England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CENTRAL LONDON COUNTY COURT
MR RECORDER HAMLIN

		Royal Courts of Justice Strand, London, WC2A 2LL
		14th November 2002

Lord Justice Aldous:

1. This appeal concerns issues of law arising from a preliminary question decided by Mr Recorder Hamlin in his judgment of 14th June 2002.
2. The appellant, Mr Blaquiere is the tenant of Flat 2, which forms part of numbers 14, 15 and 16 Hyde Park Gardens W2. Those houses have now been split into flats. Each house includes a terrace at a raised ground floor level. Mr Blaquiere's flat is a large semi-basement which extends under the terraces of all the flats and it spans all three houses.
3. Mr Blaquiere's tenancy is derived from an underlease dated 17th December 1978 which expires in 2047. The freeholders are the Church Commissioners and the underlessors are Hyde Park Estates (Guernsey) Ltd which I will refer to as Guernsey. They are in administrative receivership.
4. For the purposes of this appeal it is not necessary to go into the detail of Mr Blaquiere's lease nor the leases of the other lessors in the houses. It is sufficient to record that all the underleases provide for a ground rent of £750 per annum and contain a requirement that the underlessee should pay "by way of additional rent as and when demanded a proper proportion according to rateable value (as specified by the landlord or its managing agents) of the annual cost or anticipated cost in connection with the Building (hereinafter called "the service charge") as estimated by the landlord's surveyor". The service charge covers the usual costs such as repair, maintenance of the lifts and common parts of the building and the supply of heating. Clause 3 contains the landlord's obligation. It imposes inter alia an obligation to insure the premises and to maintain the structure of the building in good and substantial repair and condition and to decorate the exterior as and when reasonably considered to be necessary.
5. In 1998 Mr Blaquiere's flat suffered from a range of problems arising from Guernsey's breaches of covenants under the lease. Those problems included water ingress, rot to structural timbers, difficulties with the drains, general disrepair and lack of decoration of the common parts outside Flat 2. According to Mr Blaquiere those defects made Flat 2 uninhabitable. As they were not remedied and Guernsey appeared to have no intention of remedying them, Mr Blaquiere and another tenant of the property applied for the appointment of a manager under section 24(1) of the Landlord and Tenant Act 1987. The Leasehold Valuation Tribunal acceded to that application and on 1st December 1998 Mr Maunder Taylor of 1320 High Road, Whetstone, London N29 9HP was appointed as manager of the property pursuant to the provisions of the 1987 Act. The order made by the Tribunal stated that his appointment should continue "upon the terms set out in the order until further order but shall automatically terminate upon the sale or transfer" of Guernsey's interest in the building. The relevant parts of the order are in these terms.

"3. The Manager shall be further authorised to carry out the following functions and duties:

a. to receive any rents, profits, service charges and other money payable by the Tenants of the Building or the Respondent in respect of the building,

b. to recover any arrears of any such sums due as aforesaid arising from the date hereof from the tenants of the building or the respondent,

c. to administer the service charge, the reserve account and any rent deposit and any bank accounts opened and required in connection with the management of the building and to maintain the sole mandate in respect of all bank accounts appertaining thereto,

d. to carry out the obligations of the respondent contained in clause 3 of the tenants' leases, in particular and without prejudice to the generality of the foregoing to include:

I. The provision of services (as defined in the leases aforementioned) to the building

II. The respondent's repairing obligations in relation to the building

III. To arrange for the insurance of the building with a reputable insurer and in respect of the risks set out in the leases aforementioned.

e. To receive, consider grant or otherwise deal with all applications for consents of whatsoever nature and howsoever arising as to dealings, alterations or any other matters requiring the consent of the respondents as far as such consents relate to the tenants or their properties within the building. For the avoidance of doubt the respondent hereby declares and agrees that in such circumstances where the Manager has confirmed that such consent or licence shall be granted the respondent will execute such document concerning consent without delay or request for payment.

…

7. The parties hereto shall have liberty to apply to the Leasehold Valuation Tribunal for further directions or clarification in respect of the terms of this order should the same be required."

6. Before being appointed manager by the Tribunal, Mr Maunder Taylor had produced a report which was used to inform the Tribunal of the problems that existed. Shortly after his appointment he sent to the tenants a draft service charge budget for the forthcoming year which included sums for major works to the building. He discussed it with the tenants and then caused to be prepared a tender for carrying out the repair works which was put out on or about 12th January 1999. It seems that the general works of external repair to the building were completed some time in 1999. However it is Mr Blaquiere's case that the necessary works to the terrace above and the common parts outside Flat 2 were not done at that time. Mr Maunder Taylor contends that there were good reasons for that. Such disputes will have to be resolved at trial, but they do not arise on this appeal. This appeal arises from the claim made by Mr Maunder Taylor as manager in respect of Mr Blaquiere's share of the costs expended by Mr Maunder Taylor for repairs and the supply of services. The initial claim amounted to just over £24,000. He has subsequently issued a second set of proceedings for further sums expended and the total claimed from Mr Blaquiere exceeds £62,000.
7. Mr Blaquiere has pleaded a number of defences, but a principal defence to both of those sets of proceedings is a claim to set off sums the subject of a counterclaim. That counterclaim asserts that by virtue of his appointment Mr Maunder Taylor owed Mr Blaquiere the like duties of repair as did Guernsey under the underlease. Those duties to repair had not been carried out with the result that Mr Blaquiere suffered damage. In his amended defence to the counterclaim, Mr Maunder Taylor admitted that he did owe duties, but he alleged that such duties were confined to a duty to take reasonable care in managing the buildings within the confines of his appointment as manager. He also contended that there was no right of set off.
8. I need not go further into the detail of those proceedings. This appeal is concerned with the way the judge answered one of the two questions which the parties agreed should be tried first. They were:

"1. Whether the duty owed by the claimant to the defendant following his appointment as manager by the Land Valuation Tribunal and in relation to the management of the Property known as 14-16 Hyde Park Gardens, London W2 (the Property) is limited to the (conceded) duty of care or whether the duty is greater and equivalent to that owed by Hyde Park Estates (Guernsey) Ltd as (the intermediate) landlord?

2. Whether the defendant may set off against the claimant's claims as manager for service charges such sums as he might be entitled to claim by way of damages from Hyde Park Estates (Guernsey) Ltd for breach of the landlord's covenants?"

9. The Judgment – The judge concluded that the claimant Mr Maunder Taylor did not owe to Mr Blaquiere an equivalent duty of care to that owed by Guernsey. He answered the first question to that effect. His primary reason was that he could see no legal route to the conclusion Mr Blaquiere advanced, namely that the duties owed by Guernsey and Mr Maunder Taylor were the same. He said:

"18. … It is not and cannot be suggested that the effect of the appointment was to create any privity of estate or of contract between the claimant and either the tenants generally or those who sued for his appointment. Although Mr Tanney urged his submissions that the claimant is to be regarded as having assumed the Landlord's obligations by virtue of the Order or by statutory assignment such does not stand analysis. Part II of the 1987 Act does not provide for any such assignment and it appears inconsistent with the terms of the Order."

10. He continued:

"20. The Order is both predicated upon the basis that the Landlord's interests and obligations continue and that it is those obligations that the claimant is authorised to carry out until such interest is disposed of. I accept Mr Fancourt's submission that I should be reluctant to impose the obligations relied upon by the defendant in the absence of clear words in the Order providing for them. In his turn, Mr Tanney urged the imperative nature of paragraph 3 (d) of the Order and the importance to the tenants that the covenants should be complied with. The position in this regard was, he added and I accept, the more important in a case where, as here, the appointment of a manager was for an indefinite period and where the Landlord could not be relied upon to carry out any of its obligations. I do not doubt the desirability of restoring the Property to full repair. I cannot however see why this should mean that the claimant who has as a manager agreed to further this objective should be regarded as having undertaken the responsibilities of the Landlord. In my view there is no sustainable legal route to the conclusion asserted by the defendant, and that is enough for it to fail."

11. The judge went on to give four secondary reasons as to why the first question should be answered in favour of Mr Maunder Taylor. The first was that it would be most unlikely that any professional manager could sensibly be expected to take on the obligation of a landlord when that landlord was known to be in breach of covenant. Second, he regarded the claim of Mr Blaquiere to be inconsistent with the scheme set out in Part II of the 1987 Act. The purpose of Part II was to enable tenants to outflank an irresponsible landlord and to retain a skilled professional to enable the building concerned to be put back into repair. That professional could not be regarded as the guarantor of the landlord. Thirdly, the manager, when assuming his position, was likely to have inspected the property. Even so, it was unlikely that he would assume responsibility for defects of which he may not know or have had any means of knowing about. Fourth, compliance by a manager with the landlord's obligations was necessarily dependent on receipt of funds. It was understandable that a landlord who owned the property concerned would be required to expend funds on its maintenance. However it was difficult to see why a manager should have to pay out of his own funds the costs of carrying out the obligations of the landlord.
12. There was no appeal against the judge's conclusion as to the way the first question should be answered.
13. The judge then turned to the second question which involved the dispute as to set off. He took as his starting point that, following the decision of this Court in Filross Securities v Midgeley [1998] 3 EGLR 43, Mr Blaquiere would be entitled to set off sums due under counterclaims of the nature he advanced in the current action as against claims by the landlord for rent and service charges. The judge said that the real issue for him to decide was whether such a set off could be advanced when the claims were brought by the claimant as manager. He recorded that it was common ground that the liabilities of the landlord continued despite the appointment of the manager.
14. The judge considered whether the counterclaim of Mr Blaquiere impeached the legal demand of Mr Maunder Taylor. He concluded that it arose out of the same contract and it was difficult to imagine a counterclaim more directly connected with a claim for rent and service charges than the one Mr Blaquiere alleged, namely that due to the landlord's default the flat could not be used for the purpose for which it was let.
15. That conclusion of the judge would have led him to decide that there was a right of set off, but he then went on to consider whether the right to set off was subject to a discretion and, if so, whether the second question should be answered in the negative because it was inequitable for it to be asserted. He concluded there was authority which established that a set off impeaching the claim was allowable only if it was just and equitable to do so. He went on:

"29. … I am very much of the view that for the defendant, as here, to bring proceedings for the appointment of a manager, to secure that appointment but to then seek to set off against the manager's proper claims the liabilities of the landlord whose functions he was to carry out, would be quite inequitable. It is difficult to see how a manager can function properly in such circumstances especially as he is dependant upon the income derived from the service charges to carry out the functions which he has been appointed to fulfil. It seems to me that important purposes of an appointment under Pt. II Landlord and Tenant Act 1987 are to ensure a fresh start and so that money levied as service charges is used for the purpose of carrying out the repairs which have been neglected. This must have been the understanding of both this claimant and this defendant when the appointment was made. Further as Mr Fancourt submitted one effect of set off in relation to the liabilities of the Landlord would be to place the claimant in a worse position than were he primarily liable for the Landlord's defaults. In the case of such primary liability the defendant concedes that the claimant should be allowed reasonable time to carry out the works of necessary repair whereas no such concession arises or is made in relation to the liability of the Landlord which is sought to be set off."

16. The judge then said that there were categories of cases where the courts had refused to allow a defence of equitable set off even when the impeachment test was fulfilled. He said:

"30. … These categories include those of dishonoured bills of exchange, direct debits and claims for charterhire of vessels. They arise where there is a clear public policy in denying a right to set off. I have considered whether the modern approach indicated above preclude[s] me from admitting a set off which fulfils the impeachment test but is not within any of the recognised categories of exception. I have concluded that it cannot. It seems to me that the fundamental basis for this sort of set off is the injustice to the defendant in refusing to allow his cross claim to be balanced against the primary claim. I do not regard the position to have hardened to the extent where all the court has to do is consider whether the claim and counterclaim are sufficiently connected."

17. The judge exercised his discretion in favour of Mr Maunder Taylor and therefore answered the second question in the negative. He also decided that question in favour of Mr Maunder Taylor having regard to the provisions of section 42 of the 1987 Act. He said:

"31. The effect of the reasoning set out above is that the defendant may not set off his claim against the Landlord in the current proceedings. Even if such was not my view there remains an impediment to the defendant's claim to set off. S. 42 1987 Act provides that the service charges levied in relation to residential tenancies are to be held on trust primarily to defray the costs incurred in connection with the matters for which the service charge was payable. The clear reason for this provision is to "ringfence" such sums and one cannot but note that the reserve fund believed to have been built up by the tenants of the Property was in this case found to have been wholly dissipated. It is not, in my view, appropriate to allow a set off of the nature envisaged in this case as against a statutory trust. Accordingly I would if necessary have concluded that the defendant is not in any event entitled to set off as against the claimant's claims for service charges, the counterclaim for damages he brings in respect of breaches of covenant to repair by the Landlord. These considerations do not of course apply to set off as against the claim for ground rent."

18. The Appeal – In my view the important issue between the parties revolves around the capacity in which Mr Maunder Taylor claimed. I will consider that, but will first remove from further consideration the reliance by Mr Maunder Taylor on section 42 of the 1987 Act. It reads:

"42 Service charge contributions to be held in trust

(1) This section applies where the tenants of two or more dwellings may be required under the terms of their leases to contribute to the same costs by the payment of service charges; and in this section-

"the contributing tenants" means those tenants;

"the payee" means the landlord or other person to whom any such charges are payable by those tenants under the terms of their leases;

"relevant service charges" means any such charges;

"service charge" has the meaning given by section 18(1) of the 1985 Act, except that it does not include a service charge payable by the tenant of a dwelling the rent of which is registered under Part IV of the Rent Act 1977, unless the amount registered is, in pursuance of section 71(4) of that Act, entered as a variable amount;

"tenant" does not include a tenant of an exempt landlord; and

"trust fund" means the fund, or (as the case may be) any of the funds, mentioned in subsection (2) below.

(2) Any sums paid to the payee by the contributing tenants by way of relevant service charges, and any investments representing those sums, shall (together with any income accruing thereon) be held by the payee either as a single fund or, if he thinks fit, in two or more separate funds.

(3) The payee shall hold any trust fund –

(a) on trust to defray costs incurred in connection with the matters for which the relevant service charges were payable (whether incurred by himself or another person), and

(b) subject to that, on trust for the persons who are the contributing tenants for the time being."

19. Mr Fancourt for Mr Maunder Taylor supported the conclusion reached by the judge. He submitted that the section had the effect that Mr Maunder Taylor was claiming monies to which he was not beneficially entitled. It followed that there was no mutuality between him claiming as such and Mr Blaquiere's claim against Guernsey. That he accepted would be the position even if the landlord had claimed the service charge. He also accepted that such a conclusion was inconsistent with Filross Securities v Midgeley [1998] 3 EGLR 43, but he pointed out that in that case section 42 had not been relied on.
20. In my view Mr Dowding QC, who appeared with Mr Tanney for Mr Blaquiere, is correct. Section 42 only applies where sums are actually paid by the contributing tenants. Such sums are held on trust, but the trust cannot apply to the sums claimed by a landlord or a manager. It follows that Mr Blaquiere is not seeking to set off his damages against a trust fund. In my view section 42 has no relevance to the issue raised in the second preliminary question.
21. The pleaded set off is what is known as a general equitable set off which arises where the party seeking the benefit of set off can show some equitable ground for being protected against his adversary's demand (see Rawson v Samuel (1841) Cr & Ph 161 at 178).
22. Hobhouse J in The "Leon" [1985] Lloyd's Rep. 470 at 474 said:

"The relevant principle is that identified by Lord Cottenham in Rawson v. Samuel, (1841) Cr. & Ph. 161 at 179: "The equity of the bill impeached the title to the legal demand." What this requires is that the Court or arbitrator should consider the relationship between the claim and the cross-claim. This is why not every cross-claim, even though it arises out of the same transaction, necessarily gives rise to an equitable set-off. This element of the cross-claim impeaching the plaintiff's demand is to be found in all modern cases and is a recognition that the principle being applied is essentially the same as that stated by Lord Cottenham."

23. Lord Brandon said in Bank of Boston Connecticut v European Grain Shipping Ltd [1989] 1 AC 1056 at 1102 B:

"The concept of a cross-claim being such as "impeached the title to the legal demand" is not a familiar one today. A different version of the relevant test is to be found in the decision of the Judicial Committee of the Privy Council in Government of Newfoundland v. Newfoundland Railway Co. (1888) 13 App. Cas. 199."

24. After setting out the facts in the Government of Newfoundland case Lord Brandon cited this passage from the judgment of Lord Hobhouse:

"…Unliquidated damages may now be set off as between the original parties, and also against an assignee if flowing out of and inseparably connected with the dealings and transactions which also give rise to the subject of the assignment."

25. Lord Brandon continued:

"It is to be observed however, that the criterion which Lord Hobhouse applied, 13 App Cas 199, 213, in deciding whether the government's cross-claim for unliquidated damages could be set off against the company's claim was not that the cross-claim "impeached the title to the legal demand," as in Rawson v. Samuel, 1 Cr. & Ph. 161, 179, but rather that it was a cross-claim "flowing out of and inseparably connected with the dealings and transactions which also give rise" to the claim."

26. Mr Dowding submitted that the effect of the order of the Tribunal appointing Mr Maunder Taylor as manager was to transfer the right to the rent and service charges from the landlord to the manager. The manager became clothed with the rights of the landlord and in effect stepped into the shoes of the landlord. If the landlord's right to the rent and service charges was impeached by Mr Blaquiere's claim for damages as it was, then so must the manager's right be impeached. The judge was right to so hold.
27. Mr Dowding submitted that the position of Mr Maunder Taylor was similar to that of the receiver in William H. Parsons v The Sovereign Bank of Canada [1913] AC 160. In that case the court had appointed receivers and managers of the Imperial Paper Mills Company Limited in a debenture holders' action. At the time of their appointment contracts were in existence between the company and Parsons for the supply of paper. After the appointment, Parsons continued to order paper which was supplied and paid for. However there came a time when the receivers notified Parsons that they would not execute any further orders. About a month later the receivers assigned to the Bank the money owed by Parsons in respect of certain shipments of paper to them. The Bank sued as assignees and Parsons claimed to set-off damages for breach of contract against the price sued for. The crucial issue between the parties turned on whether the contract sued on by Parsons was an old contract between them and the company or a new one between them and the receivers. If it had been the latter, there would have been no mutuality, no impeachment and no set-off. However the House of Lords held that it was the former and that a set-off arose. Viscount Haldane LC at page 166 looked at the legal position of the receivers and managers. He said:

"In order to answer this question it will be convenient in the first place to look at the position in point of law of the receivers and managers. A receiver and manager appointed, as were those in the present case, is the agent neither of the debenture-holders, whose credit he cannot pledge, nor of the company, which cannot control him. He is an officer of the Court put in to discharge certain duties prescribed by the order appointing him; duties which in the present case extended to the continuation and management of the business. The company remains in existence, but it has lost its title to control its assets and affairs, with the result that some of its contracts, such as those in which it stands to an employee in the relation of master and servant, being of a personal nature, may, in certain cases, be determined by the mere change in possession, and the company may be made liable for a breach. But it does not follow that all the contracts of the company are determined even, to put the highest case, when a mortgagee acting under a power in his mortgage assumes control of the business of the mortgagor.

…

In the present case the receivers and managers were by the terms of the orders of the Court obviously intended to carry on the actual business of the company with as little breach of continuity as possible; and there was no reason why they should not use the name and powers of the company for the purpose of fulfilling existing orders. It is no doubt true that prima facie any new contracts they made would ordinarily be made by them personally in reliance on their right of indemnity out of the assets, as happened in the recent case before the House of Lords of Moss Steamship Co., Ltd. v. Whinney [[1912] AC 254], where a new contract made by the receiver was held, as matter of construction, to have been entered into by him personally. But in the present case the contracts entered into before the receivers and managers were appointed, and had been entered into in the ordinary course of the business and of the company in manufacturing and delivering paper; and there is, in their Lordships' opinion, no ground for presuming that the receivers and managers intended to act otherwise than in the name of the company to carry to a conclusion the business which was current, or that they meant to repudiate the obligations of the company. In the absence of a liquidation the persona of the contracting company remained legally intact though controlled by the receivers and managers."

28. Mr Dowding submitted that that was the position in this case. The contractual rights between Mr Blaquiere and Guernsey continued after Mr Maunder Taylor had been appointed as receiver and manager, but under the terms of the order Guernsey lost the right to recover the rent and service charges. They were to be collected by Mr Maunder Taylor as receiver and manager so that he could carry out the obligations in clause 3 of the underlease. In essence there was no material difference between a receiver and manager appointed under the 1987 Act and a receiver and manager appointed by the court in other circumstances.
29. To support his submissions, Mr Dowding reminded us that the court had for many years appointed receivers and managers under section 37 of the Supreme Court Act 1981. Such a receiver and manager was, he accepted, an officer of the court, not an agent of the parties, but the company in receivership remained liable under its contracts. The appointment did not absolve the company of its rights or liabilities. That meant that when the company claimed, a debtor could set off his claim despite the appointment of a receiver and manager. Parsons was such a case. The judge was right to conclude that the claim was impeached as in effect Mr Maunder Taylor had stepped into the shoes of Guernsey.
30. Mr Dowding criticised the judge's decision to exercise a discretion and also to exercise that discretion so as to answer the question in the negative. He submitted that no such discretion existed if the claim was impeached.
31. Mr Fancourt did not dispute the general propositions of law. He supported the judge's conclusion as to the existence of a discretion and also the way he exercised that discretion. However his primary case was that there was no mutuality and for that reason no impeachment. He submitted that Mr Maunder Taylor's position as receiver and manager, appointed pursuant to section 24 of the 1987 Act, was very different to that of a receiver appointed as in the Parsons case. The purpose of Part II of the 1987 Act was to enable the Leasehold Valuation Tribunal to put in place a scheme of management. A manager appointed under Part II did not manage the property for the landlord. He did not, as did the receivers in the Parsons case, carry on the business of the company. The purpose of Part II of the Act was to ensure that certain management functions were carried out in a just and equitable way. Mr Maunder Taylor sued in his capacity as court-appointed manager not as a person appointed to manage the landlord's business.
32. Mr Dowding accepted that section 24 of Part II of the Act did give different powers to those exercisable under section 37 of the Supreme Court Act 1981, but he submitted that it did not enable rights to be given to managers that exceeded those that the landlord had. He submitted that if it had been the intention of Parliament to make inroads into the contractual relationship between landlords and tenants then clearer words were needed. Under the 1987 Act, the manager took over the lease and pursuant to the order received the money payable under it which he then expended in accordance with the order. That was emphasised by the terms of the order in this case which enabled the manager to collect the rent and service charge and which required him to carry out the obligations of the landlord in clause 3 of the leases.
33. In written submissions sent to the Court after the hearing, Mr Dowding sought to support his submission that Part II of the Act should not be construed as allowing the Tribunal to give a manager powers exceeding those of the landlord by reference to the Nugee Committee Report, Hansard, the Leasehold Valuation Tribunal (Service Charges, Insurance or Appointment of Manager's Applications) Order 1997 and the judgment of Mr Ian Hunter QC sitting as a deputy judge of the Chancery Division in Sparkle Properties Ltd v Residential Developments Ltd (unreported, 24th April 1998).
34. In my view nothing contained in the Nugee Committee report nor in Hansard throws light upon the essential issue in this case. Part II of the Act has to be construed in the context of the whole Act and the mischief. Further the words of the relevant sections in that Part are not ambiguous. The 1997 Order is irrelevant and the issue in the Sparkle Properties case was different to that in this case and it would not be appropriate to extrapolate from it to the present. The solution to the dispute must depend upon the terms of Part II of the 1987 Act and the order made by the Tribunal.
35. The Landlord and Tenant Act 1987 was a radical piece of legislation which in a number of respects impinged upon the contractual rights of landlords. Part I gave to certain tenants a right of first refusal. Part II to which I will come in detail enabled the court (by amendment the Leasehold Valuation Tribunal) to appoint managers. Part III provided for compulsory acquisition by certain tenants of the landlord's interest. Part IV enabled variation of leases and Part V enabled certain service charges to be varied.
36. Section 21 is the first section of Part II. It was amended by the Housing Act 1996. As amended it enabled a tenant of a flat contained in premises to which Part II applies to apply to the Tribunal for an order under section 24 appointing "a manager to act in relation to the premises". It is worth noting that the manager is not said to act in carrying on the business of the landlord, which was the equivalent duty of the receivers in the Parsons case. He is "to act in relation to the premises".
37. Sections 22 and 23 concern the requirements for a notice of application. Section 24 contains the jurisdiction to appoint a manager. The relevant parts of this section are as follows:

"(1) The Leasehold Valuation Tribunal may on an application for an order under this section, by order (whether interlocutory or final) appoint a manager to carry out in relation to any premises to which this Part applies –

(a) such functions in connection with the management of the premises, or

(b) such functions of a receiver,

or both, as the Leasehold Valuation Tribunal thinks fit.

(2) The Leasehold Valuation Tribunal may only make an order under this section in the following circumstances, namely –

(a) where the Leasehold Valuation Tribunal is satisfied -

(i) that the landlord either is in breach of any obligation owed by him to the tenant under his tenancy and relating to the management of the premises in question or any part of them (in the case of an obligation dependent on notice) would be in breach of any such obligation but for the fact that it has not been reasonably practicable for the tenant to give him the appropriate notice, and

(ii) …

(iii) that it is just and convenient to make the order in all the circumstances of the case;

[(ab) where the Leasehold Valuation Tribunal is satisfied –

(i) that unreasonable service charges have been made, or are proposed or likely to be made, and

(ii) that it is just and convenient to make the order in all the circumstances of the case;

(ac) where the Leasehold Valuation Tribunal is satisfied –

(i) that the landlord has failed to comply with any relevant provision of a code of practice approved by the Secretary of State under section 87 of the Leasehold Reform, Housing and Urban Developments Act 1993 (codes of management practice), and

(ii) that it is just and convenient to make the order in all the circumstances of the case;] or

(b) where the Leasehold Valuation Tribunal is satisfied that other circumstances exist which make it just and convenient for the order to be made

…

(4) An order under this section may make provision with respect to –

(a) such matters relating to the exercise by the manager of his functions under the order, and

(b) such incidental or ancillary matters

as the Leasehold Valuation Tribunal thinks fit; and, on any subsequent application made for the purpose by the manager, the Leasehold Valuation Tribunal may give him directions with respect to any such matters.

(5) Without prejudice to the generality of subsection (4), an order under this section may provide –

(a) for the rights and liabilities arising under contracts to which the manager is not a party to become rights and liabilities of the manager;

(b) for the manager to be entitled to prosecute claims in respect of the causes of action (whether contractual or tortious) accruing before or after the date of his appointment:

(c) for remuneration to be paid to the manager by the landlord, or by the tenants of the premises in respect of which the order is made or by all or any of those persons;

(d) for the manager's functions to be exercisable by him (subject to subsection (9)) either during a specified period or without limit of time.

(6) Any such order may be granted subject to such conditions as the Leasehold Valuation Tribunal may think fit, and in particular its operation may be suspended on terms fixed by the Leasehold Valuation Tribunal.

…

(9) The Leasehold Valuation Tribunal may, on application of any person interested, vary or discharge (whether conditionally or unconditionally) an order made under this section; and if the order has been protected by an entry registered under the Land Charges Act 1972 or the Land Registration Act 1925, the Leasehold Valuation Tribunal may by order direct that the entry shall be cancelled.

…

(11) References in this section to the management of any premises include references to the repair, maintenance or insurance of those premises."

38. In my view Mr Fancourt is correct in his submission that the purpose of Part II of the Act is to enable the Tribunal to appoint a manager, who may not be confined to carrying out the duties of a landlord under a lease. The Tribunal is enabled under subsection (1) to appoint a manager to carry out in relation to any premises to which Part II applies "such functions in connection with management" of the premises as the Tribunal thinks fit. It is to be noted that the premises may be two or more (see section 21(4)) and that the manager will carry out functions of management. As subsection (11) makes clear, that includes repair, maintenance or insurance. There is no limitation as to the management functions of the manager; in particular the functions are not limited to carrying out the terms of the leases. That is not surprising as the manager will need to obtain estimates and do repairs. He need not use the landlord's surveyor as required by the lease in this case.
39. Subsection (2) restricts the ability of the Tribunal to make orders. But subsection (2)(b) is of great width in that it enables the Tribunal to appoint a manager when satisfied that circumstances exist which make "it just and convenient" to do so. That also suggests that the Tribunal is concerned to provide a scheme of management not just a manager of the landlord's obligations.
40. Subsection (5) is also indicative of the position of a manager appointed under section 24. If he was the equivalent of the receiver and manager in the Parsons case, then he would claim in the name of or on behalf of the company. But subsection (5)(a) suggests that that is not the position of a manager appointed under section 24(1). That subsection envisages that rights and liabilities can become rights and liabilities of the manager.
41. In my view the purpose of Part II of the 1987 Act is to provide a scheme for the appointment of a manager who will carry out the functions required by the court. That manager carries out those functions in his own right as a court-appointed official. He is not appointed as the manager of the landlord or even of the landlord's obligations under the lease. That being so, Mr Maunder Taylor was a court-appointed manager appointed to carry out those duties required by the order appointing him. He did not carry on the business of Guernsey. His claims were made in his capacity as manager.
42. As I have said, Mr Dowding relied on the wording of the order appointing the manager. He submitted that it made it clear that the manager was acting as receiver of the monies due to Guernsey and as a manager to carry out the duties of Guernsey under the lease. That submission is, I believe, inconsistent with the scheme of Part II and in particular the effect of section 24 of the 1987 Act. The manager acts in a capacity independent of the landlord. In this case the duties and liabilities laid down in the order are defined by reference to the lease, but do not alter his capacity. In my view Mr Maunder Taylor's right to the money claimed arose from his appointment not from the lease. It follows that there was no mutuality between his claim and that of Mr Blaquiere. That being so, set off is not possible.
43. That conclusion reflects the practicalities. Of course it is possible for a manager to seek to protect his position in respect of a claim that a tenant may have against a landlord that has failed to carry out activities appropriate to his position as landlord, but if that be a requirement of the law there could be cases when managers would be reluctant to be appointed. That could not have been the intention of Parliament. Further, it must be possible for the manager to obtain funds necessary to manage the property even though the tenants, or some of them, had a right to refuse further payment e.g. where they have paid and the landlord has absconded with the money. In such a case the Tribunal decides the rights. Their jurisdiction is not confined to the terms of the lease. Part II envisages interim appointments, when action needs to be taken urgently. If so, the possibility of a set off could obstruct that which Parliament intended Part II of the Act to achieve. Section 24 provides a mechanism for appointing a suitable person to manage the functions of flats when needed with the rights as needed.
44. I have come to the same result as the judge, but for different reasons. I would dismiss this appeal.

Lord Justice Tuckey:

45. I agree that this appeal should be dismissed for the reasons given in both judgements.

Lord Justice Longmore:

46. I agree with Aldous LJ that the appeal must be dismissed for the reasons which he gives. I add a few words of my own because the points argued are important ones.
47. Mr Dowding QC relied on Parsons v Sovereign Bank of Canada [1913] AC 160 as authority for the proposition that, if a court-appointed receiver or manager claims sums due under a contract made with the company for whom he has been appointed, the debtor can set off, as against the receiver, any claim he would be entitled to set off as against the company. That is, no doubt, the case where a receiver is appointed to carry on the business of the company pursuant to the court's ordinary powers. We were not referred to the specific provision of Ontario law pursuant to which the Ontario court was empowered to appoint receivers for debenture-holders in 1906 and 1907 but it is most unlikely to have been in any way similar to the power given first to the court, and now to the Leasehold Valuation Tribunal, under Part II of the Landlord and Tenant Act 1987.
48. Section 21 of that Act enables a tenant of a flat contained in premises to apply to the court for an order "appointing a manager to act in relation to those premises". That is not a power to appoint a receiver, let alone a receiver to carry on the landlord's business. Section 24 then empowers the court to appoint a manager to carry out in relation to premises:

"(a) such functions in connection with the management of the premises, or

(b) such functions of a receiver,

or both, as the court thinks fit."

49. These and the other provisions of the Act referred to by my Lord demonstrate that Part II of the 1987 Act was enacted by Parliament to deal with a particular problem. That problem was that in a multi-tenanted block of flats, the landlord might fail (deliberately or for reasons of impecuniosity) to perform his obligations under the lease, in relation for example to maintenance and repair of common parts or the external structure, despite the existence of a fund or potential fund of money intended to be used for the purpose. Even before the Act, Goulding J had been able to appoint a receiver in circumstances where all the tenants were agreeable to such a course being taken (see Hart v Emelkirk Ltd [1983] 1 WLR 1289), but Parliament decided to put the matter on a statutory basis in 1987.
50. It is clear to my mind that Parliament intended that a manager should, when appointed pursuant to section 24(1) of the Act, come in with a clean sheet and be able to collect service charges due from the tenants and use the money so obtained for repair of the premises. It would make a nonsense of the legislation if any or all of the tenants could set off, against that claim for service charges, claims that they might have against the landlord. Most tenants would have such claims. Some of those claims will have accrued before the appointment of their manager; other claims may be for continuing breaches and thus continue to accrue after the manager's appointment. Mr Blaquiere elected to confine his claims in the present litigation to claims in the latter category. But the logic of his argument applies to claims in both categories. In my judgment, the use of such claims to prevent service charges being paid to the manager would be an attempt to thwart the plain legislative intent displayed in the relevant sections of Part II of the 1987 Act.