Andrew Parissis v Blair Court (St John’s Wood) Management Ltd [2014] UKUT 0503 (LC)

In the happy world of the third floor of Tanfield Chambers, where I spend most of my working (and, it sometimes seems, waking) hours, the equitable doctrine of laches is known as lychees.

In short, laches is equity’s word for excessive delay in bringing an action. Many people know the equitable maxim that he who comes to equity must come with clean hands. The maxims also provide that delay defeats equity.

Lychees, on the other hand, are small exotic fruits originating from China. They are absolute fiends to peel.

Both laches and lychees can be tricky blighters in their own way, but there is no connection between them, save in the minds of the occupants of the third floor of Tanfield Chambers.

Mr Parissis was the long lessee of two flats at Blair Court. His lease provided that the service charge was payable by way of additional rent.

He made a section 27A application in late 2010 in respect of service charges for the years 2001 to 2005.

That application was his third:

• The first had arisen from consultation for major works in 2007, and
• The second from consultation for CCTV works in 2009.

The LVT decided that this third application was time-barred:

• Section 21 of the Limitation Act 1980 did not apply because there was no money held on trust;
• Mr Parissis had delayed unreasonably before making his application;
• In neither of the earlier applications had Mr Parissis complained about works carried out before 2007, and
• It was concerned that Mr Parissis was engaged on a fishing expedition.

You can read the relevant excerpts of the Limitation Act 1980 by clicking on this link.

Mr Parissis was granted permission to appeal, but the hearing of the appeal was effectively stayed, because at the time, the Court of Appeal was due to hear an appeal from Warwickshire Hamlets Ltd v Gedden (LRX/156/2008). The outcome of that appeal would have affected the determination of Mr Parissis’s appeal.

In the event, the parties to Warwickshire Hamlets Ltd v Gedden settled their differences and the hearing before the Court of Appeal never took place.

Mr Parissis and his landlord waited for the resolution of the Gedden case before asking to be heard by the Upper Tribunal. Hence the rather lengthy gap between the grant of permission to appeal and the hearing of the appeal itself.

HHJ Huskinson made two preliminary observations:

• In this case, HHJ Huskinson was dealing with an application made by a lessee, and cautioned that arguments about time limits may be different where the application is made by a landlord;
• Two specialist textbooks acknowledged that it is not clear whether the Limitation Act 1980 applies to the LVT/FTT. Those texts are:

(a)  Commercial and Residential Service Charges (Rosenthal & Others) and

(b)  Service Charges and Management, 3^rd ed., Tanfield Chambers.

The trust argument

The money collected would have been held on the statutory trust imposed by section 42 of the Landlord and Tenant Act 1987.

Section 21 of the Limitation Act 1980 governs limitation periods for claims arising from dealings with money held on trust.

Neither side suggested however that the landlord had used money collected for major works for any purpose other than to pay for those works.

Therefore, reasoned HHJ Huskinson, as the service charge money had not been converted to the landlord’s use – ie treated by the landlord as his own – section 21 of the Limitation Act 1980 was not engaged.

On the question of amounts which may subsequently be held to be unreasonable under section 19 of the Landlord and Tenant Act 1985, HHJ Huskinson turned to paragraph 42-31 of Commercial & Residential Service Charges:

“42-31. … it seems unlikely that, where the relevant costs are simply determined to be unreasonable under section 19 or irrecoverable for some other reason …, this could lead to the conclusion that the funds had been converted to the use of the landlord. It might be argued that, whenever the landlord settles a debt to a third party using service charge funds which are subsequently determined not to be payable, he has converted the funds to his own use since, otherwise, the debt would fall to be settled from the landlord’s own pocket. That would appear to be an unwarranted extension of section 21(1), however, since, at the point of payment, the landlord would have no way of knowing that the service charges would subsequently be determined not to be payable on the basis of unreasonableness or otherwise.”

Unreasonable delay

HHJ Huskinson moved on to tackle the LVT’s determination that Mr Parissis was barred from bringing his application because of unreasonable delay.

The LVT had not cited any specific section of the Limitation Act 1980 in support of its conclusion, but had referred to the delay being “unconscionable”. This led HHJ Huskinson to conclude that the LVT had been invoking the principle of laches, even if not doing so expressly.

“As pointed out in the Warwickshire Hamlets case in paragraph 60, the doctrine of laches cannot apply to a section 27A application because such an application is the exercise of a statutory right rather than a claim for equitable relief”.

Section 19 of the Limitation Act 1980: claims for the recovery of rent

The landlord argued that, as the service charge was reserved as rent, section 19 of the Limitation Act 1980 prevented Mr Parissis from pursuing his application.

This was swiftly dismissed by HHJ Huskinson: Mr Parissis was the lessee. He was not making an application to recover arrears of rent or damages in respect of those arrears – he was making an application for a determination of the amount of service charge that was properly payable for a given period.

Section 9 of the Limitation Act 1980: claims pursuant to an enactment

In HHJ Huskinson’s judgment, Mr Parissis’s application for a determination of the amount payable by way of service charge was not an action to recover any sum pursuant to an enactment.

The claim that Mr Parissis would make in the county court, if indeed the LVT/FTT determined that he had paid too much service charge, would be a “restitutionary claim for recovery of an overpayment”.

Such a clam not a claim made pursuant to an enactment.

Section 5 of the Limitation Act 1980: claims based on a simple contract

HHJ Huskinson’s first port of call here was Halsbury’s Laws of England, 5^th ed., volume 68, paragraph 957, in which the authors put forward the proposition that a claim in restitution for money received may fall within the ambit of a claim founded on a simple contract.

The matter was not however so clear cut for HHJ Huskinson for two reasons.

First, if it were determined that Mr Parissis had overpaid his service charges, and was entitled to the return of some money, section 32 of the Limitation Act 1980 may come into play. That section provides for time to start running at a different date where the claim is for the recovery of money paid under a mistake. It requires consideration of the date when the claimant discovered the mistake – or could, with reasonable diligence, have discovered it.

Second, the section 27A application could not always be characterised as an application which would ineluctably lead to a restitutionary claim in the courts. The application could lead to an application under section 24 of the Landlord and Tenant Act 1987 for the appointment of a manager.

Section 8 of the Limitation Act 1980: claims based on a specialty

The writers of Halsbury’s Laws of England confirm that a statute is a form of specialty.

HHJ Huskinson rather neatly side-stepped consideration of this section of the Limitation Act 1980 – even if section 8 did apply, it could not bar Mr Parissis’s application, because it related to events occurring within the past twelve years.

An alternative use for the elements of laches

Having overturned the LVT’s determination that:

• Mr Parissis had delayed unreasonably and unconscionably in making in his application, and that
• The landlord had thereby suffered prejudice,

HHJ Huskinson considered the alternative use to which those arguments may be put.

“It may be”, he observed, “that, upon this matter being remitted to the LVT (as I conclude it must be) the LVT will give consideration, either of its own motion or because of an application to do so by the respondent, to the question whether the appellant’s applications should be dismissed as being “frivolous or vexatious or otherwise an abuse of the process of the tribunal” within regulation 11 of the Leasehold Valuation Tribunals Procedure (England) Regulations 2003 or any relevant successor regulations”.

He made no comment on the prospects of success of any such argument, the raising and deciding of the point being “entirely a matter for the future”.

Mr Parissis’s appeal was allowed. HHJ Huskinson remitted the case to the FTT to determine the section 27A application.

Mr Parissis asked that, in the light of his success, the landlord be ordered to pay the £450 fee that he had paid in order to bring the appeal.

HHJ Huskinson referred to rule 10(6)&(7) of the Tribunal Procedure (Upper Tribunal) Lands Chambers Rules 2010, which read, so far as relevant:

(6) The Tribunal may make an order for costs in proceedings—

…

(d) On an appeal from a decision of the Valuation Tribunal for England or the Valuation Tribunal for Wales.

(7) Subject to paragraph (3), in proceedings to which paragraph (6) applies, the Tribunal may direct that no order for costs may be made against one or more specified parties in respect of costs subsequently incurred.

He decided that the landlord should pay 50% of the fee, observing that:

• The LVT had criticised Mr Parissis for delaying in making his application;
• There may yet be an application under regulation 11.

First up, the simple stuff.

Regulation 11

Regulation 11 (of the Leasehold Valuation Tribunals Procedure (England) Regulations 2003) is no longer in force in England – it has been replaced by rule 9 of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules.

Now for the difficult part.

The scope of this decision

It could be said that this decision is limitation-lite, but as an introduction to some of the relevant provisions of the Limitation Act 1980, it strikes me that it is quite a handy thing.

The key is to remember that it focuses only on limitation from the perspective of the lessee, and that different arguments may well be advanced where it is the landlord who is on the receiving end of the limitation arguments.

Trust – when does it end?

Section 42 of the Landlord and Tenant Act 1987 impresses service charge money held by a landlord with a statutory trust. Technically therefore the lessee remains the real owner.

Section 21(1)(b) of the Limitation Act 1980 provides that there is no time limit for the bringing of an action by a beneficiary of a trust to recover from the trustee trust property or the proceeds of trust property in the possession of the trustee, or previously received by the trustee and converted to his use.

In the passage from Commercial and Residential Service Charges cited by HHJ Huskinson, the authors write that it would be an unwarranted extension of that section to suggest that where service charges are subsequently determined to have been unreasonably incurred, unreasonable in amount or otherwise not payable, the landlord is in breach of trust.

Is that correct? It seems to me to be rather an opaque and controversial observation.

Opaque, because it admits of two interpretations.

First, that section 21 simply does not apply because a section 27A application is not an action for the recovery of trust property or the proceeds of trust property. That seems to me to be correct, because the LVT/FTT cannot order that money be repaid: the best it can do is to make a determination that money is repayable.

Second, that section 21 cannot be extended to apply to service charge money unwittingly paid over to a contractor in satisfaction of works done and charged to the service charge. If that is correct, it suggests that either:

• At some stage, service charge money becomes the property of the landlord, or
• The landlord’s state of mind is relevant to breaches of trust.

Controversial, because the both of the second points are, at best, rather novel ideas.

Oh how we need a fully reasoned and binding decision on time limits for applications to the FTT under section 27A of the Landlord and Tenant Act 1985!

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