“The plain meaning of the order”, concluded Elizabeth Cooke, “is that it dealt with the tenant’s liability to the landlord for the costs of the action as a whole. It left nothing open”.

The landlord’s appeal was therefore dismissed.

It is often the case that a judge will send a draft of his/her decision to the parties before handing it down, so that the parties can check it for minor errors and typing mistakes.

That is what Elizabeth Cooke did in this case.

The landlord’s solicitor used the opportunity however to make further arguments on the merits of the case. Understandably, having read the draft decision, the landlord was anxious to reverse it.

Elizabeth Cooke made two observations on those arguments:

• “… the practice of circulating a decision in draft is not to provide a further opportunity to continue the argument, but is to provide an opportunity to correct errors of expression or factual detail (see Robinson v Fernsby [2003] EWCA Civ 1820, at paragraphs 94 to 98)”, but
• “Nevertheless it is established that there is power for a court or tribunal to reconsider its decision in these circumstances and that the reasoning or even the conclusions might change as a result (see Altus Group (UK) Ltd v Baker Tilly Tax and Advisory Services LLP and Baker Tilly Tax and Accounting Services Ltd [2015] EWHC 12 (Ch)”.

She therefore reviewed the landlord’s further arguments, but held that they did not reveal any error in her draft.

She did not therefore require any further submissions from Mr Clemo. The draft decision became final.

Chaplair

Do we have some fallout from Chaplair in this decision? I suspect that we do.

Pre-Chaplair, I wonder how many landlords would have included their LVT/FTT costs in statements of costs for the county court element of a service charge dispute which had spent time in the LVT/FTT.

It seems to me that it was not until the Court of Appeal clarified in Chaplair that the county court had the jurisdiction to determine the amount payable in LVT/FTT proceedings that parties would even have expected to have to consider their LVT/FTT costs in court.

Costs and the court order

When considering the purpose of the section 146 provision, Elizabeth Cooke observed that a landlord may recover costs beyond those allowed in a court order “unless the court order expressly dealt with that entitlement”.

Those words paraphrase the fifth principle identified by Scott LJ in Gomba Holdings (UK) Ltd v Minories Finance Ltd (No.2) Ltd [1993] Ch 171, who said:

“… A mortgagee is not, in our judgment, to be deprived of a contractual or equitable right to
 add costs to the security merely by reason of an order for payment of costs made without reference to the mortgagee’s contractual or equitable rights 
and without any adjudication as to whether or not the mortgagee should be deprived of those costs.”

I find that wording rather convoluted. Unpicking it, I read it to mean that a landlord may not seek further costs beyond those allowed by a court order if the court has already:

• Referred to the mortgagee’s contractual or equitable rights, and
• Adjudicated as to whether or not the mortgagee should be deprived of those costs.

Alternatively phrased: a landlord may therefore only seek further costs beyond those allowed by the court if the court has not:

• Referred to the mortgagee’s contractual or equitable rights, or
• Adjudicated as to whether or not the mortgagee should be deprived of those costs.

The downer

Presumably the next step in this case will be a return to the county court, where the claim will, I imagine, be dismissed, possibly with an order for costs in Mr Clemo’s favour if the general rule as to costs under the CPR applies.

I anticipate that, the claim having been dismissed, the landlord will not try to rely on the section 146 provision in order to recover its costs directly from Mr Clemo.

But what about recovery through the service charge? Are there now going to be a series of section 20C applications?

How much money will ultimately be spent on legal fees in an effort to recover service charge arrears that were less than £100 over the statutory limit for forfeiture?

Looking back to Mr Borg and Mr McEnroe, I am tempted to say that in this case, Mr Clemo may have won the tie-breaker, but the fifth set could be a long one.

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