England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		24 March 2010

MR. JUSTICE ARNOLD :

Introduction

1. This is an appeal from an order of His Honour Judge Copley sitting in the Willesden County Court on 8 October 2009. By his order the Judge gave judgment for the Respondent ("Chasewood") in the sum of £7,451.31 and interest thereon. He also ordered the payment out to Chasewood of money which had previously been paid into court by the Appellants ("the Kims") and ordered the Kims to pay Chasewood's costs of the claim. The Judge refused the Kims permission to appeal against his order, but permission was granted on paper by Floyd J on 3 December 2009.

Background

2. The Kims are the tenants of Flat 26, Chasewood Park, Sudbury Hill, Harrow-on-the Hill HA1 3YP pursuant to an assignment dated 14 September 2001 of a 125 year lease dated 7 December 1988 ("the Lease"). The Lease provides for the payment of a ground rent of £100 per annum on 1 January in each year. It also contains, principally in the Fifth Schedule, provisions for the payment of an annual service charge. These provide for interim payments on account twice yearly and a balancing payment at the end of the year.
3. Chasewood is now the Kims' landlord, holding a 999 year leasehold interest ("the Headlease") in the building in which the Kims' flat is situated ("the Building"). Chasewood was formed by the residents' association in the Building ("the Residents' Association") to acquire the previous landlord's interest in the Building. Chasewood was incorporated on 15 December 2006, acquired the Headlease on 10 May 2007 and was registered as proprietor on 2 October 2007.
4. Chasewood's claim in these proceedings is for arrears of ground rent and interim service charge payments. When the claim form was issued on 23 October 2007 Chasewood claimed the sum of £1,556.35 comprising £50 ground rent and £1,506.35 service charge for the period from 1 July to 31 December 2007 due on 1 July 2007. (Although the Lease provided for annual payments of ground rent of £100 on 1 January, Chasewood's practice has been to invoice tenants for two payments of £50 on 1 January and 1 July.) At that stage, the claim was just against the First Appellant ("Mrs Kim"). Since the claim form was issued the Kims have not paid any sums claimed by Chasewood for ground rent and service charges, and so the sums in dispute have steadily increased.
5. On 17 June 2008 Chasewood applied for summary judgment. The application was supported by a witness statement of Abe Tibbett, a director of Chasewood. On about 29 September 2008 Mrs Kim served a witness statement in opposition to the application. On 5 November 2008 Mrs Kim's then solicitors wrote to Chasewood's solicitors about a number of matters. In this letter they noted that Mrs Kim was challenging the reasonableness of the service charges and stated that they would seek to have the service charge claim transferred to the Leasehold Valuation Tribunal ("LVT").
6. Chasewood's application for summary judgment was heard by Deputy District Judge McCormack on 10 November 2008. At the hearing no formal application was made by Mrs Kim for transfer of the service charge claim to the LVT, but counsel for Mrs Kim submitted that that claim should be transferred there. The Deputy District Judge refused to grant Chasewood summary judgment, but made a conditional order requiring Mrs Kim to pay into court the whole of the disputed sum (which by then was £4,426.69) plus £2,000 in respect of costs. He also granted Chasewood permission to amend its Claim Form and Particulars of Claim to bring the claim up to date and to join the Second Appellant. He granted the Kims permission consequentially to amend Mrs Kims' defence. He did not transfer the service charge claim to the LVT, although he does not appear to have made any formal ruling giving reasons for declining to order transfer.
7. At a case management conference on 12 May 2009 District Judge Steel allocated the claim to the fast track, ordered Chasewood to re-amend its Particulars of Claim and gave directions for trial including provision for disclosure and the exchange of witness statements. The trial was fixed for 10:30 on 8 October 2009 with an estimate of 4 hours.
8. In its Re-Amended Particulars of Claim served on 22 May 2009 Chasewood set out the provisions of the Lease it relied on and claimed the sums of £200 for ground rent and £5,739 for service charges, together with interest. It said that it would also claim at trial any further sums which had fallen due and not been paid by then.
9. In their Re-Amended Defence and Counterclaim served on 9 June 2009, the Kims resisted the claim for ground rent on the basis that Chasewood was estopped from claiming ground rent by virtue of a statement made by the Residents' Association in a newsletter to residents of the Building dated 24 August 2006. The Kims pleaded that this statement remained operative as between Chasewood and themselves and that they had relied upon it in participating in the acquisition of the Building.
10. In relation to the claim for service charges, the Kims pleaded in paragraph 12 of the Re-Amended Defence that Mrs Kim had been frustrated in her attempts to confirm the correctness of the service charges imposed by Chasewood and denied that she had been afforded access to receipts and vouchers. In paragraph 13 they alleged that the charges "are not reasonable service charges within the meaning of section 27A of the Landlord and Tenant Act 1985". They went on in paragraph 14 to plead four specific incidents of "poor service" and then re-iterated in paragraph 16 that the service charges were not reasonable.
11. In addition to their defence, the Kims pleaded two counterclaims. The first was a claim for misrepresentation arising out of the statement in the 24 August 2006 newsletter. The Kims sought rescission of the transaction concerning their participation in the acquisition of the Building, in relation to which they pleaded they had paid Chasewood the sum of £3,045 (in fact, the correct figure is £3,095). Further or alternatively, they sought damages under section 2(1) of the Misrepresentation Act 1967.
12. The Kims' second counterclaim was a claim for breach of contract, alleging that Chasewood was in breach of its covenants in the Lease and had failed to provide the services in respect of which the service charges were claimed with reasonable care and skill. The particulars given of this claim set out the same four incidents as were relied on in the defence.
13. In its Reply and Defence to Counterclaim served on 2 July 2009, Chasewood denied that it was estopped from claiming ground rent on two main grounds. The first was that Chasewood had not made the representation relied on and did not even exist at the time that it was made. The second was that the Kims had not relied upon the representation. In support of the second point, Chasewood pleaded that (i) the Kims paid Chasewood £3,095 to subscribe for a share on 9 May 2007, (ii) by letters dated 5 and 12 November 2007 it had offered to refund the sum which the Kims had paid for a share in Chasewood, (iii) the Kims had not taken up that offer and (iv) the Kims had been allotted their share on 24 November 2007.
14. In relation to the service charge, Chasewood denied that Mrs Kim had sought information to verify the correctness of the charges or been unable to verify the expenditure. It also pleaded as follows:

"17. The reference in paragraph 13 to the Defendants' disputing whether the service charges are reasonable 'within the meaning of section 27A of the Landlord and Tenant Act 1985 makes no sense: section 27A is a jurisdictional provision concerning the leasehold valuation tribunal, not a substantive provision dealing with reasonableness of service charges. The Claimant assumes that the defendants intended to refer to section 19(1)(a) of the said Act ...

18. In these circumstances the Claimant hereby gives notice that unless its solicitors hear to the contrary within 7 days of the service on the Defendants of this Reply and Defence to Counterclaim, it will assume that the Defendants put it to proof as to the reasonableness of each and every element of the service charge claimed in this action. The claimant will prepare its evidence on this basis and if it is successful in the claim and gets an order for costs such costs will include the cost of this exercise."

15. The Kims did not notify Chasewood that they were not putting Chasewood to proof of the reasonableness of each and every element of the service charges claimed either within 7 days of service of the Reply or at all.
16. The parties subsequently gave standard disclosure by list. Chasewood's list was dated 28 August 2009. It included Chasewood's financial statements for the year ended 31 December 2007 and expenditure budgets for the years 2007, 2008 and 2009, but it did not include any documents relating to the details of the claimed service charges such as invoices. No application was made by the Kims for specific disclosure.
17. Shortly before trial, the parties exchanged witness statements. Chasewood served a statement from Stephen Korn, its Estates Manager. The Kims served a second statement from Mrs Kim.

The hearing on 8 October 2009

18. As noted above, the trial was listed for 10:30 on 8 October 2009 with a four hour estimate. Unfortunately, other cases were also listed before the Judge on that day. As a result, the present case not called on until well into the afternoon. It is plain that this put the Judge in a difficult situation. It is evident that the Judge decided that, rather than adjourning the matter, he would try and deal with the case speedily. No doubt, in taking that course he had in the mind the facts that the claim had been allocated to the fast track, that the sums in dispute were comparatively modest, that the case had already been pending for nearly two years, that in all probability the costs incurred by the parties were already disproportionate to what was at stake and that an adjournment would mean the expenditure of further costs.
19. It is common ground that, in consequence, the hearing took an unconventional course. There was no opening speech by counsel for Chasewood. No witnesses were called and there was no cross-examination. There were no closing submissions. There was no formal judgment. Instead, the Judge conducted what counsel for the Kims described as a "colloquy" in relation to each claim with the trainee solicitor who represented the Kims at the hearing, with occasional contributions from Chasewood's counsel and interventions by both Mrs Kim and Mrs Kim's son. At the end of these colloquies the Judge decided that there was nothing in the Kims' defence to the claims and announced that he was giving judgment in favour of Chasewood. He then heard argument on and decided the consequential matters arising. Finally, he refused permission to appeal, but without giving any reasons. At no stage did the Judge deal with the counterclaim. It is only fair to record that I was informed that the Judge sat until nearly 6pm in order to finish the hearing.
20. It is also common ground that, although he did not express it in this way, in effect what the Judge did was to strike out the Kims' Defence as disclosing no reasonable grounds for defending Chasewood's claims pursuant to CPR rule 3.4(2)(a).

The appeal

21. On the appeal the Kims contend that the Judge was wrong to conclude that their defences to Chasewood's claims were not made out. Counsel for the Kims' primary submission was that the Judge ought to have concluded that their defences were made out and dismissed Chasewood's claims. In the alternative, he submitted that the Judge was wrong to strike out the Kim's Defence and that the matter should be remitted for trial by the proper tribunal. The proper tribunal, he submitted, was the county court in the case of the ground rent claim and the LVT in the case of the service charge claim.
22. As well as challenging the correctness of the Judge's decision on the merits, the Kims contend that it is unjust because of a serious procedural or other irregularity within CPR rule 52.11(3)(b). As this complaint was originally formulated, they complained that the unconventional course adopted by the Judge at the hearing meant that they were deprived of a fair trial contrary to Article 6 of the European Convention for the Protection of Fundamental Freedoms and Human Rights which is given effect to by the Human Rights Act 1998. At the hearing, however, counsel for the Kims accepted that, if this Court concluded that the Judge had wrongly struck out the Kims' Defence and remitted the matter for trial, that would cure any non-compliance with Article 6. He also accepted that, if the Judge had properly struck out the Kims' Defence pursuant to r. 3.4(2)(a), that would not constitute an interference with the Kims' Article 6 rights: see Z v United Kingdom (2002) 34 EHRR 3. Instead, he argued that the Judge's failure to give reasons for his decision meant that the decision should in any event be set aside. It is convenient to deal with this point first.

Failure to give reasons

23. As I have already said, the Judge did not give a formal judgment setting out his reasons for his decision. The only way in which to ascertain what his reasons were is to attempt to extract them from the exchanges between the Judge, the Kims' trainee solicitor and Chasewood's counsel. This task is not assisted by the fact that, although a transcript of the hearing has been obtained, the quality of the transcript is poor. There are numerous passages where the transcriber has not been able to hear all of the words spoken and has therefore been forced to leave gaps. Counsel for Chasewood, who had the advantage of having been present at the hearing, made valiant efforts to distil the Judge's reasoning from the transcript. Even with the benefit of his clear and thorough written and oral submissions, however, I have had real difficulty in understanding what the Judge's reasons were.
24. In this connection, it is telling that counsel for Chasewood was forced to rationalise the Judge's decision as being one to strike out the Kims' Defence pursuant to r. 3.4(2)(a) when the Judge did not himself say that that was what he was doing. It is also telling that counsel for Chasewood felt it advisable to serve a respondent's notice which sets out "to the extent that the following did not form part of the Judge's reasoning" the reasons why Chasewood contends that the Kims' defences to claims were correctly dismissed. In reality, this amounts to an attempt on the part of Chasewood's counsel to provide reasons for the Judge's decision that the Judge did not himself give.
25. The law on this point is conveniently set out in paragraph 52.11.5 of Civil Procedure (2009 ed):

"In Flannery v Halifax Estate Agencies Ltd [2000] 1 WLR 377 the Court of Appeal allowed an appeal on the ground that the judge had failed to give reasons for preferring the expert evidence of one party to that of the other. In English v Emery Reimbold & Strick Ltd [2002] EWCA Civ 605; [2002] 1 WLR 2409 the Court of Appeal enumerated why a trial judge must give adequate reasons. Reasons are necessary in order to render practicable the exercise of any right of appeal. Justice must be seen to be done. It must be apparent both to the parties and to the public why one party has won and the other has lost. The giving of reasons provides a necessary discipline for judges and it contributes to the setting of precedents for the future. The judge does not have to deal with every argument presented, but must make plain the principles on which he has acted and the reasons which led him to his decision."

26. In the present case I have been unable to undertake a meaningful review of the Judge's reasons for reaching his decision because it is wholly unclear what those reasons were. Accordingly, I would be disposed to allow the appeal on this ground alone unless it was clear that the Judge had reached the right conclusion. As will appear, however, I consider that the Judge was in any event wrong to strike out the Kims' Defences and therefore the matter must be remitted for trial. A trial is also necessary to deal with the Kims' outstanding counterclaim.

Ground rent

27. As set out above, the Kims' sole pleaded defence to Chasewood's claim for ground rent is one of estoppel. The parties' statements of case with regard to the estoppel defence give rise to two issues. The first is whether Chasewood made any relevant representation at all. The second is whether the Kims relied upon that representation.

Representation

28. The pleaded representation is the following statement in the Residents' Association newsletter dated 24 August 2006:

"Dear Chasewood Resident,

As many of you already know, from the previous two Residents' Meetings, your Committee has been keen to pursue the acquisition of the Freehold of Chasewood Park.

The benefits of owning the freehold can be summarised as follows:

…

no ground rent to pay (currently £100 per annum per flat)

…

If we do manage to acquire the freehold, those owners that have not participated will continue to pay ground rent to a Company formed to acquire the freehold. …"

29. It is common ground that the reference to the freehold in this letter is an immaterial error. Subject to that, the letter clearly represents that no ground rent will be payable if the Headlease is acquired by a company which will be formed to acquire it.
30. It is common ground that Chasewood did not itself make this representation and was not even in existence when it was made. The Kims contend, however, that Chasewood subsequently adopted and impliedly repeated this representation. Although it is not specifically referred to in the Kims' Defence, Mrs Kim relied in her second statement upon a letter from Chasewood dated 9 February 2007 in support of this contention. That letter is too long to set out in full, but it includes the following passages:

"Freehold Purchase Update

Dear Freehold Purchase Participator,

We are progressing well with the Freehold purchase. We lodged our formal interest in acquiring the Freehold with the Freeholder's solicitor in a timely manner. We have formed a company called 'Chasewood Park Residents Limited' in which all participators will hold one ownership share.

…

Our solicitor has been approached by Talbot Residential Investment Partnership, the Company acquiring the 13 remaining Nationwide flats, asking whether we will allow them to participate in the Freehold purchase. It is to our advantage to have Talbot's join us as it will reduce the overall cost per flat. The only perceived negative is that in the future, through having such a large holding of flats, they could attempt to block decisions made by the rest of the Freehold Participators. As this would negate one of the reasons for proceeding with the purchase we are keen to ensure that this cannot happen.

Our solution is to change our company's articles of association not allowing a single owner who owns 4 or more flats to have voting rights associated to their holding. …. "

31. Counsel for the Kims submitted that the message conveyed by the 9 February 2007 letter was one of continuity: Chasewood was progressing the proposal previously communicated to the residents of the Building by the Residents' Committee. He submitted that that message was reinforced by the fact that the directors of Chasewood had previously been and remained members of the Committee of the Residents' Association. Furthermore, the second paragraph I have quoted from this letter refers to the "reasons for proceeding for the purchase", which he submitted must be a reference back to the reasons given in the 24 August 2006 letter. Finally, he submitted that, in identifying one change to what had previously been proposed, the 9 February 2007 letter implicitly represented that in other respects the proposals remained unchanged.
32. Counsel for Chasewood submitted that the statement about ground rent in the 24 August 2006 letter was a mere statement of intention. He also submitted that the incorporation of Chasewood was a decisive break in continuity and that Chasewood could not be held responsible for statements of intention made by the Residents' Association.
33. As counsel for Chasewood accepted, this is not an issue which was dealt with by the Judge. Although it is an issue primarily of construction of the letters in question, those letters must be read against the relevant factual background. As such, witness evidence is clearly admissible. In those circumstances it is not appropriate for me to express any conclusion other than to say that I consider that it is well arguable that Chasewood did adopt and impliedly repeat the representation made in the 24 August 2006 letter in the 9 February 2007 letter.

Reliance

34. Mrs Kim's evidence in her second witness statement is that she relied on the statements made in the letters dated 24 August 2006 and 9 February 2007. Counsel for the Kims submitted that the representation was one which was calculated to influence the judgment of a reasonable person, and so it was to be presumed that she was influenced. Accordingly, he submitted, it was no answer for Chasewood to say that she would have gone ahead with the transaction anyway. In support of this submission he relied upon the judgment of Lord Denning MR in Brikom Investments Ltd v Carr [1979] 1 QB 467 at 482E-483B, although he acknowledged that the other members of the Court of Appeal had decided that case on a different basis.
35. Counsel for Chasewood submitted that it was clear that the Kims had not relied on the representation, because, when Mrs Kim complained about the matter, Chasewood had offered to refund the purchase price of the share in its letters dated 5 and 12 November 2007, but Mrs Kim had not accepted that offer. Although he initially placed some reliance upon the fact that the offer was made before the share was issued, he accepted during the course of argument that this was legally irrelevant. He submitted that the key question was whether Chasewood would be acting unconconscionably in relying upon its strict legal rights, relying upon the judgment of Neuberger J (as he then was) in PW & Co v Milton Investments Ltd [2003] EWHC 1994 (Ch), [2004] CH 142 at [221]-[222], and that it was clear that it would not.
36. Counsel for Chasewood contended that it was upon this ground that the Judge had dismissed the Kims' defence to the ground rent claim. Counsel for the Kims submitted that it was unclear what the Judge's reason was for dismissing the claim, but that it appeared from the transcript that the Judge had confused the Kims' defence of estoppel with their counterclaim for misrepresentation, which he contended was logically an alternative claim. In my view there is considerable force in this submission. Certainly, as counsel for Chasewood accepted, the Judge did not make any finding that Chasewood would not be acting unconscionably in relying upon its strict legal rights.
37. Be that as it may, the key question is whether the Judge was entitled to strike out the Kims' defence of estoppel pursuant to r. 3.4(2)(a). In my judgment he was not. The test under r. 3.4(2)(a) is whether the relevant party's statement of case discloses reasonable grounds for bringing or defending the claim. The Kims' Re-Amended Defence discloses a proper case of estoppel. It therefore cannot be struck out under r. 3.4(2)(a). Furthermore, as can be seen from the discussion above, the issues between the parties involve questions of fact which require a trial to resolve. The Judge was not entitled to resolve them summarily without evidence. This is particularly so given that Chasewood had already been refused summary judgment and had not appealed against that refusal.
38. I am in no better position to resolve these issues summarily than the Judge. It regrettably follows that Chasewood's claim for ground rent must be remitted to the Willesden County Court for trial before a different judge.

Section 166 of the Commonhold and Leasehold Reform Act 2002

39. On the appeal counsel for the Kims also raised a brand new defence to the claim for ground rent under section 166 of the Commonhold and Leasehold Reform Act 2002. This provides in relevant part:

"(1) A tenant under a long lease of a dwelling is not liable to make a payment of rent under the lease unless the landlord has given him a notice relating to the payment; and the date on which he is liable to make the payment is that specified in the notice.

(2) The notice must specify—

(a) the amount of the payment,

(b) the date on which the tenant is liable to make it, and

(c) if different from that date, the date on which he would have been liable to make it in accordance with the lease,

and shall contain any such further information as may be prescribed.

(3) The date on which the tenant is liable to make the payment must not be—

(a) either less than 30 days or more than 60 days after the day on which the notice is given, or

(b) before that on which he would have been liable to make it in accordance with the lease.

(4) If the date on which the tenant is liable to make the payment is after that on which he would have been liable to make it in accordance with the lease, any provisions of the lease relating to non-payment or late payment of rent have effect accordingly.

(5) The notice—

(a) must be in the prescribed form, and

(b) may be sent by post."

40. So far as the evidence before me goes, no section 166 notice was served by Chasewood in respect of the 2007 ground rent. Section 166 notices were served in respect of the 2008 and 2009 ground rents requiring payment of £50 each 1 January and 1 July, but it is not clear on the face of those notices whether they complied with section 166(3)(a). Counsel for the Kims informed me that his instructions were that the notices were served on or about 1 January in those years. Counsel for Chasewood accepted that, if that was the case, the notices would not have complied with section 166(3)(a).
41. Counsel for the Kims submitted that section 166(1) showed that compliance by the landlord with section 166 was a condition precedent to the tenant's liability for ground rent under a long lease. I accept that submission. It follows, in my judgment, that it is for the landlord claiming unpaid ground rent under a long lease to plead and prove compliance with section 166.
42. In the present case Chasewood did not plead or prove compliance with section 166 at the hearing before the Judge. Nor did the Kims take the point that it had not done so. Counsel for Chasewood submitted that the Kims should not be permitted to take the point now, since if the point had been taken in due time below Chasewood could have cured any deficiency in its existing section 166 notices by serving fresh ones. It is not necessary for me to decide whether I would have allowed the point to be taken if it had stood on its own. Given that I have decided to remit the ground rent claim for trial anyway, the point can be properly dealt with then.

Service charges

43. Sections 19, 20, 20ZA and 27A of the Landlord and Tenant Act 1985 provide so far as relevant as follows:

"19. Limitation of service charges: reasonableness.

(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 provisions 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 subsequent charges or otherwise

…

20. Limitation of service charges: consultation requirements

(1) Where this section applies to any qualifying works or qualifying long term agreement, the relevant contributions of tenants are limited in accordance with subsection (6) or (7) (or both) unless the consultation requirements have been either—

(a) complied with in relation to the works or agreement, or

(b) dispensed with in relation to the works or agreement by (or on appeal from) a leasehold valuation tribunal.

…

20ZA. Consultation requirements: supplementary

(1) Where an application is made to a leasehold valuation tribunal for a determination to dispense with all or any of the consultation requirements in relation to any qualifying works or qualifying long term agreement, the tribunal may make the determination if satisfied that it is reasonable to dispense with the requirements.

(2) In section 20 and this section—

'qualifying works' means works on a building or any other premises, and

'qualifying long term agreement' means (subject to subsection (3)) an agreement entered into, by or on behalf of the landlord or a superior landlord, for a term of more than twelve months.

…

27A. Liability to pay service charges: jurisdiction

(1) An application may be made to a leasehold valuation tribunal for a determination whether a service charge is payable and, if it is, as to—

(a) the person by whom it is payable,

(b) the person to whom it is payable,

(c) the amount which is payable,

(d) the date at or by which it is payable, and

(e) the manner in which it is payable.

(2) Subsection (1) applies whether or not any payment has been made.

(3) An application may also be made to a leasehold valuation tribunal for a determination whether, if costs were incurred for services, repairs, maintenance, improvements, insurance or management of any specified description, a service charge would be payable for the costs and, if it would, as to—

(a) the person by whom it would be payable,

(b) the person to whom it would be payable,

(c) the amount which would be payable,

(d) the date at or by which it would be payable, and

(e) the manner in which it would be payable.

…"

44. As I have related, in their Re-Amended Defence the Kims challenged the reasonableness of the service charges claimed by Chasewood. The Defence cited section 27A of the 1985 Act, but Chasewood correctly understood that the intended reference was to section 19(1)(a). It is convenient to consider the specific items of complaint first before turning to the Kims' general challenge.

The specific items of complaint

45. It is sufficient for present purposes to concentrate on two of the four items of complaint. These are pleaded in the following sub-paragraphs of paragraph 14 of the Re-Amended Defence:

"(c) The Claimant company's main gate has damaged the First Defendant's car. The main gate was known to be dangerous and has been broken on many occasions. This was due to the poor maintenance of the Claimant company. Further, the Claimant company assured the First Defendant that compensation would be given, but later disputed liability. The Claimant company provided little assistance to the First Defendant.

(d) The Claimant company had started refurbishment of the swimming pool without consulting the First Defendant."

46. So far as sub-paragraph (c) is concerned, counsel for Chasewood submitted to the Judge and to me that the mischief complained about was contained in the last sentence and that, at best, that was a claim for breach of covenant and could not support a claim that the service charge was unreasonable. I do not agree. It is true that the Kims relied on the same particulars in support of their counterclaim for breach of covenant, but so far as the defence to the service charge claim is concerned the key sentence is the third one. That sentence clearly alleges poor maintenance. In my judgment that provides an arguable basis for disputing the reasonableness of the expenditure on such maintenance.
47. As to sub-paragraph (d), counsel for Chasewood submitted to the Judge and to me that this did not challenge the reasonableness of the expenditure on the swimming pool. It is true that it does not explicitly state that the expenditure was unreasonable, but read fairly in context I consider that it is reasonably clear that is what is being alleged. Furthermore, it does clearly allege lack of consultation. Counsel for the Kims observed that it was at least possible that the swimming pool refurbishment contract was subject to the consultation requirements contained in section 20 of the 1985 Act; but pointed out that he could not make any positive submission on the matter because the Claimant had given no disclosure of documents relating to the refurbishment of the swimming pool (or any of the other specific complaints). Again, I consider that this sub-paragraph provides an arguable basis for disputing the reasonableness of the expenditure on the refurbishment.
48. It should also be noted that Mrs Kim's second witness statement repeated each of the specific complaints made in paragraph 14 of the Re-Amended Defence. By contrast, Mr Korn's statement did not engage with the specific complaints at all.

The general challenge

49. Counsel for Chasewood submitted both to the Judge and to me that the Kims' challenge to the reasonableness of the services charges was confined to the four specific matters pleaded in their Re-Amended Defence. It is not necessary for me to consider whether that would have been the correct analysis in the absence of paragraph 18 of the Reply. In my judgment it is clear in the light of paragraph 18 of the Reply that it is not correct. In that paragraph, Chasewood expressly pleaded that (unless it heard to the contrary, which it did not) it understood the Kims to be putting it to proof of "the reasonableness of each and every element of the service charge[s] claimed in this action". (It went on to warn the Kims as to the costs consequences of this. In my view it was right to do so: see Mars UK Ltd v Teknowledge Ltd [2000] FSR 138 at 156.) Thus it was common ground between the parties that Chasewood was required to prove the reasonableness of each and every element of the service charges claimed.
50. Counsel for the Kims submitted it followed that the Judge ought to have dismissed Chasewood's claim because Chasewood's evidence did not establish the reasonableness of each and every element of the service charges. The relevant passage of Mr Korn's witness statement simply said this:

"… we have not received any complaints from other residents.

In our normal duties as managers, we always where necessary obtain estimates or tenders for our services provided.

We always try to ensure that we get the best possible value for money and that we spend no more than is reasonably required to do things which the claimant is required as landlords do. I am confident that we have achieved this objective.

We have many times offered Miss Kim to come into our office to examine our books. She has never replied to these invitations."

51. Counsel for Chasewood submitted that this evidence was sufficient to shift the evidential burden on to the Kims to prove that the service charges were not reasonable and that they had failed to discharge that burden. If the Kims had only made a general challenge to the reasonableness of the service charges without raising any specific complaints and if the Kims had served no evidence to counter Mr Korn's statement, I might have been prepared to accept this. As I have discussed, however, the Kims did raise specific complaints and did serve evidence to counter Mr Korn's statement.
52. The latter point does not stop there. In addition to making a general complaint that "the fees being charged were excessively high", Mrs Kim asserted in her second witness statement that she had not been given access to Chasewood's accounts with regard to the service charges. As counsel for the Kims pointed out, there was thus a direct conflict of evidence between Mr Korn and Mrs Kim.
53. Counsel for Chasewood argued that the Judge had rightly concluded that none of the four sub-paragraphs of paragraph 14 of the Re-Amended Defence disclosed reasonable grounds for challenging the reasonableness of the service charges and that it followed that the Kims' challenge to the reasonableness of the service charge must be struck out. If that was the Judge's reasoning, I cannot agree with it. For the reasons I have given above, I consider that paragraph 14 of the Re-Amended Defence does disclose reasonable grounds for challenging the reasonableness of the service charges. Even if that is wrong, I consider that it was common ground between the parties that Chasewood was required to prove the reasonableness of each and every element of the service charges. In order to determine whether Chasewood had discharged that burden, it was necessary at least for there to be cross-examination to resolve the conflicts of evidence and for the Judge to make findings of fact.
54. I have to say, however, that it is not clear to me that these were the Judge's reasons. As I have already observed, the Judge did not express himself in those terms. Moreover, as counsel for the Kims submitted, it appears from the transcript that the Judge may have been under the impression that he was not in position to determine the reasonableness of the service charges because that was a matter for the LVT and/or because it required expert evidence. It also appears that there may have been some confusion in the Judge's mind between the Kims' defence challenging the reasonableness of the service charges and their counterclaim for breach of covenant.
55. Again, it regrettably follows that Chasewood's claim for service charges must be remitted to the appropriate tribunal for determination.

Transfer to the LVT

56. Counsel for the Kims submitted that, if the service charge claim was remitted, it should be transferred to the LVT which was a specialist tribunal that had jurisdiction pursuant to section 27A of the 1985 Act. Counsel for Chasewood opposed this on the grounds that (i) Deputy District Judge McCormack had declined to order a transfer to the LVT, (ii) the Kims had not appealed his order, (iii) thereafter the parties had prepared for trial in the Willesden County Court, (iv) it was now too late for a transfer and (v) a transfer would involve splitting Chasewood's claim into two parts and determining them separately which was unattractive for reasons of proportionality.
57. I have to say that in my view the LVT would be the more appropriate tribunal for determining the service charge claim. Nevertheless, I consider that the reasons given by counsel for Chasewood for remitting the claim to the County Court rather than the LVT are cogent.

Conclusion

58. For the reasons given above, I shall allow the appeal, set aside the Judge's order dated 8 October 2009 and remit the matter to the Willesden County Court for trial by a different judge. While I am sympathetic to the Judge's understandable desire to save the parties the time and expense of an adjournment, the action was not one in which the short-cut he attempted was possible. As is often the case with such attempts, the unfortunate result has been to expose the parties to more cost and delay, not less. I hope that even at this late stage the parties will be able to find a way to compromise their differences rather than have to engage in the yet further expense of a trial.