England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
ON APPEAL FROM THE CENTRAL LONDON COUNTY COURT
CHANCERY LIST

		Royal Courts of Justice Strand, London, WC2A 2LL
		22 November 2012

Miss Geraldine Andrews Q.C.:

INTRODUCTION

1. This is an appeal from the decision of His Honour Judge Cowell dated 28 October 2011 making an acquisition order under Part III of the Landlord and Tenant Act 1987 ("the 1987 Act"). I was told by Counsel that, so far as they are aware, it is the first contested case on the interpretation of s.27 of the 1987 Act. The order was stayed pending the outcome of the hearing of this appeal, which was brought with the permission of Arnold J.
2. The Respondents to the appeal, the Claimants below, are the long lessees of flats 1-10 and flat 12 Colebrook Court, Sloane Avenue, London SW3, and the company incorporated to act for them for the purposes of seeking to obtain the reversionary interest in all 12 flats (hereafter referred to as "the Property"). The reversionary interest is a head lease granted by Shellmex and BP Limited for a term of 99 years on 21 September 1966. The head lessee is the Appellant, Arrowgame Ltd, ("Arrowgame") which bought the head lease on 18 February 1993 for £5,500. Arrowgame is a company with two shares, held by a Mr Browne and his wife. According to Mr Browne, Arrowgame purchased the head lease as a "long term investment and development opportunity".
3. I was shown photographs of the Property. At ground floor level there used to be a petrol station, but that is now occupied by a "Sainsbury's Local" food store. The Property, which sits above those commercial premises, is a three storey block of twelve flats, comprising four flats per floor, built as a rectangle but with octagonal ends. To the rear there is what is described as an "amenity terrace" between the raised ground floor and first floor, with a number of car parking spaces underneath. The access to these is via a driveway immediately adjacent to the police station to the rear of the building. There are a number of much taller buildings in the neighbourhood, mostly blocks of flats.
4. For many years, the Property was managed by a professional firm of managing agents named Gross Fine. However, after being taken over by another group, Gross Fine gave notice to terminate their managing agency with effect from June 2003. Thereafter, the Brownes left the management of the block in the hands of a solicitor, Mr David Goodman, who is also the long leaseholder of flat 11 Colebrook Court. A management company, Colebrook Court Management Ltd, was formed. The Brownes held control over the management company by means of voting rights attached to their shares in it. Mr Goodman was the company secretary and, until 1 June 2008, the sole director of that company. On that date he was replaced as the director by a friend of his, a surveyor named Mr Lumley. Colebrook Court Management Ltd. was struck off the register of companies on 30 March 2010 for failing to file its annual returns. Its last filed set of accounts was for the year ended 25 March 2005.
5. Mr Goodman was replaced as manager by an order made by the Leasehold Valuation Tribunal ("LVT") on 14 February 2006, appointing an experienced property manager, Mr Bruce Maunder Taylor FRICS, as the manager in his place under Part II of the 1987 Act. The application to the LVT was strenuously opposed by Mr Goodman, and it is clear that he still disagrees with its decision. Both the LVT and Judge Cowell were highly critical of Mr Goodman. Unlike me, they had the advantage of seeing and hearing him (and the other witnesses) give evidence in the witness box, where it was tested by cross-examination. Mr Warwick, who is instructed by Mr Goodman on behalf of Arrowgame, does not seek to challenge any of the fact-findings made by the Judge.
6. The Claimants' application for an acquisition order was based on their contention that the appointment of Mr Maunder Taylor had not cured the problems that they had been experiencing with Mr Goodman, and which had led them to seek the appointment of a manager. One of the grounds on which they relied was the alleged failure by the Landlord (i.e. Arrowgame, represented at all material times by Mr Goodman) to co-operate with the manager to an exceptional extent, unprecedented in the considerable experience of Mr Maunder Taylor.
7. The main reason why Arrowgame opposed the application was that it did not wish to lose the opportunity of realising the development potential of the Property. In particular, Arrowgame claimed that there were real prospects that a developer would obtain planning permission for a scheme to build a further three storeys of flats immediately above the existing third floor. It sought to rely upon a recent agreement with a company named Landgate (New Homes) Ltd, (a joint venture between a Mr Giles Underhill and a Mr Parma Suhl) by which Landgate was to acquire the share capital of Arrowgame for £4 million, with a view to acquiring the head lease from Arrowgame in due course, and carrying out the proposed development (on the assumption that planning permission and any other necessary consents are obtained).
8. At the trial, Arrowgame relied upon a witness statement from Mr Underhill dated 18 October 2011, in which he outlined his extensive experience of property development and explained that Landgate's preference was to purchase the head lease for £4 million, but that it could not do so until after the notice period under s.5 of the Landlord and Tenant Act 1987 had expired. That was why Landgate had entered into the agreement to acquire Arrowgame's share capital. (Arrowgame purported to serve notices under s.5 on all the lessees on 17 October, which happened to be the first day of trial). Mr Underhill stated that after the development was completed, the head lease would be transferred into a special purpose vehicle owned by all the lessees.
9. The Judge was plainly no more impressed by Mr Underhill's evidence than he was by the evidence of the majority of the other witnesses called by Arrowgame. He pointed to the fact that Landgate did not appear to have any assets, and it was that company which was (or was to be) party to the relevant agreements with Arrowgame. He described Mr Underhill's evidence regarding the proposed development as "to a large degree, speculative" and pointed out that there was an express clause in the agreement for the acquisition of Arrowgame's shares that entitled Landgate to rescind that agreement at any time, without reason. He also pointed to the fact that the share sale agreement expressly excluded the right of any third party to enforce any term of it under the Contracts (Rights of Third Parties) Act. This meant that a somewhat vaguely expressed provision in clause 50 that once the development had been completed and the development sold, the sub-lessees were to manage the block of flats, was ineffective to confer any enforceable right on the sub-lessees.
10. The effect of the Judge's decision is that, upon the parties agreeing the price for Arrowgame's interest in the Property, or the LVT determining that price, Arrowgame will be obliged to convey all its interest in the Property to the Twelfth Claimant. In the course of submissions, some argument was directed to the date on which the value of the Property should be assessed for the purposes of Section 31(2) of the Act, namely, whether it should be the date of the acquisition order, or the later date on which the matter is determined by the LVT or agreed by the parties. That is not a matter with which this appeal is directly concerned, and I therefore propose to express no view about the merits of the rival arguments in this judgment. However, since Section 31(2) provides for the LVT to determine the consideration on the basis of the open market value, then whatever the appropriate date may be for assessment of that value, it was plainly contemplated by Parliament that the market value on that date would be regarded as a fair means of compensation for the acquisition once an acquisition order has been made. Therefore it cannot be open to a lessor to contend, as Arrowgame at one point sought to contend, that an acquisition order should not be made because, by reason of the operation of Section 31(2), he will not, or may not, receive the true worth of his reversionary interest.
11. The judge described Mr Goodman as "a professional procrastinator whose last-minute, or post-last-minute, activity has occasioned additional costs, stress and exasperation on the part of all those who have had the misfortune to be his opponents in any form of litigation". The judgment contains a number of clear examples of this behaviour. Unfortunately, that criticism has not prompted Mr Goodman to change his ways. Almost all the first day of the hearing of this appeal was spent on argument about whether Arrowgame should be allowed to adduce further evidence, once again served on the Respondents at the very last minute, comprising fresh witness statements from Mr Goodman and Mr Underhill dated 20^th July 2012 (two working days before the hearing). The latter exhibited voluminous documentation pertaining to an application for planning permission which Mr Underhill claimed had been submitted to the Royal Borough of Kensington and Chelsea on 6 July 2012, though Mr Radevsky told me on instructions that his solicitors were unable to find any record of such an application (almost three weeks later). It rapidly became apparent that an adjournment would be the inevitable consequence of allowing the evidence to be adduced.
12. After hearing submissions from both Counsel, including submissions on the question whether it was open to the appellate Court to take into consideration evidence of post-judgment events in a case of this type, I refused the application, for the reasons I gave at the time. My refusal gave rise to a further application at the start of the second day of the appeal, this time by Landgate, which sought to intervene as an interested party. Although this was a somewhat unorthodox step, I decided that it was in the interests of justice that Landgate should have the opportunity to make such submissions as it wished on the aspects of the appeal that were of direct concern to it, and granted the application on terms that Landgate would not recover its costs from any other party.
13. Against that background, I have to decide the following issues in this appeal:

(a) Was the Notice served under s.27 of the Act valid?

(b) If the Notice was defective, did the Judge exercise his power under s.29(6)(b) to make an acquisition order notwithstanding the defects? If not, can this Court exercise that power and should it do so?

(c) Did the Judge err in the exercise of his discretion under s.29(1)(c) either as to the decision in principle to make the order, or as to the decision to refuse to suspend it?

THE NOTICE UNDER SECTION 27

14. The conditions for making acquisition orders are set out in Section 29 of the 1987 Act. The power to make such an order is plainly discretionary, because Section 29 (1) provides that the Court "may" make such an order if it is satisfied that three specified prerequisites are fulfilled. The first, which it is common ground was fulfilled in the present case, is that the premises were premises to which that Part of the Act applied both on the date of service of any notice under s.27 and on the date of the application for the acquisition order, and had not ceased to be such premises since the date of that application. The second is that either of the conditions specified in subsections (2) and (3) is fulfilled with respect to those premises. The third is that the court "considers it appropriate to make the order in the circumstances of the case".
15. The conditions specified in s.29(2) are that the landlord is in breach of any obligation owed by him to the applicants under the leases and relating to the management of the premises in question or any part of them, or, in the case of an obligation dependent on notice, that he would be in breach of such obligation but for the fact that it has not been reasonably practicable for the lessees to give him such notice, and that the circumstances by virtue of which he is or would be in breach of any such obligation are likely to continue. The condition specified in s.29(3) is that both at the date when the application was made and throughout the period of two years immediately preceding that date, there was in force an appointment under Part II of a person to act as manager in relation to the premises in question, which was made by reason of an act or omission on the part of the landlord. It is the latter of these conditions upon which the Respondents have relied.
16. Thus Parliament has made it possible for an acquisition order to be made in respect of qualifying premises once two years have elapsed after the appointment of a manager under Part II, without the need for the applicants to demonstrate that there is any ongoing breach by the landlord of his obligations under the leases. However, the applicants must still satisfy the court that it is "appropriate" to make such an order in the circumstances of the case. It is against that statutory background that I must construe the notice provisions set out in Section 27.
17. Section 27 provides as follows:

(1) Before an application for an acquisition order is made in respect of any premises to which this Part applies, a notice under this section must (subject to subsection (3)) be served on the landlord by qualifying tenants of the flats contained in the premises who, at the date when it is served, constitute the requisite majority of the tenants.

(2) A notice under this section must:

(a) Specify the names of the qualifying tenants by whom it is served, the addresses of their flats and the name and the address in England and Wales of a person on whom the landlord may serve notice... in connection with this Part instead of serving them on those tenants;

(b) State that those tenants intend to make an application for an acquisition order to be made by the Court... but (if paragraph d is applicable) that they will not do so if the landlord complies with the requirement specified in pursuance of that paragraph;

(c) Specify the grounds on which the court would be asked to make such an order and the matters that would be relied on by the tenants for the purpose of establishing those grounds;

(d) Where those matters are capable of being remedied by the landlord, require the landlord, within such reasonable period as is specified in the notice, to take such steps for the purpose of remedying them as are so specified; and

(e) Contain such information (if any) as the Secretary of State may by regulations prescribe.

The last of these sub-paragraphs is irrelevant to any matter I have to decide.

18. The service of a notice under s.27 is a mandatory pre-requisite of applying for an acquisition order, as indicated by the use of the word "must" in sub-section (1) and the express proviso, which refers to section 27(3). Section 27(3) gives the Court the power to dispense by order with what is described as "the requirement to serve a notice under s.27" (my emphasis) in a case where the Court is satisfied that it would not be practicable to serve such a notice on the landlord. The word "must" is also used in sub-section (2) to prescribe the content of the statutory notice. Thus it is clear that the service of a notice is compulsory, and its validity will depend on whether it complies with the requirements of s.27(2). The matter is put beyond doubt by the existence of the power in Section 29(6)(b) of the Act to make an acquisition order notwithstanding the non-compliance of the notice with those requirements.
19. The focus of the argument in the present case was on sub-paragraphs (c) and (d) of s.27(2). Sub-paragraph (c) requires the s.27 notice to specify both the grounds on which the court would be asked to make such an order and the matters that would be relied upon by the lessees for the purpose of establishing such grounds. Sub-paragraph (d) then goes on to deal with the situation where "those matters" are capable of remedy by the landlord. In that situation, the landlord has to be told what it is that he has to do to put things right, and given a reasonable timescale in which to do it. Sub-paragraph (b) makes it clear that where the "matters" relied on are capable of remedy, the notice should also tell him that if he puts things right within that time, the application will not be pursued.
20. There is no reference to either "grounds" or "matters" in Section 29. Mr Warwick submitted that these two expressions plainly have separate meanings, and that both are different from the "conditions" referred to in Section 29. He pointed out, correctly, that there is nothing in the 1987 Act dispensing with the requirement for service of a notice under Section 27 if Section 29(3) is relied upon. Even if the jurisdictional grounds are made out by establishing that a manager has been appointed for two years or more, it is still incumbent on the applicants to comply with the express requirements of Section 27 and set out in the Notice both the "grounds" and the "matters" on which they rely.
21. Mr Warwick submitted that the notice dated 20 January 2010 that was served by the Respondents in the present case was invalid. Although the "grounds" and "matters" appeared to have been elided, he did not contend that this was something which in and of itself made the notice deficient. However, he submitted that the purpose of the preliminary notice was to give the landlord an opportunity to "mend its ways" by correcting those matters of which complaint was made by the lessees. The final paragraph of the notice that was served states "these grounds are not capable of remedy" and Mr Warwick's submission was that this statement was incorrect, because at least some of them were. Thus he argued that the notice did not comply with the requirements of Section 29(1)(d), and the non-compliance was fatal.
22. Mr Warwick further submitted, by analogy with forfeiture notices served pursuant to s.146 of the Law of Property Act 1925, that if any matter complained of in the notice was in fact capable of remedy, the s.27 notice was invalid, subject only to the Court's dispensing power (a power which does not exist in the context of s.146). He relied upon the judgment of Neuberger LJ in Akici v LR Butlin Ltd [2006] 1 WLR 201, a case in which the Court of Appeal made it clear that in order to be valid, a notice under s.146 must expressly specify the breach of which complaint is made and on which the landlord seeks to rely. At paragraphs 63-64, Neuberger LJ said that there were two principal purposes of section 146 in relation to forfeiture clauses in leases. The first is to enable a lessee in breach of covenant to have the opportunity to remedy the breach, where that is possible, and thereby to avoid the forfeiture altogether, provided the lessors are fully reimbursed with regard to damages and costs. The second principal purpose of the section, which only arises where the lessee fails to remedy the breach or where the breach is incapable of remedy, is to enable the court to accord the lessee relief from forfeiture, where the lessors enforce the forfeiture. He observed "In those circumstances it seems to me that the proper approach to the question of whether or not a breach is capable of remedy should be practical rather than technical".
23. Mr Warwick submitted that in Section 27 there was no reference to "breaches" but to "matters" – a wider expression, which would encompass, but would not necessarily be confined to, a breach of covenant. If, in practical terms, a "matter" complained of other than a breach – such as, for example, non co-operation with a manager - could be remedied within a reasonable time, the landlord who stood to lose his interest in property should be afforded the opportunity to put things right, and that was what Section 27 envisaged that the Notice should do. The service of the Notice was a "warning shot", and therefore it was important that it should be the right warning shot.
24. Mr Radevsky acknowledged that the drafting of this part of the 1987 Act left something to be desired, although he submitted that Part III suffered from fewer deficiencies than Part I. He submitted that once the conditions in Section 29(1) (a) and 29(3) were fulfilled, as they were in the present case, the only "grounds" on which the Court would be asked to exercise its power to make such an order would be that there were good reasons to conclude that it was appropriate for it to do so in all the circumstances, under Section 29(1)(c). Therefore the Notice would have to contain the "matters" relied upon by the applicants as demonstrating why it would be appropriate for the Court to exercise its discretion. Where those matters were matters of historic fact, or, as Mr Radevsky put it "past instances of bad behaviour" they were incapable of remedy, whether in practical or theoretical terms, and that is why the notice did not need to specify the remedial action that was required.
25. Mr Radevsky submitted that the Judge was therefore right in the approach he adopted in paragraph 14 of his judgment, when he said that the claimants were asking him to consider all the things not done on time, whether or not they have now been done, all the things done in the past, whether or not they have been or may be undone, and to conclude that matters have been, and will or may well continue to be so bad that it is appropriate that the claimants should receive the head lease.
26. So far as the analogy with s.146 of the Law of Property Act 1925 was concerned, Mr Radevsky referred me to Pannell v City of London Brewery Company [1900]1Ch 496, a case decided under the similar provisions in the Conveyancing Act 1881, the predecessor statute. The lessees argued that if the lessor gave notice of three breaches, as to two of which he was right and the third of which he was wrong, any proceedings he may take on that notice must be defeated because the notice is bad as a whole. Buckley J, observing that if that were the law it would be "very inconvenient", rejected that argument, on the basis that if the notice contained particulars that were surplus to requirements (such as allegations of a further, non-existent breach of covenant) that would not mean that the requirements of the statute had not been complied with. The notice would still have specified the breaches of which complaint was made and required that they be remedied within a reasonable time. In short, it would have served the purpose for which it was intended. That interpretation was expressly approved by Lord Buckmaster LC in the case of Fox v Jolly [1916] AC 1, at page 15.
27. Thus, Mr Radevsky submitted, if he was wrong in his primary case on construction, and if there was any merit to Mr Warwick's argument that some of the "matters" complained of were remediable, then provided that others were not, the Court could still treat the notice as valid by deploying a metaphorical blue pencil to take out of the equation all those remediable "matters" that were surplus to requirements.
28. In Woodfall's Landlord and Tenant, (2011) Vol 1, para 17.131, the learned editors state that a s.146 notice need require the tenant to remedy the breach only if it is capable of remedy. If the breach is irremediable, the notice is not bad if it does not require the tenant to remedy it. If, however, the breach is remediable, and the s.146 notice does not require the tenant to remedy it, the notice is bad. Accordingly, "it is good practice to require remedy of all breaches insofar as they may be remediable so as to avoid disputes in cases where it may be doubtful as to whether the breaches are remediable." In paragraph 17.134 the editors state that where more than one breach is alleged in the notice, failure to prove any or all but one does not invalidate the notice.
29. The difficulty I find with Mr Radevsky's "blue pencil" argument is that the authorities on which he relied concerned the situation where the requirements of the statute had been complied with in respect of the breaches that were established. It therefore did not matter that the notice alleged further breaches that were not, in the event, made out. Neither counsel was able to direct me to any case under s.146 where the notice relied on a number of breaches, some of which were irremediable, and others of which were remediable, but wrongly characterised one of the remediable breaches as irremediable. There is nothing in the commentary in Woodfall that directly addresses that situation. It seems to me, however, that the point the editors make about good practice is an indication that they would support Mr Warwick's contention that a failure to adhere to the statutory obligation to require remedy of any remediable breach that is being relied upon is fatal to the s.146 notice as a whole.
30. Whether or not that is right, one has to be careful not to take the analogy with s.146 too far. The provisions may have similarities, but they are not identical. Section 146 sets out the prerequisites for enforcement of contractual rights of re-entry or forfeiture; it is not concerned with giving notice of an application to Court for discretionary relief (though the service of a s.146 notice may give rise to an application by the recipient for such relief). Unlike the requirements of s.27 of the 1987 Act, a s.146 notice does not have to specify the time within which the "remediable" breach is to be remedied. All that is required is that a reasonable time elapses between service of the statutory notice and the exercise of the right of re-entry or forfeiture. Nor is there any express requirement akin to s.27(2)(b), that the s.146 notice should tell the tenant that the landlord will not exercise his right of re-entry or forfeiture if a remediable breach is cured within a specified time.
31. In construing s.27 of the 1987 Act I have to bear in mind the purpose that the notice is designed to achieve and the two quite separate routes by which applicants for an acquisition order can establish that the preconditions are met under s.29(2) and 29(3).
32. The landlord is entitled to know, in sufficient detail, why it is that the lessees are contending that he should be compulsorily deprived of his proprietary interest in the lease. The statutory requirements as to the contents of the notice are plainly designed to ensure that the landlord is made aware of the case he has to meet in sufficient time to be able to answer that application (and, in an appropriate case, to forestall it altogether by taking sufficient remedial action to answer the lessees' concerns). Although in appropriate cases the notice does afford the landlord an opportunity to "mend his ways", as Mr Warwick put it, that is not its primary purpose. Its primary purpose is to inform him of the case he has to meet. The construction that I consider to be correct fits in with that purpose.
33. The first thing I have to decide is what is meant by "grounds". If it had been intended that the Notice should identify which of the conditions under s.29(2) or (3) is being relied upon as the foundation for invoking the court's jurisdiction, I would have expected the draftsman to have used language that was more consistent with the language of Section 29, and to have expressed the requirement more clearly. Section 29 speaks in terms of "conditions", not "grounds". If it had been Parliament's intention, it would have been very simple to draft Section 27 in terms that required the notice to identify which of the conditions specified in s.29(2) or (3) was being relied upon by the applicants. Instead of that, Section 27(1)(c) focuses on the grounds on which the Court "would be asked to make such an order". In my judgment Mr Warwick is right that this cannot mean the grounds on which the Court has jurisdiction, but rather, on the assumption that the preconditions are established, the grounds on which that jurisdiction should be exercised in the applicants' favour. In simple terms, the notice must spell out the reason(s) why the applicants contend it is an appropriate case for an acquisition order.
34. That construction also fits the natural interpretation of the language used. Thus the "grounds" would be the fundamental reasons put forward by the applicants to justify the making of an acquisition order in the exercise of the Court's discretion, and the "matters" would be the facts and any other circumstances that they will seek to rely upon to establish that, for those reasons, the Court would be justified in making that order. So, for example, in a case of non co-operation with a manager appointed under Part II, the grounds would be that the landlord is not co-operating with the manager, and the matters relied on will be all the examples of the landlord's behaviour that the applicants wish to use to demonstrate such non co-operation.
35. Depending on the circumstances, there may well be some overlap between the "grounds" and "matters" - and in a Section 29(2) case, an overlap with the "conditions", because, as the Judge recognized, the essential ground in a Section 29(2) case is a continuing breach of obligation. As the Judge said in paragraph 14 of his judgment, "the notice very properly gives the defendant information about the case it has to meet, and so it is understandable that the Act should provide that it should be given, whether there is to be reliance upon section 29(2) or section 29(3)". Provided that it does so, I see no reason why the "grounds" and "matters" should have to be itemised separately.
36. Section 27(2)(d) envisages that where those matters, i.e. "the matters relied upon for the purpose of establishing the grounds" for making such an order, are capable of remedy, the landlord should also be required to take steps to remedy them and given a reasonable time in which to do so. "Remedy", of course, means to put right, and whilst it is very easy to understand what it means when used in the context of breaches of covenant, as it is in s.146 of the 1925 Act, it is more difficult to discern what it means in respect of a "matter" that is complained of other than a breach. Neuberger LJ's observation in Akici that "in principle I would have thought that the great majority of breaches of covenant should be capable of remedy" is no doubt right. However, I consider that "remedy" in the context of s.27(2) must mean some act that fully addresses and assuages the legitimate concerns of the applicants for the acquisition order, identified in the notice. Thus, in a context other than breach, a step that rectifies an ongoing failure by the landlord to do something, but does not demonstrate that he has changed his ways or is likely to co-operate in future, may not be a "remedy".
37. Significantly, in my judgment, section 27(2)(b) requires that if paragraph (d) is applicable, the notice shall also state that the lessees will not make an application if the landlord complies with the requirements specified pursuant to that paragraph. This makes perfect sense where the only complaint is of an ongoing breach or breaches of covenants in the lease. It makes less sense in the context of s.29(3) where the applicants' grievances are less likely to be answered by the landlord belatedly doing something he should have done months (or, as in the present case, years) previously, particularly if all the circumstances indicate he is likely to continue to be obstructive and litigious.
38. The situation that Section 27 does not appear to address, at least expressly, is what happens where the applicants rely on a variety of matters, some of which are remediable, others of which are not. That scenario is very likely to arise in a Section 29(3) case but it may also arise in a s.29(2) case if some of the breaches are irremediable. Mr Warwick's argument is that s.28, which precludes an application for an acquisition order from being made until after the reasonable period specified pursuant to s.27(2)(d) has expired, unless that paragraph is not applicable, would be redundant if the Judge's approach were correct. He submitted that Section 28(2)(a)(ii) would only apply if all of the grounds/matters were incapable of being remedied. Thus it is a logical part of his argument that if only one matter complained of is capable of remedy, the landlord must be given the opportunity to remedy it within a reasonable period, and if he does so, the application cannot proceed, even if there are other grounds in the notice that are incapable of remedy and which would justify the making of an acquisition order. Presumably the lessees would have to serve a fresh notice or two separate notices to get round this problem.
39. It does not appear to me to accord with the nature of the statutory scheme that the lessees should be debarred from making their application if the "remediable matters" complained of are remedied within the reasonable time specified in the notice, but there are still other matters justifying the making of an order, which cannot be remedied – or if, notwithstanding any cure of some of the matters complained of, the overall situation has become so intolerable for the tenants that they should not be required to put up with it any longer, which is what the Judge decided in the present case. If Mr Warwick's argument were correct, however, that would be the necessary effect of the application of s.27(2)(b), which operates whenever s.27(2)(d) is engaged. In order to avoid the consequences to which I have referred, some violence would have to be done to the language of 27(2)(b) by interpreting it as requiring that the notice should specify that the application will not proceed in respect of those remediable matters identified in the notice that are remedied within the timescale set (thereby reserving the right to proceed in respect of the irremediable matters). The problem with that solution is that that is not what s.27(2)(b) says.
40. In my judgment, Section 27(2)(d) must be construed as meaning that where the only matters relied upon by the tenants for the purpose of establishing the grounds are capable of being remedied by the landlord, in the sense stated above, he should be given the opportunity of remedy and a reasonable time in which to do so. The requirement in Section 27(2)(b) that in a Section 27(2)(d) case, the tenants must promise not to proceed with their application if he remedies them within the stated time only makes sense in that context. In other words, Section 27(2)(b) is only applicable if the grounds on which the application is made depend solely on matters that are susceptible of remedy. This construction of Section 27(2)(d) does no violence to the language, since "those matters" is a reference back to "the matters that would be relied on by the lessees for the purpose of establishing those grounds" in Section 27(2)(c). It is more natural to construe "the matters that would be relied on" as meaning "all the matters that would be relied on" rather than "any one or more of the matters that would be relied on".
41. In practical terms this means that Section 27(2)(d) is most likely to be applicable in a Section 29(2) case, though it is theoretically possible that there may be a Section 29(3) case in which all the matters complained of are susceptible of remedy. However, if the case is a Section 29(3) case where the applicants are relying on a mixture of reasons, and their problems with the landlord are plainly not going to be cured by addressing those matters (if any) that are remediable, in my judgment Section 27(2)(d) is inapplicable and Section 28(2)(a)(ii) comes into play.
42. Whilst it would obviously be good practice for the notice to make it clear that the applicants contended that the matters they relied on were incapable of remedy, there is nothing in the statute to require it. Indeed, if a notice does not go on to specify the steps that must be taken to remedy the breaches and a reasonable time for doing so, it must be a necessary inference from the absence of such information that the applicants are contending that the matters are incapable of remedy (or that at least some of them are).
43. What, then, should the "grounds" and "matters" be in a case such as the present, where the applicants are relying on the gateway under s.29(3)? Since the purpose of the notice is to give the Landlord fair warning of the reasons why it is going to be contended that the Court should exercise its discretion in favour of making the Order, and of the facts alleged in support of the application, it is unlikely to be enough for the Notice simply to record the fact that a manager has been appointed for more than two years by reason of acts or omissions of the landlord. In such a case, the real reason why the lessees would be seeking an acquisition order is that the appointment of the manager under Part II has not been enough to address or cure the problems that they have been experiencing with the landlord. The notice would need to explain why that was, and spell out the nature of any ongoing difficulties.
44. The notice in the present case does so. It sets out a number of complaints in sufficient detail for Mr Goodman and Arrowgame to be able to address them. The applicants were not required to include a requirement that Arrowgame remedy any of the matters complained of within a specified reasonable period; still less were they required to state in the notice that if Arrowgame did so, they would not proceed with the application. It follows that I agree with the Judge that the notice was valid.
45. Because of the requirements of Section 27(2)(b), I would have found it difficult to accede to Mr Radevsky's fall-back argument that the Court could simply blue-pencil the offending aspects of a s.27 notice that wrongly characterised a remediable matter as irremediable. The cure for that, it seems to me, would be for the Court to exercise its discretion under s.29(6)(b) in an appropriate case.
46. My construction of s.27 and my answer to the first issue means that the second issue I have identified does not strictly arise. Nevertheless, as I heard argument on it, I consider that I should express a view. Although there is a degree of ambiguity about the way in which he expressed himself, it seems to me that Mr Warwick is right that in paragraph 17 of the Judgment, the Judge was not purporting to exercise his discretion under section 29(6)(b), but simply giving a strong indication that he would have done so had he considered that there was any merit in the argument that the notice was invalid. The fact that he gave no further reasons, and that he declined to consider the terms of the relevant statutory provisions in any further detail, are consistent with this.
47. The question that therefore arises is whether I should decide that if, for any reason, I am wrong about the validity of the notice, I should exercise that discretion myself. Mr Warwick submitted that I had no power to do so, and that if the notice were invalid, the only course would be to remit the matter to the Judge. That would not be a satisfactory state of affairs, particularly since Judge Cowell has now retired. Fortunately Mr Warwick's submission is incorrect. Even though this appeal is by way of review and not re-hearing, the appellate court has all the powers of the lower court (CPR 52.10(1)). I agree with Mr Radevsky that if this court considers that it has sufficient material before it to exercise its discretion under section 29(6)(b) it may do so.
48. In my judgment, even if Mr Warwick were right and the notice served under s.27 was deficient, this is a paradigm example of a case in which the Court should exercise its statutory discretion to make an acquisition order notwithstanding those deficiencies, if the circumstances of the case are such that it would otherwise be appropriate to make such an order. The notice in this case served the purpose that Parliament intended such notices to serve. It spells out in great detail exactly what the applicants are complaining about and why they are seeking an acquisition order. Arrowgame and Mr Goodman had no difficulty in comprehending the case they had to meet, and they put up a defence to it – indeed the Judge did not find all the grounds of complaint were made out, though the majority were. The notice was also given in sufficient time to enable Arrowgame to address any matters of complaint that it considered to be remediable, though the Judge was right to take the view that belated remedial action did not suffice to meet the thrust of the case against it. For example, one of the applicants' complaints was not so much about the failure of Arrowgame to supply Mr Maunder Taylor with the books and records within 14 days as directed by the LVT, as about the fact that it took over four years for it to do so. That was indicative of an obstructive attitude that the belated "remedy" did nothing to cure.
49. Thus if the only obstacle to granting the relief sought were a failure to comply with a requirement of s.27(2), no prejudice has been caused by that failure and in my judgment it should not act as a bar to the grant of such relief. Accordingly if I am wrong in my interpretation of s.27(2), I exercise my power under s.29(6)(b) to enable the applicants to obtain the acquisition order notwithstanding the service of a deficient notice.
50. I turn next to the challenge to the exercise by the Judge of his discretion to make the acquisition order and his refusal to suspend it. I mean no disrespect to Mr Warwick when I state that it was not altogether clear to me which of the well-established (and narrow) grounds to the exercise of a judicial discretion was being invoked by Arrowgame. It is not open to the appellate court to interfere with the exercise of a judicial discretion on the basis that it would or might have exercised that discretion differently. It has to be established that the Judge took into account matters he ought not to have done, or failed to take into account matters that he should have done, or that he misdirected himself in law or made some other error of law, or that the discretion was exercised in a manner that no reasonable Judge properly directing himself could have exercised it.
51. Mr Warwick contended that an order made under s.29 is extreme and should rarely be granted. The Judge should have balanced the interests of the lessee and lessor and if there was any doubt, he should have refused to make the order. He submitted that the Judge directed himself too favourably to the applicants. I cannot accept that criticism. In paragraph 46 the Judge rightly directed himself that the word used in s.29 is "appropriate" and that is a more onerous test than simply "just and convenient", which is the threshold for the appointment of a manager. He therefore asked himself whether there was no real alternative to address the matters relied on in the notice other than the making of the acquisition order. That cannot be said to be setting the bar too low. Mr Warwick argued that this placed too much emphasis on the matters in the notice and not enough on the matters relied on by the Defendant; but that submission ignores the fact that this was only the starting point of the Judge's approach. In my judgment it was the correct starting point. The onus is on the applicants to establish that there are grounds for making the order and that it is "appropriate" to do so. If those grounds can be addressed by some steps short of an acquisition order then it would plainly be inappropriate to make one. If they cannot, then the Court still has to weigh up all the relevant factors before exercising its discretion. That is what the Judge did.
52. The Notice of Appeal suggests that the Judge was "wrong" to make the Order having regard to (a) the fact that nearly all the matters in the Notice had been remedied by the date of the trial and (b) the matters relied upon by the Defendant, particularly the acceptability to the Claimants of the existing management regime and the fact that the making of such an order would deprive Arrowgame of the opportunity of availing itself of the development value within its interest in the property. That comes perilously close to a contention that the decision should be reviewed on its merits. There is no basis for contending that the decision was one that the Judge was not entitled to reach after taking into consideration all the relevant factors.
53. The Judge did take into account all the relevant factors. As to the argument that almost all the matters complained of had been cured by the time the matter came to court, the Judge made it clear that this was not an answer, because the delay in addressing them was a legitimate concern (giving as an example, in paragraph 15 of his Judgment, the period of four years it took to comply with the order of the LVT to provide the books and records within 14 days). Having considered all the evidence the Judge found almost all the grounds had been established. Looking at the overall picture, as he put it in paragraph 48, "there has been obstruction and litigation conducted in a way that the claimants simply cannot be expected properly to put up with". He concluded that an acquisition order was the only remedy which could be given to them to remove Arrowgame and Mr Goodman from the scene.
54. As to the second point, the fact that the applicants were satisfied with Mr Maunder Taylor is recorded in paragraph 31 of the Judgment, but as the Judge goes on to explain, his appointment did not put an end to the difficulties that were experienced with Arrowgame and Mr Goodman. The Judge did take into account the fact that the Property had real development potential. He said so in terms, and he did give serious consideration to the evidence of Mr Underhill. Mr Radevsky submitted that he was under no obligation to have done so, since the development potential of the Property is a factor that is bound to come into play at the next stage, when the LVT fixes the consideration for the acquisition (assuming that the parties cannot agree on a value). Thus Mr Radevsky contended it is not a relevant factor at the stage of exercise of the judicial discretion to make the order in the first place.
55. Although it is undoubtedly true that the development potential will be a relevant consideration when fixing the market value, it would be wrong to regard it as wholly irrelevant at the stage of determining whether or not it is appropriate to make an acquisition order. True it is that if a landlord has behaved in a wholly inappropriate manner that would warrant his being deprived of his interest in the premises, it is hard to see how the development potential of the premises could in and of itself amount to a justification for refusing to make the order, particularly as that potential will be reflected in the level of compensation that he receives. A defendant's concerns about the ability or willingness of the LVT to fix compensation at an appropriate level is no reason to justify refusal to make an order that is otherwise warranted.
56. However, suppose the landlord had already completed a development of the property, and had undertaken obligations to third parties which might be adversely affected by an order requiring him to divest himself of his interest in the head lease? In that scenario surely it would be relevant to take those circumstances into consideration in deciding whether to make an order, and if so on what terms, or whether to suspend it.
57. For those reasons I do not accede to Mr Radevsky's argument that development potential is always an irrelevant factor at the stage of determining whether or not to make an acquisition order. However, this was not a case in which it would have been appropriate for the Court to conclude that the applicants should not have an order because the landlord decided it wanted to realise the development value and had taken steps very late in the day to start doing so. The development potential of the property was a factor to which the Judge was entitled to afford less weight than all the powerful factors adumbrated in his judgment pointing towards the making of an order. For those reasons there is no justification for the challenge to the exercise of the Judge's discretion to make the acquisition order. For the avoidance of doubt, I should make it clear that even if I had been satisfied that there were grounds for interference with the Judge's decision, I would have exercised my discretion in exactly the same way.
58. So far as the decision not to suspend the order is concerned, again I can see no justification for interference with the exercise of judicial discretion. There may well have been grounds for suspending the operation of the order for a limited period, if the court had been satisfied that the lessees would be able to take control of the management of the Property within that period, without any further obstruction or interference by Mr Goodman, by some means other than an acquisition order. However, on the evidence before him, including the very late evidence pertaining to Mr Underhill and Landgate, which the Judge plainly considered very carefully, that possibility seemed remote.
59. The Judge observed that it was highly impracticable to provide any sensible or obvious mechanism for making any kind of suspended order. On the basis of the material he had to consider, that observation was fully justified. The arrangements made between Arrowgame and Landgate occurred late in the day, and after the application for the acquisition order was already in train. Landgate is a single purpose company with no assets; the proposals for the development were extremely vague; the figures produced by Mr Underhill could not be substantiated; the agreement for the acquisition of Arrowgame's shares enabled Landgate to pull out at a moment's notice, and conferred no enforceable rights upon the lessees. As for Mr Underhill's preferred route of a sale of the head lease to Landgate, the Judge rightly concluded that the validity of the purported s.5 notices was clearly in doubt and invited litigation. The decision not to suspend the order was not only a decision that the Judge was entitled to reach on the material before him; I would go so far as to say that he would have had no justification for suspending it.
60. When the matter came before me, Mr Harrison on behalf of Landgate sought to persuade me to give Arrowgame an opportunity to enter into a fresh agreement with his client that would meet the criticisms levelled by the Judge. I was told that Landgate was prepared to meet the deficiencies in cl 50 of the existing agreement with Arrowgame, by offering undertakings to the Court to transfer the management of the Property to the lessees or a special purpose company controlled by them after the development had been completed and the new flats sold – but that could take years. As Mr Radevsky pointed out, there would also have to be an undertaking to sell the flats –but it was impossible to predict when, or indeed if, they would all be sold.
61. On Mr Underhill's evidence, planning permission was not sought until July 2012 – approximately 9 months after the judgment. There may be good reasons for this, but it does not inspire confidence that the proposed development would be completed in the reasonably foreseeable future, let alone that the flats would be sold. In the meantime there was no evidence that could satisfy the Court that the lessees would soon be rid of Mr Goodman. Since I have concluded that there is no basis for my interfering with the exercise of judicial discretion by the Judge below, I am not exercising a fresh discretion. However, for the avoidance of doubt, had I been doing so, I too would have refused to suspend the order. This is not a case in which the Court could be confident that the legitimate concerns of the lessees established at trial can be met by a reasonably practicable solution other than the immediate vesting of the head lease in them.
62. For all the foregoing reasons, this appeal is dismissed.