Table Of Contents
Two points come out of this appeal.
The first relates to the quality of evidence needed to show that a cost has been incurred.
The second evidences the difficulty of predicting how a tribunal is likely to interpret a lease on the thorny and recurring issue of the recoverability of legal costs.
This action takes place against the backdrop of Weston super Mare in North Somerset, a resort known to many for its Grand Pier and traditional summer entertainments, and which, for many years, I believed to be somewhere near Lowestoft.
10 South Parade in Weston super Mare is a mixed use Victorian terraced property, with a café on the ground floor, and four long leasehold flats above.
Ms Slavin owned the long lease of flat 1. The lease was granted in 1981. Her landlords were Union Pension Trustees Ltd and Mr Paul Bliss.
Under the terms of her lease, Ms Slavin paid an interim service charge on account of costs to be incurred, and then a further service charge, presumably at the end of the year, to balance any shortfall.
In exchange, the landlord was liable to keep in repair the building in which Ms Slavin’s flat was located.
It was also entitled:
1. “To employ at [its] discretion a firm of Managing Agents to manage the Landlord’s property and discharge all proper fees, salaries, charges and expenses payable to such agents or such other person who may be managing the [building]
2. “To employ all such surveyors, builders, architects, engineers, tradesmen, accountants or other professional persons as may be necessary or desirable for the proper maintenance safety and administration of the [building]”.
Ms Slavin paid 15% of the costs incurred by the landlord in carrying out its repairing obligations and any employment set out in (1) and (2) above, together with:
“… any other costs and expenses reasonably and properly incurred in connection with the [Building] including without prejudice to the generality of the foregoing (a) the cost of employing Managing Agents, and (b) the cost of any Accountant or Surveyor employed to determine the Total Expenditure and the amount payable by the Tenant hereunder”.
In March 2010, an architect’s survey disclosed that considerable repair work was needed to the property. Two companies submitted tenders for the works. One of those companies was Burnham Plastering and Dry Lining Ltd (“BPDL”).
Mr Spence, the lessee of flat 4, was the owner of BPDL.
In 2011, the landlord applied to the LVT for a determination that an interim demand based on the estimated cost of the proposed works was reasonable. The landlord relied on the BPDL estimate. Three of the four lessees disputed the charge – I assume that Mr Spence did not, as the estimate for the works came from his own company.
The LVT held that the estimated cost was reasonable. It did not consider that there was any ground for objecting to Mr Spence’s ownership of BPDL.
Mrs Slavin thereafter paid the interim demand.
BPDL carried out most of the major work in 2011.
There was no written contract or fixed price: the works were said to have cost £40,491.65. The landlord said that the whole amount, save £1,395.46, was paid to BPDL.
12 September 2012 was the date of reckoning for the lessees: the landlord issued service charge demands, one each for 2009, 2010 and the fifteen month period from 01 January 2000 to 31 March 2012.
The 2009 demand was for £878.81. A contribution of £172.50 towards the fee for the architect’s survey was included.
The 2010 demand was for £1,220.80. That figure again included a contribution towards the architect’s fee.
The 2012 demand was for £9,916.67. It included:
In May 2013, the landlord made another application to the LVT, this time for a determination that the service charge demands for 2009, 2010 and 2012 were payable.
This was the application which led to this appeal.
The FTT inspected the building before the hearing.
Both Mr Bliss and Mrs Slavin provided witness statements.
Mr Bliss referred to invoices, and had prepared several documents showing how the figures for the major works had been calculated.
Mrs Slavin did not dispute that works had been carried out. She made three main points:
“Neither Mr Bliss nor Mrs Slavin formally gave evidence or was cross examined but, as often occurs in this sort of case, the FTT went through each item in the service charge demands and asked its own direct questions of the parties and their representatives”, observed Martin Rodger QC, hearing the appeal in the Upper Tribunal.
The FTT reported a number of problems with the standard of repair of the building.
The FTT was rather underwhelmed by the quality of the management of the building, for which Mr Bliss was personally responsible. It disallowed:
The real blow to the landlord came however in the FTT’s assessment of the 2012 charge. It held that the money said to have been paid to BPDL was irrecoverable in its entirety on the grounds that:
This was its conclusion:
“Here we have a major work in respect of which there are no invoices, let alone any which comply with the [RICS Code of Practice Part 12.10]. In those circumstances the Tribunal cannot possibly approve the inclusion of these amounts in the service charge. This is more than a technicality, as the Tribunal has nothing to go on to consider whether the costs were reasonably incurred…”
The absence of invoices supporting the incurring of the costs was therefore the end of the matter, and the FTT therefore came to the conclusion that it was not required to determine whether the works had been carried out to a reasonable standard.
Finally, the FTT held that Mrs Slavin’s lease did not allow the landlord to recover the legal costs of the 2011 LVT proceedings. There were no words of sufficient clarity in the lease for that purpose.
The FTT refused permission to appeal, stating that “the central issue underpinning the whole of the Tribunal’s decision … is that the Tribunal does not regard Mr Bliss as a credible witness”.
The Upper Tribunal however granted the landlord permission to appeal on the following relevant grounds:
And so the appeal came before Martin Rodger QC on 04 March 2015.
Martin Rodger QC had few reservations on this point.
“Taken as a whole the evidence supported the [landlord’s] case that a substantial sum had been paid to BPDL … the FTT’s suggestion that it had “nothing to go on to consider whether the costs were reasonably incurred” was simply wrong”, he said.
Even though the FTT had not had the benefit of an invoice, there was, in his view, “ample evidence” that costs had been incurred, including:
“The absence of an invoice from the contractor was undoubtedly relevant in considering [whether an expense had been incurred], but its significance had to be considered in the context of the other invoice”, observed Martin Rodger QC.
He then picked up on the FTT’s observation about the central pillar of its decision being Mr Bliss’s lack of credibility: the FTT had levelled a number of criticisms at Mr Bliss’s competence as a property manager, but nowhere in its decision had it taken aim at his honesty. The issue only arose in the refusal of permission to appeal.
Martin Rodger QC accepted that the “FTT was justifiably critical of Mr Bliss’s efforts at property management”, but held that “that was a finding of incompetence, rather than dishonesty”.
The FTT’s decision did not make it clear that Mr Bliss’s integrity was being called into account.
That was important for three reasons.
First, evaluation of Mr Bliss’s evidence should have featured in the FTT’s reasoning.
Second, it was essential that Mr Bliss should be given the opportunity to respond to the FTT’s view of his credibility. There was no record in the decision of the FTT asking or Mr Bliss answering any questions about the invoice.
Third, credibility diminishes by degrees. The FTT ought to have made it clear whether it regarded Mr Bliss’s evidence in relation to the payments to BPDL as:
“If their assessment was the latter”, observed Martin Rodger QC, “it was necessary that the remaining evidence be considered carefully to see whether it supported Mr Bliss’s account. The FTT did not undertake that exercise but instead took a short cut which deprived the [landlord] of payments for work which had undoubtedly been done and to which they appear to have had a strong claim”.
Having dropped hints heavy enough to crack the strongest floor, Martin Rodger QC allowed the appeal on the invoice issue. For mysterious reasons however, the matter was remitted to the FTT for reconsideration, rather than being determined at a rehearing in the Upper Tribunal.
The legal costs in question were those incurred in the 2011 LVT application. The landlord wanted to put them through the service charge. Here is a reminder of the clause it relied on:
“any other costs and expenses reasonably and properly incurred in connection with the [building] including without prejudice to the generality of the foregoing
(a) the cost of employing Managing Agents and
(b) the cost of any Accountant or Surveyor employed to determine the Total Expenditure and the amount payable by the Tenant hereunder”.
Martin Rodger QC was not persuaded. Here are his reasons for dismissing this part of the appeal.
First, in the context of the lease as a whole, there was no mention of lawyers or the cost of proceedings in the clause on which the landlord relied.
“Whilst I agree that the absence of a specific reference to legal expenses is not fatal, provided there is other language apt to demonstrate a clear intention that such expenditure should be recoverable, when considering the scope of any general words relied on for that purpose it is necessary to have regard to other relevant provisions of the lease”.
The other relevant provision that played a particular role in Martin Rodger QC’s judgment was the section 146 costs provision, which expressly referred to lawyers. It required the lessee to pay to the landlord “all costs, including solicitors’, counsels’ and surveyors’ costs and fees, incurred in proceedings under sections 146 and 147 of the Law of Property Act 1925”.
Mrs Slavin’s lease was granted in 1981. At that time, residential property tribunals, in other words the LVT and FTT, did not exist.
By contrast with the county court, residential property tribunals are designed to be, in Martin Rodger QC’s words, “a largely costs-free environment”.
Any dispute would therefore have been dealt with in the county court, which is not a costs free environment. At the conclusion of the case in the county court, the judge would have expected to make an order in respect of costs.
The parties’ intentions in that respect were further underpinned by the section 146 costs provision.
“The idea that the leaseholders should be collectively responsible through the service charge for litigation costs which had not been recovered from one or more of their number with whom the landlord had been in dispute would not have been at all obvious”, held Martin Rodger QC in an observation that has the potential to be wide-ranging and – to my mind – simply crushing in its effect.
Having considered the general context, and the lease as a whole, Martin Rodger QC honed in on the specific wording of the clause at issue.
The clause introduced costs and expenses in a general fashion, and then provided that “without prejudice to the generality of the foregoing”, the cost of managing agents, accountants and surveyors were recoverable.
This phrase, in Martin Rodger QC’s view:
Not altogether complimentary to the draftsman.
Martin Rodger QC was dismissive of the landlord’s alternative argument that all costs incurred in connection with the building were recoverable through the service charge.
“The parties cannot seriously be taken to have intended that all legal or other professional expenses incurred by the landlord in connection with the building should be recoverable from all leaseholders through the service charge”, he said.
He derived support for this view by the example of a disputed rent review of the commercial premises on the ground floor. On the landlord’s argument, the legal costs incurred in that dispute would be costs incurred in connection with the building and therefore chargeable to the service charge of the residential lessees.
That could not have been the intention of the parties.
“Very clear language, absent from this lease, would be required to support such an improbable charge”, he concluded.
Martin Rodger QC was unimpressed with references to other cases where the Upper Tribunal (principally himself) had held that legal costs were recoverable under comparable clauses.
The landlord cited Conway v The Jam Factory Freehold Ltd  UKUT 0592 (LC) and Assethold Ltd v Watts  UKUT 0537 (LC). In both cases the Upper Tribunal (Martin Rodger QC on both occasions) had determined that the landlord was entitled to recover its legal costs through the service charge under the terms of the leases before it.
Unfortunately for the landlord here however, Martin Rodger QC held that the wording of Mrs Slavin’s lease and the circumstances of the case were distinguishable.
Martin Rodger QC drew the following common threads from the two cases:
The appeal on this issue was dismissed: the landlord was not entitled to recover its costs of the 2011 LVT application through the service charge.
OM Property Management Ltd v Burr  EWCA Civ 479, confirmed that a cost is incurred either:
The absence of an invoice being a key element of the appeal, this must be a case where the cost was incurred on payment to the contractor.
It goes without saying that the FTT is not a party to any dispute before it, and in the Olympic summer of 2012, HHJ Gerald had cause on a number of occasions to remind the FTT that it should not descend into the arena, so to speak.
This case is perhaps then a timely reminder of the importance of the FTT asking questions of witnesses, if it has in mind a decision which differs from the way that the case is put by either side.
That is all the more important where there are allegations of deceit, or where the FTT is minded to make a finding of dishonesty.
In my experience, most courts and tribunals are reluctant – or should be reluctant – to make a finding that a witness has been dishonest. The motivation for behaviour which appears dodgy is often far less interesting and/or scandalous than it first appears.
Here, for example, incompetence appears to have been the driving factor.
To my knowledge, there have been no reported cases on rule 13 costs orders made where unfounded contentions of dishonesty or fraud have been made, but I anticipate that the making of such allegations may be a ground for the FTT making such an order.
As a footnote to the above, it is worth noting that the seriousness of an allegation of fraud is underlined in the Bar Standards Board Handbook – the Code of Conduct by which we barristers must conduct our practice.
Rule rC9 is clear that a barrister must “not draft any statement of case, witness statement, affidavit or other document containing: …
“any allegation of fraud, unless you have clear instructions to allege fraud and you have reasonably credible material which establishes an arguable case of fraud; …”
The cuts at the Ministry of Justice presumably putting paid, once again, to the provision of crystal balls to the judiciary, it seems that the interpretation of leases will continue to involve a considerable amount of speculation about the issues to which the parties to a lease would have addressed their minds before entering it – as opposed to evidence of the issues to which they actually addressed themselves.
To be fair, many of the leases which come before the tribunals were granted many years ago. It is frequently the case that the tribunals are faced with a lease where the original parties to it are no longer on the radar, and any relevant paperwork has evaporated into the mists of time.
In those circumstances, there is perhaps little else that tribunals can do other than extrapolate from widely known facts such as the non-existence, in 1981, of the LVT.
The non-existence of the LVT at the date of grant of Mrs Slavin’s lease in 1981 forms one of the most eye-catching reasons for the dismissal of the landlord’s claim to put legal costs through the service charge.
In 1981, it may have been rather avant garde to suggest that legal costs of proceedings against a misbehaving lessee should be passed through the service charge.
In Assethold however, Martin Rodger QC determined that the parties, through the wording of the relevant clause, had “clearly evinced an intention that expenditure by the Landlord falling within all of the listed categories, whether specific or general, should be recoverable through the service charge. A general provision … is included in a lease precisely because the parties appreciate that they cannot anticipate all eventualities”.
That was, in his view, all the more the case in a contract like a lease for a term of 125 years, where the parties may not, when contracting, be able to foresee payments for which they would wish to make provision.
In Assethold, the clause which entitled the landlord to recover its costs of obtaining an injunction against a neighbour who was carrying out party wall works without an award, provided that the landlord could recover the costs of:
“all works installations acts matters and things as in the reasonable discretion of the Landlord may be considered necessary or desirable for the proper maintenance safety amenity and administration of the Development”.
Compare that with the clauses here, where the landlord wanted to recover the costs of previous LVT proceedings, and where the lease required Ms Slavin to pay for:
“…all such surveyors, builders, architects, engineers, tradesmen, accountants or other professional persons as may be necessary or desirable for the proper maintenance safety and administration of the [building]”.
“any other costs and expenses reasonably and properly incurred in connection with the [building] including without prejudice to the generality of the foregoing (a) the cost of employing Managing Agents and (b) the cost of any Accountant or Surveyor employed to determine the Total Expenditure and the amount payable by the Tenant hereunder”.
Wouldn’t it be intriguing to know how the two cases would have been decided if the leases were switched?
Before I conclude, I must take issue with Martin Rodger QC’s suggestion that in Assethold there was no tension between the clause on which the landlord wished to rely, and the remainder of the lease. When reviewing Assethold, I ventured the observation that Martin Rodger QC’s decision was not, for me, his most consistent piece of reasoning.
Mes amis, ’tis a fine line that we tread in seeking to differentiate a clause with general sweeping up wording which does not allow for the recovery of legal costs from one which is incorporated into a lease to cover situations unforeseen at the date of its grant.
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