Island Homes Housing Association v (1) Benet Allen (2) Claire Keyte [2013] UKUT 0258 (LC)

The service charges in dispute were those payable for the period 01 July 07 to 10 June 10. The appellant, Island Homes Housing Association, was the freehold owner and landlord of property known by the swashbuckling name of Midship Point, The Quarterdeck, in E14, London. The respondents were the lessees of 62 Midship Point, although as far as I can gather, at the relevant time, they lived in Plymouth.

Island Homes considered that the lessees had service charge arrears of £3,203.21, and issued a claim in the Plymouth County Court, which is located on Armada Way in that seafaring city.

So far, so maritime.

As is often the way however, the dispute made its way inland to the LVT. It was ultimately heard in central London.

There was nothing very remarkable here: the lessees were required to pay an estimated advance service charge.

At the end of each year, the landlord reconciled sums demanded against actual expenditure, and either issued a demand for a balancing payment, or credited the lessees’ account with the amount of the underspend.

The lessees’ service charge statements showed the estimated amounts demanded, actual payments made, and then either credits or balancing charges at the end of the year.

The LVT was concerned with actual expenditure for all years except for the year 2009-10.

The lessees played no part in the proceedings. It transpired that this was because they had given a Plymouth address for the receipt of documents, but were in fact based in Scotland during the life of the LVT application.

The LVT determined that the total amount of service charge payable was £4,674.11. It then deducted all of the credits applied to the service charge account, and concluded that £2,326.84 was actually outstanding.

It then turned to the lessees’ section 20C application. Factors which it weighed in the balance were:

• The lessees had succeeded on about ¼ of the £3,201.21 claimed in the county court proceedings, and

• Significant concessions had been made during the hearing by the Applicant.

Perhaps not surprisingly, the LVT concluded that not more than three-quarters of the landlord’s costs of the proceedings before it should be regarded as relevant costs to be taken into account in determining the amount of any service charge payable by lessees.

When it received the decision, the landlord wrote to the LVT. Amongst other issues, it pointed out that:

• The LVT’s spreadsheet contained some arithmetical errors, some in the landlord’s favour, some against;
• The LVT had been dealing with actual figures for all years save for 2009-10, and therefore
• It had erred in applying all of the credits on the service charge statement to the amount of service charge that it had determined to be payable. Some of those credits represented actual payments by the lessees: others were the amount by which the estimated service charge had been reduced at the end of the year when the actual costs were calculated. The Tribunal had however deducted all of the credits from the amount that it had calculated to be payable;
• In fact the amount due from the lessees constituted an overall reduction of £102.67, or 3.2% of the amount claimed by the landlord at the LVT hearing, and therefore
• This was the figure which should have been relied upon by the LVT as the lessees’ degree of success when considering the s.20C application.

The LVT took on board some of what the landlord said, and issued a correction certificate. It substituted an amended spreadsheet, deleting the figure of £2,326.84 and substituting £2,072.15.

It declined to alter its determination on the deduction of credits, because that issue had not been raised at the hearing. It also declined to amend the section 20C order.

The Lands Chamber granted permission to the landlord to appeal, but limited the appeal to a review, and to the issues of:

(a)    The total credits figure to be used in calculating the balance payable, and

(b)   The appropriate order under section 20C of the Landlord and Tenant Act 1985.

The Tribunal comprised Mr Norman Rose FRICS.

The LVT had taken the view that it had no power to alter the credits contained in the statement of account. In refusing permission to appeal, it stated:

“8. Staunton v Kaye and Taylor [[2010] UKUT 270 (LC)] makes clear that, in cases which are transferred from the County Court, the jurisdiction of the Tribunal is limited to the terms of the parties’ pleadings.  The Tribunal has no power to permit a party to amend its pleaded case.

9. The Applicant is seeking to enlarge a transferred claim from the County Court… The Tribunal does not consider that such a proposition is even arguable…”

Mr Rose determined that he “would respectfully differ from that conclusion”. He decided that “it is clear from its decision that the LVT was aware that:

• “the Lessee was liable to pay an estimated, advance service charge;
• “once the Lessor’s total expenditure for an accounting period was known, an adjustment was to be made to reflect any difference between the actual service charge and the interim charge.
• “The statement of account … formed part of the particulars of claim (and thus of the pleadings) in the county court.
• “It was apparent from the pleadings that the payments received/credits column in the statement of account included adjustments to reflect the excess or deficiency of the [actual] service charge over the interim charge.

“That this was so is exemplified by the following entries for 1 and 28 September 2007:

“Date              Description                  Rent and Service       Payments       Balance

“1/09/2007       Service Charge Due            116.54                                             (668.41)

“28/09/2007     Y/E LH S/C Adj                                                      443.75          (224.66)”

(at an educated guess: Y/E = year end; LH = leaseholder; S/C = service charge; Adj = adjustment)

He said: “One effect of the LVT’s decision was to substitute the figures determined by the LVT for the service charge figures in the third column of the service charge statement.  But the credit figures in the fourth column, such as the figure of £443.75 which was stated to represent a service charge adjustment, were derived from the original service charge figures in the third column”.

In summary therefore, the LVT had power to alter the credit figures in the accounts. The only credit figures which should be deducted from the determined service charges were those which reflect payments actually made by the respondents. The LVT had therefore produced an erroneous correction certificate.

The lessees contended that the landlord had waived its right to claim its costs of the LVT hearing under the lease because it had failed to issue an interim estimated charge for those costs in April 2011 and April 2012. I think that the reference to “costs” is to the legal costs of the LVT hearing, although the decision is not altogether clear.

Mr Rose concluded that that was a point that the respondents could not raise in the instant appeal, but that they would be entitled to raise when the landlord issued a service charge demand which included the LVT costs.

He therefore allowed the appeal:

• The balance of the service charge payable by the lessees  in respect of the period from 1 July 2007 to 10 June 2010 was £2,840.16, and

• 3.2% of the costs incurred by the appellant in connection with the 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 payable by the lessees.

The lessees’ submissions to the Land’s Chamber included the following statement:

“5… It is a fact that the Tribunal’s decision on reasonableness (if not paid) can be enforced by the County Court on pain of forfeiture. For the record, the Respondent, tired of waiting for the reissued Certificates of Total Expenditure, sent the landlord a cheque for the Tribunal’s ‘amount payable’ £2,326.84. The landlord has refused to present the cheque for payment.  In the meantime the Tribunal have further reduced the amount payable with an extra £254.69 credit to the Respondent received on the 5th January 2012. …

“8. It is a known fact that the Landlord will take the decision of the Upper Tribunal and, without copy or notice to the defendant, encourage a District Judge to give Judgment, without notice, with costs and interest at 8% in closed chambers.  The Landlord will say nothing of the uncashed cheque. The Landlord will then proceed with a claim for forfeiture on the Judgment.  The Defendant will be put to an obstacle course of appeal in the County Court. Yet none of the charges have ever been substantiated with reconciliation.

“9. The claim is a small claims track in the County Court and the Respondent claims no costs.

“Conclusion

“This type of aggressive debt collecting of unsubstantiated charges must be outlawed by HM Courts and Tribunals Service in the interest of equal treatment between landlord and tenant.  The Respondent respectfully begs the Upper Tribunal to dismiss the appeal.”

The Lands Chamber noted: “given the appellant’s unsolicited action in volunteering concessions…, the submission that it is aggressively pursuing unsubstantiated charges is surprising, as is the suggestion that the county court would give judgment in camera and without prior notice to the respondents.  In any event, by quoting the respondents’ observations in this regard, this decision will ensure that the county court will be fully aware of the position when it comes to consider the matter again in due course”.

Four points come to mind on reading this decision. The first two are quite short. The other two are longer, but useful. The first of these is useful in the service charge context. The second is an diversion into the meaning of the rule of law.

Not so much hide-and-seek as show-and-tell

This case is a good example of the importance of ensuring that the address which the Tribunal holds for a party is one where documents will be received. Whilst this is a case under the old rules, it is as much a salutory lesson for those of us working with the new rules as with the old.

The power to amend a decision

We are no longer concerned with the scope of the Tribunal’s powers under the old rules to issue correction certificates. Those powers altered quite significantly with the arrival of the First-tier Tribunal on 01 July 2013. The new rules are fresh green fields which empower the new Tribunal to set aside a decision on broadly procedural grounds, correct an accidental slip, review or grant permission to appeal a decision.

Staunton v Kaye [2010] UKUT 270 (LC)

This is the first of my two long points. It addresses the LVT’s/First-tier Tribunal’s powers when a matter is transferred to it from the county court.

When considering Island Homes’s arguments, the LVT appears to have adopted a very rigid understanding of Staunton v Kaye [2010] UKUT 270 (LC), particularly given the Lands Chamber’s observations in the subsequent Lennon v Ground Rents (Regisport) Ltd [2011] UKUT 330 (LC).

This excerpt from paragraph 21 of Staunton, determined by George Bartlett QC, is a handy overview of the LVT’s powers when issues are transferred to it:

“It is clear that the power of the LVT in determining the questions in the transferred proceedings is no wider than that of the court. The court is limited by the terms of the parties’ pleadings, although it can, of course, give permission to a party to amend. The powers of the LVT in transferred proceedings are necessarily limited in the same way, but the LVT has no power to permit the pleadings to be amended and thus to widen the scope of the questions that it is required to determine under the transferred proceedings”.

The Staunton principle was developed by Lennon v Ground Rents (Regisport) Ltd [2011] UKUT 330 (LC), a decision of HHJ Huskinson, who, at paragraph 23, observed that:

“It would have been open to either party, had they chosen to do so, to make a separate application to the LVT under section 27A of the 1985 Act for the LVT to decide certain matters in dispute between the parties regarding service charge or administration charge. Had either party done so then, subject to some possible argument as to the ability thereby to raise points which could have been but were not raised in the pleadings in the County Court, the LVT would have had jurisdiction to decide these additional points of dispute between the parties regarding service charge or administration charge. Similarly it would seem to me, as presently advised, that it would have been open to the parties to have agreed to request the LVT to extend the scope of the hearing in the foregoing manner and to dispense with the formality (which otherwise would be required by the relevant procedural rules) of making a written application to the LVT – in which circumstances the LVT could have decided that it should accede to this request by the parties for an extension”.

I think that it can legitimately be said that the above are side observations by HHJ Huskinson, because they do not go to the heart of the issue that he had to decide. It seems to me however that they are practical suggestions for avoiding excessive to-ing and fro-ing between county court and (now) First-tier Tribunal.

And finally

My second long point.

I felt that I must mention the lessees’ post script: it is a bitter and unhappy description of a legal system which is not one that I recognise from my own experience.

I was about sign off on that rather unhelpful note. I am saved from negativity however by an article entitled “The Rule of Law”, written by our now-deceased former Senior Law Lord, Lord Bingham, in the Cambridge Law Journal in 2007 (T. Bingham, “The Rule of Law”, (2007) 66 CLJ 67).

The rule of law is a “constitutional principle” expressly recognised by section 1 of the Constitutional Reform Act 2005. It can be summed up rather inadequately in the sentence: “No man is above the law”.

In his article, Lord Bingham is more specific. He identifies eight principles which underpin the rule of law, and which give a benchmark against which individuals’ complaints can be measured:

(1)   The law must be accessible and, so far as possible, be intelligible, clear and predictable;

(2)   Questions of legal right and liability should ordinarily be resolved by application of the law and not by the exercise of discretion;

(3)   The law should apply equally to all, except to the extent that objective differences justify differentiation;

(4)   The law must afford adequate protection of human rights;

(5)   Means must be provided for resolving, without prohibitive cost or inordinate delay, bona fide civil disputes which the parties themselves are unable to resolve;

(6)   Ministers and public officers at all levels must exercise the powers conferred on them reasonably, in good faith, for the purpose for which the powers were conferred, and  without exceeding the limits of such powers;

(7)   Judicial and other adjudicative procedures must be fair and independent; and

(8)   There must be compliance by the state with its international law obligations.

These principles were discussed and developed in Lord Bingham’s short and wonderful book “The Rule of Law“. A John-Grisham-style thriller it is not, but it is a readable and practical book which I went so far as to put on my wishlist for Christmas when it was first published.

Le père Noël obliged.