Morshead Mansions Ltd v Leon di Marco [2014] EWCA Civ 96

The full context is set out here.

By way of recap, this is the block where the landlord, Morshead Mansions Ltd, could require payment of a service charge under the terms of the lease, or payment under article 16 of the company’s constitution, by way of a call on the lessees as members of the company to contribute to those costs.

Lewison LJ noted that:

“In a previous round of litigation between these parties this court decided that sums which Mr Di Marco was obliged to pay in his capacity of shareholder rather than in his capacity of tenant were not “service charges” as defined by the Landlord and Tenant Act 1985: Morshead Mansions Ltd v Di Marco [2008] EWCA Civ 1371”.

Mr Di Marco claimed injunctions pursuant to sections 21 and 22 for the provision by the landlord of the following:

• Accounts for 2002 and summaries of costs for 2002-5 and 2009;
• A summary of costs for 2009, and
• Facilities to inspect the accounts, receipts and supporting documents relating to 2007 and 2009, or

Using a metaphor which could not be more apposite in this season of rain, floods and downpours, Lewison LJ observed that regulation of residential service charges “has not been a legislative backwater…”

This is why.

In the beginning…

The service charge Big Bang came with the Housing Finance Act 1972.

Section 90 obliged the landlord to provide a summary of costs to a lessee. It was couched in similar terms to section 21 of the 1985 Act.

The Housing Act 1974

Service charge life as we know it began to take shape when the Housing Act 1974 amended the 1972 Act to impose a limit on the recoverability of service charges.

The Housing Act 1980

Section 136 and Schedule 19 of the 1980 Act replaced section 90 of the 1972 Act.

The Landlord and Tenant Act 1985

The Landlord and Tenant Act 1985 in turn replaced the 1980 Act. It was intended to consolidate what had gone before.

It was not however long before those pesky legislators began to have itchy fingers.

The 1985 Act has been amended by:

• Part V of the Landlord and Tenant Act 1987;
• Part III of the Housing Act 1996;
• Part 2 of Commonhold and Leasehold Reform Act 2002, and
• The Housing and Regeneration Act 2008.

The fact that an Act of Parliament requires a person to do something does not mean that breach of that requirement automatically gives rise to a claim in the civil courts for breach of statutory duty. For example:

The Protection from Harassment Act 1997

• Section 1 prohibits harassment.
• Section 2 creates a criminal offence;
• Section 3 creates a civil remedy.
• Sections 2 to 8 impose duties on employers, but
• Section 47(1)(a) makes it clear that there is no civil liability for breach of those duties.

The Health and Safety at Work etc Act 1974

• Sections 2 to 8 impose duties on employers, but
• Section 47(1)(a) makes it clear that there is no civil liability for breach of those duties. 

The Landlord and Tenant Act 1988

• Section 4 provides only for a civil remedy.
• There is no criminal sanction.

Section 47 of the Landlord and Tenant Act 1987

Provision

Any written demand served on a tenant:

• Must include the name and address of the landlord and,
• If that address is not in England and Wales, an address for service.

Remedy: civil

Any part of the amount demanded that consists of a service charge is to be treated for all purposes as not due from the tenant at any time before that information is supplied.

Section 84 & Schedule 4 of the Housing Act 1996

Provision:

• Entitles a recognised tenants’ association to appoint a surveyor to advise on matters relating to service charges;
• Provided that the surveyor has given notice to the landlord, s/he has the right to require the landlord to allow him/her to inspect documents.
• If the landlord does not allow inspection within one month of being given notice: “.. the court may, on the application of the surveyor, make an order requiring [the landlord] to do so within such period as may be specified in the order”;
• The surveyor’s application must be made within four months.
• The surveyor must be appointed by a recognised tenants’ association;
• The application to court can only be made by the surveyor.

Remedy: civil

• If the landlord does not allow inspection within one month of being given notice: “.. the court may, on the application of the surveyor, make an order requiring [the landlord] to do so within such period as may be specified in the order”;

• The surveyor’s application must be made within four months.

Points to note

• The surveyor must be appointed by a recognised tenants’ association;
• The application to court can only be made by the surveyor.

Part V of the Leasehold Reform, Housing and Urban Development Act 1993

Provision

• Tenants can require the landlord to allow a management audit to be carried out;
• The right is exercised by giving notice under section 80 of the Act;
• Once notice has been given, the auditor (who must be a qualified accountant or surveyor) is given certain rights exercisable on behalf of the tenants;
• These rights include a right to require the landlord to provide a summary of the kind described in section 21 of the Landlord and Tenant Act 1985, and
• The right to reasonable facilities to inspect the documents supporting the summary.
• By virtue of section 81, the landlord must comply with the auditor’s request within one month once notice has been given, and
• If the landlord does not comply within two months of the giving of notice, the auditor may apply to court for an order that the landlord comply.
• Unless there is only one qualifying tenant in the relevant premises, the initial notice must command the support of at least two tenants, and
• The application for the mandatory order can only be made by the auditor.

Remedy: civil

Points to note

It transpires that the 1985 Act is rather a showcase of legislative techniques.

Section 3: changes of landlord

Provision

• Any outgoing landlord must inform the lessee of the change of landlord no later than the next rent day or if that is less than two months’ distant, within two months of the change.
• Failure to comply is a criminal offence, and
• The outgoing landlord remains liable to the tenant for any breach of obligation under the tenancy (even if it takes place after the change of landlord) until such time as the tenant is notified of the change.
• It is an implied term of any tenancy that a house is fit for human habitation at the beginning of the tenancy;
• The landlord undertakes to keep it fit for human habitation during the tenancy.
• These obligations take effect as deemed contractual provisions.
• It is an implied covenant on the part of the landlord that s/he will keep identified parts of the dwelling in repair.
• These obligations take effect as implied covenants, and
• Section 17 provides for a remedy of specific performance of the repairing covenant.

Remedy: civil and criminal

• Failure to comply is a criminal offence, and
• The outgoing landlord remains liable to the tenant for any breach of obligation under the tenancy (even if it takes place after the change of landlord) until such time as the tenant is notified of the change.

Section 8: fitness of houses for human habitation

Provision

• It is an implied term of any tenancy that a house is fit for human habitation at the beginning of the tenancy;
• The landlord undertakes to keep it fit for human habitation during the tenancy.

Remedy: civil

• These obligations take effect as deemed contractual provisions.

Section 11: repairing obligations in short tenancies

Provision

• It is an implied covenant on the part of the landlord that s/he will keep identified parts of the dwelling in repair.

Remedy: civil

• These obligations take effect as implied covenants, and
• Section 17 provides for a remedy of specific performance of the repairing covenant.

Section 19

Provision

• Service charges are recoverable only to the extent that they are reasonably incurred and reasonable in standard
• The parties’ contractual rights are modified to the extent that the amount of service charge payable is limited to those amounts.
• The landlord must comply with certain consultation requirements in respect of qualifying works and qualifying long term agreements.
• Unless the consultation requirements are dispensed with, the landlord cannot recover more than £250/£100 per lessee for those works or per year for that agreement respectively.

Remedy: civil

• The parties’ contractual rights are modified to the extent that the amount of service charge payable is limited to those amounts.

Section 20

Provision

• The landlord must comply with certain consultation requirements in respect of qualifying works and qualifying long term agreements.

Remedy: civil

• Unless the consultation requirements are dispensed with, the landlord cannot recover more than £250/£100 per lessee for those works or per year for that agreement respectively.

Sections 21 and 22

After this useful perambulation through the highways and byways of the 1985 Act, Lewison LJ arrived at sections 21 and 22.

Rather like Tolkein’s nasty and oversized spider Shelob at the foot of Mount Doom, sections 21 and 22 lurk in that rather obscure and treacherous area of the 1985 Act which is inhabited by multiple versions of sections which are partly in force and which have forsaken simple section numbers for “ZA” and “A”/”B” suffixes.

Provision

Lewison LJ described the two sections as follows:

“Section 21 of the Landlord and Tenant Act 1985 entitles a tenant to require his landlord to supply him with a written summary of costs which will form part of a service charge. If so required the landlord must comply with the request within one month.

“Section 22 entitles a tenant who has received such a summary to require the landlord to afford him reasonable facilities for inspecting the documents supporting the summary. The landlord must comply with that request within two months.

“Failure to comply with these obligations without reasonable excuse is a summary offence punishable with a fine”.

Remedy: criminal

• There are no explicit consequences for the parties’ civil rights or obligations;
• The only explicit sanction is prosecution for having committed a criminal offence;
• If the landlord is a company, its directors or managers may be prosecuted (section 33);
• A local authority can bring a prosecution (section 34);
• A tenant may bring a private prosecution (section 6, Prosecution for Offences Act 1985 and R (Gujra) v Crown Prosecution Service [2012] UKSC 52);
• The punishment is a fine not exceeding level 4 on the standard scale. For those of us less familiar with the criminal jurisdictions, that currently means a maximum fine of £2,500;
• The standard limitation period for bringing the prosecution is six months (section 127(1) Magistrates Courts Act 1980), and
• The burden of proof is to the criminal standard: beyond reasonable doubt.

Section 21A

This section is mind-shredding complication in statutory form.

It was inserted into the 1985 Act by the Commonhold and Leasehold Reform Act 2002.

It was amended by the Housing and Regeneration Act 2008.

It ain’t however yet in force.

Remedy: civil

If/when it does come into force, section 21A will entitle lessees to withhold their service charge payments if the landlord fails to comply with section 21.

So far, so straightforward. The twist is that the section 21 to which section 21A refers is a new section 21 which:

• Was inserted into the 1985 Act by the Commonhold and Leasehold Reform Act 2002;
• Was amended by the Housing and Regeneration Act 2008, and
• Is not yet in force either.
• A demand for service charges must be accompanied by prescribed information about a tenant’s rights and obligations, and
• The prescribed information appears in the Service Charges (Summary of Rights and Obligations, and Transitional Provision) (England) Regulations 2007.
• The tenant may withhold service charges if that statutory duty is not complied with.

Section 21B

Provision

• A demand for service charges must be accompanied by prescribed information about a tenant’s rights and obligations, and
• The prescribed information appears in the Service Charges (Summary of Rights and Obligations, and Transitional Provision) (England) Regulations 2007.

Remedy: civil

• The tenant may withhold service charges if that statutory duty is not complied with.

After that comprehensive review of the rights and remedies available to lessees, Lewison LJ turned to the authorities.

He started at the top with the House of Lords and X (Minors) v Bedfordshire County Council [1995] 2 AC 633. At 731, Lord Browne-Wilkinson gave the following overview:

“The basic proposition is that in the ordinary case a breach of statutory duty does not, by itself, give rise to any private law cause of action. However a private law cause of action will arise if it can be shown, as a matter of construction of the statute, that the statutory duty was imposed for the protection of a limited class of the public and that Parliament intended to confer on members of that class a private right of action for breach of the duty. There is no general rule by reference to which it can be decided whether a statute does create such a right of action but there are a number of indicators. If the statute provides no other remedy for its breach and the Parliamentary intention to protect a limited class is shown, that indicates that there may be a private right of action since otherwise there is no method of securing the protection the statute was intended to confer. If the statute does provide some other means of enforcing the duty that will normally indicate that the statutory right was intended to be enforceable by those means and not by private right of action: Cutler v Wandsworth Stadium Ltd [1949] AC 398; Lonrho Ltd v Shell Petroleum Co Ltd (No 2) [1982] AC 173. However, the mere existence of some other statutory remedy is not necessarily decisive. It is still possible to show that on the true construction of the statute the protected class was intended by Parliament to have a private remedy.”

Lord Browne-Wilkinson’s words identify three groups of statutory provision.

1. Provisions for which there is no sanction, civil or criminal

St John Poulton’s Trustee in Bankruptcy v Ministry of Justice [2010] EWCA Civ 392; [2011] Ch 1 is authority for the following two propositions:

The absence of express sanction does not automatically give rise to a private right of action.

In deciding whether Parliament intended to create a remedy in private law the court must examine the statutory landscape as a whole.

2. Provisions for which there is a specific sanction

Foraying deep into history, Lewison LJ said: “The starting point is a presumption that where an Act creates an obligation, and enforces the performance in a specified manner, performance cannot be enforced in any other manner: Doe d Murray v Bridges (1831) 1 B & Ad 847, 859”.

3. Provisions for which there is a criminal sanction

Sections 21 and 22 of the 1985 Act belong to this group.

Where the only specified remedy is a criminal sanction, to Lewison LJ’s mind, there are some exceptions to the starting point:

• The first possible exception is where the legislation in question is passed in order to protect or benefit a particular class of individuals. Health and safety at work legislation may fall into this category, and
• The second possible exception is where the legislation creates a public right and a particular member of the public suffers particular, direct, and substantial damage other and different from that which was common to all the rest of the public: Lonrho Ltd v Shell Petroleum Co Ltd (No 2) [1982] AC 173, 185.

Lewison LJ reminded himself however that in the end it is still a question of construction of the relevant legislation: Cutler v Wandsworth Stadium Ltd [1949] AC 398.

Damages are key

“In order to fall within the first exception” continued Lewison LJ, “the legislation must have been intended to confer on members of the protected class a cause of action sounding in damages occasioned by the breach. The sorts of damage which would qualify are personal injury, injury to property or economic loss. The mere fact that someone in the class would be adversely affected by the breach of duty is not enough, unless he suffers damage that the law regards as recoverable damages: Pickering v Liverpool Daily Post and Echo plc [1991] 2 AC 370, 420”.

The requirement that any claim by remediable by damages chimed, in Lewison LJ’s view, with the general principle that on the whole “a tort is not complete until the victim has suffered a recoverable loss”.

Claims for an injunction to prevent commission of an offence

If a putative Claimant could not establish a cause of action giving rise to a claim for damages from the legislative provision, the only basis on which s/he could claim an injunction would be by satisfying a court that s/he had a cause of action at common law or in equity.

“The mere fact that the prohibited activity is a criminal offence does not entitle that person to an injunction to restrain the commission of the criminal offence”, said Lewison LJ.

It was very unlikely that Parliament would:

• Legislate for the protection or benefit of a protected class, but
• Not intend to confer on members of the class a right to sue for damages yet
• Intend that they should have the right to an injunction: CBS Songs Ltd v Amstrad Consumer Electronics Plc [1988] Ch. 61, 76-78.

A review of Mann J.’s conclusion is here.

Lewison LJ gave thirteen reasons for allowing the appeal. Eight were significant; five were, in his words, “minor”.

Significant

1. The only express sanction available for failure to comply with section 21 or 22 was a criminal one;
2. Sections 21 and 22 have remained substantively unchanged for over thirty years;
3. Meanwhile, there have been multiple statutory changes to the residential service charge regime;
4. A variety of civil remedies is available for failure to comply with various statutory requirements, whereas there is at present no civil remedy for sections 21 and 22;
5. Service charges are now broadly and statutorily codified;
6. An injunction is available for failure to comply with the comparable sections of the Housing Act 1996 and the LRHUD 1993: “If Parliament has chosen to create a remedy in specific circumstances, it is very unlikely that it intended that same remedy to be available in different circumstances”.
7. The Landlord and Tenant Act 1985 itself demonstrates a variety of techniques for imposing civil liability, none of which apply to sections 21 or 22.
8. In revisiting this area of the law most recently, Parliament has provided the tenant with a civil remedy, namely a right to withhold service charge. But what it has not done is to give the tenant either a right to sue in damages or the right to a mandatory injunction.

Minor

1. The “harm” which Mann J. identified as a result of non-compliance was in Lewison LJ.’s view not more than an “adverse effect” the sufficiency of which was rejected in Pickering;
2. Section 21 provided that a reasonable excuse for non-compliance was a defence to a prosecution. No such defence was mooted in respect of civil actions. It was therefore unlikely that Parliament envisaged a civil remedy for breach of sections 21 and 22;
3. Parliament appeared to expect that the local housing authority would prosecute non-compliance;
4. Many lessees have contractually enforceable rights to the provision of information, and Parliament would have had this in mind when preparing sections 21 and 22. A remedy for breach of statutory duty was therefore surplus to requirements.
5. The maximum punishment for the criminal offence was a fine of £2,500. The sanction for breach of an injunction can be an unlimited fine or, ultimately, up to two years imprisonment. If there were to be a civil remedy for breach of sections 21 and 22, it would mean that an individual could potentially achieve a more draconian sanction than a prosecuting authority.

The appeal was allowed.

This is one that I will be filing under “really useful cases”.

Differing capacities

If you blinked, you could have missed Lewison LJ’s almost casual observation about the “previous round of litigation” in which the Court of Appeal “decided that the sums which Mr Di Marco was obliged to pay in his capacity of shareholder rather than in his capacity of tenant were not “service charges” as defined by the Landlord and Tenant Act 1985”.

Last year, I was uncertain about the meaning of Mummery LJ.’s judgment in those proceedings, which reached the Court of Appeal in 2008. I think that Lewison LJ has resolved my dilemma – on that point at least.

The statutory duty

Was all my work on Digicel wasted?

After some wailing and wringing of hands – and some input from Philip Rainey QC, leading Counsel for Morshead Mansions, as to what had happened to Digicel – I have decided that my earlier post should not be entirely discarded. The points made by Morgan J. in Digicel remain valid – but should be treated as a list of indicative, as opposed to definitive, factors.

The Mann-Lewison agreement

Both Mann J and Lewison LJ agree that:

• The nature of the available remedy is a question of construction of the legislation;
• The focus is on the class of persons that the legislation is designed to protect;
• The test is whether that class would suffer personal injury, injury to property or economic loss as a result of non-compliance.

The Mann-Lewison divergence

There are for me two key distinctions between Mann J. and Lewison LJ.’s judgments.

First, Mann J did not apply the personal injury/injury to proprerty/economic loss test to the facts. It was one of the Digicel factors, but Mann J rephrased and applies it as “harm”, which seems to me to be a broader concept.

Second, whereas Mann J. focused on the 1985 Act alone, Lewison LJ surveyed the broader landlord and tenant landscape.

Mann J relied on Digicel. Lewison LJ drew his authority to carry out that survey from St John Poulton’s Trustee in Bankruptcy v Ministry of Justice [2010] EWCA Civ 392.

Where was the key to unlocking that (admittedly quite minor) difference of opinion? Digicel is nowhere to be seen in Lewison LJ’s judgment.

I went back to basics and looked that the hierarchy and dates of the judgments. I discovered something rather spooky. These two really quite heavy judgments addressing civil remedies for failure to comply with statutory provisions were given within a week of each other:

Digicel was handed down on 15 April 2010 by Morgan J in the High Court.

St John Poulton’s Trustee was handed down on 22 April 2010 by the Court of Appeal.

The latter refers to a plethora of authorities – but not Morgan J.’s judgment, which was handed down just a week before.

St John Poulton’s Trustee wins however because it is a Court of Appeal judgment, and therefore binds the High Court.

The civil remedy for non-compliance with sections 21 and 22 of the 1985 Act has therefore been put to bed for the time being.

Lewison LJ has given us an invaluable checklist of lessees’ rights and remedies.

Shelob lives to fight another day.

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