England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH
(MR JUSTICE SULLIVAN)

		Royal Courts of Justice Strand, London, WC2A 2LL Thursday 12th July 2001

LORD JUSTICE SIMON BROWN:

1. This is the landlord company's appeal by permission of the judge below against the order of Sullivan J on 3 October 2000 dismissing its judicial review challenge to an interlocutory decision of the London leasehold valuation tribunal (the LVT) dated 21 December 1999 ruling that it had jurisdiction under s.19(2A) of the Landlord and Tenant Act 1985 (as amended) (the Act) to determine whether service charges had been reasonably incurred by the landlord irrespective of whether or not those service charges had already been paid by the tenants. The LVT further determined that a 12 year limitation period applied to such applications although the judge decided to the contrary that the Limitation Act 1980 simply has no application whatever to applications to the LVT under s.19.
2. The jurisdiction issue is obviously of very considerable importance and, being of general application, it is in no way dependent on the particular facts of this case. These, however, form the necessary backdrop to the appeal and I gratefully take them almost verbatim from the judgment below.
3. The landlord is the owner of a block of flats known as Witley Court, Coram Street, London WC1. Many of the flats in the block are held under long leases under which a service charge is payable by the lessees.
4. On 2 June 1999 Mr Baron, the lessee of flat 74 at Witley Court, applied to the LVT under s.19(2A) of the Act, contending essentially that the management fee charged by the landlord in relation to major works projects carried out since 1989 had been excessive. His case was that a fee of 10% had been agreed at a meeting in May 1987 and that thereafter the landlord had wrongly increased the management fee to 15%. The lessees took advice and they have been in dispute with the landlord since 1991. The lessees were reluctant to go to court because "they were afraid of incurring huge legal costs". That fear had been removed by the creation of the LVT in 1997. Subsequently the LVT ordered that a number of other lessees could be added as co-applicants.
5. The landlord carried out major works in 1989, 1990, 1992, 1996 and 1999. Other than the year 1999, which is in a different category because some of the lessees have not paid the service charges, the service charges relating to all of the earlier years were paid by the lessees. The lessees knew by about December 1990 that the 15% management fee had been charged for the major works which had been undertaken in 1989 and 1990. Mr Baron enclosed a letter dated 4 December 1990 with his application and on it he had written: "it was about this time that we learned that the landlord proposed raising the fee to 15%".
6. The subsequent documentation makes plain that since early 1991 the amount of the management fee had been a bone of contention between the landlord and the lessees. There had been discussions, tenants' meetings and correspondence between the parties throughout the 1990's. The LVT noted why the service charges were paid: "Mr Baron said that the service costs requested by the landlord over the years in question had been paid because of his fear of the forfeiture of his lease".
7. The application to the LVT was listed for hearing on 3 December 1999. It carried a 3-4 day estimate. At the landlord's request the LVT directed that there should be a preliminary hearing on that date to deal with the issue of jurisdiction.
8. S.19 of the Act provides so far as relevant:

"(1) Relevant costs shall be taken into account in determining the amount of a service charge payable for a period-

(a) only to the extent that they are reasonably incurred, and

(b) where they are incurred on the provision of services or the carrying out of works, only if the services or works are of a reasonable standard; and the amount payable shall be limited accordingly.

(2) Where a service charge is payable before the relevant costs are incurred, no greater amount than is reasonable is so payable, and after the relevant costs have been incurred any necessary adjustment shall be made by repayment, reduction or [sic] subsequent charges or otherwise.

(2A) A tenant by whom, or a landlord to whom, a service charge is alleged to be payable may apply to a leasehold valuation tribunal for a determination –

(a) whether costs incurred for services, repairs, maintenance, insurance or management were reasonably incurred, (b) whether services or works for which costs were incurred are of a reasonable standard, or (c) whether an amount payable before costs are incurred is reasonable.

(2B) An application may also be made to a leasehold valuation tribunal by a tenant by whom, or landlord to whom, a service charge may be payable for a determination –

(a) whether if costs were incurred for services, repairs, maintenance, insurance or management of any specified description they would be reasonable,

(b) whether services provided or works carried out to a particular specification would be of a reasonable standard, or

(c) what amount payable before costs are incurred would be reasonable.

(2C) No application under subsection (2A) or (2B) may be made in respect of a matter which –

(a) has been agreed or admitted by the tenant, …"

9. Sub sections (2A) – (2C) were inserted by the Housing Act 1996 and took effect on 1 September 1997. Prior to that, disputes under s.19 went exclusively to the county court. Nowadays questions of reasonableness under the section may be determined by either the county court or the LVT: they exercise, in short, a parallel or concurrent jurisdiction. Whereas, however, it is clear that the county court's jurisdiction under s.19(1) extends, subject only to whatever may be the appropriate limitation period, to service charges which have been paid as well as to those still unpaid, the critical issue for decision on this appeal is whether the LVT's jurisdiction is similar or whether, as the landlord submits, it is confined solely to service charges not yet paid.
10. Mr Dowding QC for the landlord makes two central submissions as to why the LVT's jurisdiction is limited in this way. First, he relies on the natural and ordinary meaning of the words in s.19(2A): "… a service charge is alleged to be payable". That phrase, he submits, refers to a current dispute about service charges which are claimed by the landlord and unpaid by the tenant. (An application under s.19(2B) would inevitably relate to unpaid service charges. Indeed, such applications would of their nature be made before the costs are incurred and before the landlord has even asked for payment.) Secondly, he submits that there are sound policy reasons for the LVT's jurisdiction being thus limited. Above all, as he points out, a favourable determination from the LVT, holding, say, that the service charges paid by the tenant over the last ten years were unreasonably high, would not end the litigation: the tenant would then still need to bring a restitutionary claim in the county court to recover the excess charges, his only possible grounds for restitution being duress or, more likely, mistake. As to payments made under protest, Mr Dowding contends for the same distinction as between two types of such payment as is made in the law of restitution. A tenant who makes his payment under an agreement, to be repaid if found not due, has not strictly paid the service charge at all: he has simply made an interim contractual arrangement with the landlord akin to an interim payment made during court proceedings. Such a tenant need only prove that the service charge was unreasonably high and the landlord will to that extent be contractually bound to repay it. The tenant will not have to resort to a restitutionary action. A tenant, however, who pays unconditionally albeit protesting the while, can only recover his money if he can succeed in a restitutionary claim. He, unlike the first tenant, is not one by whom a service charge "is alleged to be payable": his service charge has been paid.
11. The judge below was not impressed by either limb of this argument. He accepted the submissions made by counsel for the LVT that the words "alleged to be payable" do not import any element of futurity but refer merely to a liability which is in dispute. He further concluded:

"… the amendments to s.19 of the 1985 Act … were intended to confer a broad jurisdiction on LVTs, albeit within a relatively limited field: the reasonableness of costs incurred, works done or services provided. The LVT has jurisdiction where the costs have been incurred or are proposed to be incurred. In the former case there is no sensible reason to distinguish between the tenant who has paid; who has paid under protest, clearly reserving his right to challenge the reasonableness of the charge; who has paid under protest without clearly reserving his right to challenge the reasonableness of the charge, or who has simply failed or refused to pay. It would be most unfortunate if an interpretation of sub section (2A) was adopted which encouraged tenants not to pay service charges for fear of losing the opportunity to challenge the reasonableness of those charges under s.19. Such an approach would not be in the interests of either landlords or tenants. Distinguishing between different kinds of payment 'under protest' would introduce an unnecessary complication into what is intended to be a relatively simple application procedure. … One has to recognise that there are likely to be (as in the present case) a number of tenants involved in any dispute arising under s.19. For example, where service charges are levied in a large block of flats, some more timorous tenants may pay without any protest; some with letters of complaint; some protesting to a greater or lesser degree and with more or less formality as to reserving their position. Some of the bolder kind may simply refuse to pay at all until the issue of reasonableness has been resolved in this way. I can see no reason why only those at the end of the spectrum, rather than those at the beginning, should be entitled to make an application to the LVT. … I accept that tenants who have paid may well subsequently experience difficulties in establishing an entitlement to restitution; but those difficulties are not relevant for the purposes of the LVT's limited jurisdiction [save that LVTs could properly have regard to issues such as limitation in county court restitution proceedings in deciding how far back they are prepared to go in considering questions of reasonableness]".

12. Mr Litton for the LVT submits that the judge was right for the reasons that he gave and seeks to rely also on one further provision of the Act, s.31C(1):

"Where in any proceedings before a court there falls for determination a question falling within the jurisdiction of a leasehold valuation tribunal under this Act, the court –

(a) may by order transfer to such a tribunal so much of the proceedings as relate to the determination of that question, and

(b) may then dispose of all or any remaining proceedings, or adjourn the disposal of all or any of such proceedings, pending the determination of that question by the tribunal as it thinks fit."

13. The LVT comprises a legal chairman, a surveyor and a lay member. It is, submits Mr Litton, particularly well qualified to judge questions of reasonableness under s.19. Unsurprisingly, therefore, the county court can refer such questions to the LVT whilst necessarily retaining other issues for itself. It would be unfortunate, he submits, if the reasonableness of service charges already paid could not be thus referred, as well as the reasonableness of unpaid charges.
14. Although I have not found the point an altogether easy one, I have concluded that the landlord's argument is to be preferred. Its strength to my mind lies in the cumulative force of Mr Dowding's two main submissions; neither alone would suffice.
15. As to the language of s.19, whilst certainly the phrase "is alleged to be payable" suggests an element of futurity and, therefore, a temporal pre-condition to the LVT's jurisdiction, one cannot but note that s.19(1) – which unarguably allows the county court to investigate the reasonableness of service charges already paid – also uses the word "payable", although not, one notes, linked to "is alleged to be", nor in a context which expressly envisages applications being made sometimes by landlords. Ultimately, of course, everything depends on the context – see the speeches in the House of Lords in Charter Reinsurance Co Ltd v Fagin [1997] AC 313, a case which concluded that the words "actually paid" did not in the particular context arising there in fact require there to have been any disbursement.
16. Obviously, as Mr Dowding accepted in argument, the legislation could have been made absolutely clear, for example by adding to s.19(2C)(a) words such as "or after payment has been made by the tenant". There seem to me, however, a number of compelling interlocking policy considerations for giving the words "is alleged to be payable" their natural meaning and for not giving the LVT jurisdiction over service charges already paid.
17. The first of these considerations, as already indicated, is because the contrary conclusion would involve a multiplicity of proceedings: first an investigation into past charges by the LVT and then, if the tenant is successful, a restitutionary action in the county court. If, of course, the LVT's jurisdiction is restricted to unpaid charges, as I would hold, then its determination (subject only to appeal to the Lands Tribunal) would ordinarily be final and conclusive. Furthermore, if the LVT's argument were right, a problem could arise as to overlapping evidence. Suppose a tenant asserts that the standard of cleaning had been unreasonably low for several years. Whether or not he had complained as to that in the past could well be of evidential importance before the LVT. The same issue, however, could also arise in any subsequent restitutionary claim advanced on the basis of mistake.
18. Another consideration is that the prospects of a successful restitution claim are often slender. The judge below accepted that and yet thought those difficulties essentially irrelevant to determining the limits of the LVT's jurisdiction. It seems to me, however, that to accord the LVT jurisdiction to enquire into the reasonableness of service charges extending back perhaps over many years could well involve a great waste of time and money. It must be remembered too that each party has to bear its own costs before the LVT and that even were the tenant to fail in his subsequent claim to recover overpaid service charges his landlord's costs of the LVT hearing would remain irrecoverable.
19. The final consideration in this regard is that of limitation. The judge held, as stated, that the Limitation Act 1980 does not apply to LVT applications. The LVT itself submits that this is the correct view: " the LVT is concerned only with the question of reasonableness, not the ability or means of recovery wrongly paid. Accordingly … the question of limitation periods is wholly peripheral to the LVT's functions since it does not determine whether any sums overpaid can be recovered" (I quote Mr Elvin QC's skeleton argument). If that view is right, then the disturbing possibility arises of LVTs examining the reasonableness of service charges extending back for an unlimited period. Even, moreover, if it be wrong – and Mr Dowding for the landlord submits that if, contrary to his principal argument, the LVT were to have jurisdiction to consider service charges already paid, that would be subject to a six year limitation period from the date of payment (save that under s.32(1)(c) of the 1980 Act time does not run until a mistake is discovered or could reasonably have been discovered) – there would still be the prospect of examining charges paid over very many years. To my mind it is no answer to that difficulty to note, as Mr Litton invites us to do, the LVT's power under regulation 4B of the Rent Assessment Committee's (England and Wales) (Leasehold Valuation Tribunal) Amendment Regulations 1999 to dismiss applications that are frivolous or vexatious or an abuse of process. Still less is an answer to be found in the bar constituted by s.19(2C)(a) on disputing matters "agreed or admitted by the tenant"; however long ago charges have been paid, it would not to my mind be possible to regard them on that account as "agreed or admitted". If, of course, the landlord is correct on the central issue, as I would hold, then the question of limitation simply never arises: ex hypothesi the charges remain unpaid and can be disputed.
20. There is in my judgment no substance in the LVT's reliance on s.31C(1) of the Act. The terms of that section beg rather than answer the critical question as to what is "a question falling within the jurisdiction of the leasehold valuation tribunal", and the provision makes perfect sense even if the LVT's jurisdiction is restricted to unpaid charges. Not infrequently landlords sue in the county court for these, often in the context of forfeiture and/or possession proceedings, and, if the tenant contests their reasonableness, it may well be appropriate to transfer this issue to the LVT.
21. I readily understand Sullivan J's reluctance to distinguish between different kinds of payment "under protest" and, indeed, between tenants at different points in the spectrum he described, and also his concern that tenants should not be encouraged to withhold service charges for fear of losing the opportunity to challenge their reasonableness before the LVT. The plain fact is, however, that the same distinctions are made by the general law with regard to restitution and would, therefore, come into play in any event at the second stage of proceedings (assuming always that the tenant succeeded at the first stage). There is no advantage, therefore, in resolving, perhaps expensively, what may prove to have been an academic dispute as to the reasonableness of service charges on the basis that whether or not payment has been made is immaterial. That is the answer too to the point about encouraging non-payment: the law of restitution does this anyway.
22. For all these reasons I would hold that the LVT's jurisdiction under s.19(2A) of the Act extends only to service charges still unpaid (subject always to payments made under an interim contractual arrangement for repayment if the charge is found excessive). I would accordingly allow this appeal.

LORD JUSTICE MAY:

23. I agree.

LORD JUSTICE DYSON:

24. I also agree.
ORDER:
25. Appeal allowed.
26. The Order of Mr. Justice Sullivan dated 3 October is set aside.
27. The determination is quashed.
28. The Respondent is prohibited from proceedings with the hearing of the Tenants' Application to the extent that to do so would involve exceeding the Respondent's jurisdiction as determined by the Court of Appeal's judgment herein delivered on 12 July 2001.
29. The Respondent is to pay the Appellant's costs here and below agreed as follows:

(a) The costs of the proceedings in the Court below are summarily assessed at £8,136.90

(b) The costs of this appeal are summarily assessed at £23,431.86. Those costs are to be paid by 5pm pn 26 July 2001

30. Permission to appeal to the House of Lords refused.
(Order does not form part of approved Judgment)