UPPER TRIBUNAL (LANDS CHAMBER)

UT Neutral citation number: [2013] UKUT 419 (LC)

UTLC Case Number: LRA/67/2011

 

TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

 

LEASEHOLD ENFRANCHISEMENT – late withdrawal of appeal – non-disclosure of facts rendering appeal redundant – costs – Tribunal Procedure (Upper Tribunal)(Lands Chamber) Rules 2010, rule 10(3)(b)

 

 

IN THE MATTER OF AN APPEAL FROM A DECISION OF THE

LEASEHOLD VALUATION TRIBUNAL FOR THE

SOUTHERN RENT ASSESSMENT PANEL   

 

 

BETWEEN MR PAVEL CURZON Appellant

 

and

 

LAWRENCE ROBIN HOBBS AND OTHERS Respondents

 

Re: 26 Warrior Square

St Leonards on Sea

East Sussex

TN37 6BS

 

 

Before: Martin Rodger QC, Deputy President

 

Sitting at: 43-45 Bedford Square, London WC1B 3AS

on 16 July 2013

 

 

Oriel Hinds, instructed by EMD Law LLP for the appellant

Stan Gallagher, instructed by Butters David Grey LLP for the respondents  

 

 

 

CROWN COPYRIGHT 2013

 

The following case is referred to in this decision:

 

Cawthorne v Hamden [2007] Ch 187

DECISION

Introduction

1. On 16 July 2013 the Tribunal sat to hear an appeal from a decision of the Leasehold Valuation Tribunal for the Southern Rent Assessment Panel (“the LVT”) given on 13 April 2011 concerning a claim for collective enfranchisement under Part I of the Leasehold Reform Housing and Urban Development Act 1993 (“the 1993 Act”) which had been commenced by a notice given as long ago as 17 November 2004.  At the conclusion of the hearing I delivered an oral decision, of which this is a written record.

2. At the commencement of the hearing Mr Hinds, counsel for the appellant, withdrew the appeal. This prompted Mr Gallagher, counsel for the respondents, to make an application for costs which is the subject of this decision.  I should make it clear that Mr Hinds had been instructed very shortly before the hearing and that, for reasons which I will explain, the course he elected to take at the hearing was the only one properly open to him in the circumstances.

The proceedings before the LVT

3. The proceedings concern a building at 26 Warrior Square, St Leonards- on-Sea, East Sussex, which comprises six self contained flats with a garage and a garden.  The respondents are the long leaseholders of four of the flats in the building. The appellant is the owner of the freehold and the respondents’ immediate landlord.  The appellant also occupies a flat on the first floor of the building which, until quite recently, was not subject to any lease but was held by the appellant in his capacity as freeholder of the building.

4. On 17 November 2004 the respondents gave notice under section 13 of the 1993 Act of their desire to acquire the freehold of the building.  They designated themselves as their own nominee purchaser by whom they wished to complete the acquisition.  An application to the LVT to determine the terms of acquisition was made by the respondents on 5 May 2005.

5. Terms of settlement were agreed between the parties on 27 July 2006.  It was agreed that on completion of the collective enfranchisement the appellant was entitled simultaneously to take back a lease of property comprising the first floor flat, the garage and the garden but the terms of that leaseback were not agreed.  The main issue concerned the terms of the leaseback and, in particular, whether it should include restrictions on the appellant’s ability to extend the flat into the space over an adjoining flat roof, or to carry out a redevelopment of the garage or the garden.

6. At a hearing on 5 December 2008 the parties invited the LVT to determine as a question of principle the extent of the nominee purchasers’ ability, as lessors, to control the future extension and redevelopment of the first floor flat. On 16 January 2009 the LVT rejected each of the respondents’ grounds for arguing that they should be entitled to prohibit development.  That determination ought to have enabled the parties to agree the leaseback terms.

7. Unfortunately, the LVT’s hope that terms would be agreed proved optimistic and a period of more than 12 months of inactivity followed. Eventually the LVT listed the application for a hearing on 7 January 2011, at which it made directions and warned that no further delays would be tolerated. Its directions required the appellant to respond to a travelling draft of the proposed leaseback and provided for a final hearing to take place on 25 March 2011.  The LVT warned that a failure by either party to comply with its directions may prejudice its case and, in particular, that any failure by the respondents might result in the dismissal of their application in its entirety.  The directions also required that all correspondence between either party and the LVT should be copied to the other party by post and by e-mail.

8. In preparation for the hearing on 25 March 2011 the appellant duly sent a marked-up version of the travelling draft by email to the LVT and to the respondents’ solicitors.  Unfortunately the appellant’s email to the respondents’ solicitors was either not successfully delivered or was diverted into spam; that problem was compounded by the appellant’s failure to comply with the LVT’s direction to send a further copy by post. Then, rather than chasing the appellant for his response to the travelling draft, the respondent’s solicitors corresponded with the LVT alone, informing it that they had heard nothing from the appellant and asserting that he was therefore in breach of the procedural directions. Unfortunately the respondents’ solicitors also ignored the LVT’s directions and failed to copy correspondence to the appellant.  For his part, having received no response to the mark up of the travelling draft which he had sent by e-mail, the appellant wrote to the LVT shortly before the hearing asking it to dismiss the application as it had previously threatened to do.  It was against that background of non-communication, for which both parties are to blame, that the hearing on 25 March 2011 went ahead without attendance by, or representation on behalf of, the appellant who was out of the country.

9. In a decision dated 13 April 2011 the LVT refused the appellant’s written request that the proceedings be dismissed, and accused him of failing to engage with the tribunal process in any meaningful way.  It rejected each of the appellant’s suggested modifications to the lease-back terms (of which there were many).

The appeal

10. The appellant was dissatisfied with the manner in which the proceedings had been conducted by the LVT and contended that, in the circumstances, its decisions to list the case at all and its refusal of an adjournment were unfair.  He applied unsuccessfully to the LVT for permission to appeal, but permission was granted by this Tribunal on the grounds that there had arguably been procedural unfairness.

11. The Appeal was originally listed to be heard in January 2013, but it was adjourned because no Judge was available to hear it. The appellant, who spends much of his time in Kenya on business, informed the Tribunal that he could not be sure of being available until July and the appeal was eventually re-listed to be heard on 16 July 2013.

12. On the morning of the appeal Mr Hinds attended on behalf of the appellant and withdrew the appeal.  He did so because, although the apparent purpose of the appeal was to procure a reconsideration of the disputed terms of the leaseback, the appellant had already and quite lawfully (so far as the scheme of the 1993 Act is concerned) availed himself of a self-help remedy.  It transpired at the hearing that on 8 October 2012 the appellant had granted to himself and his wife a new 999 year lease of the first floor flat for a premium of £500 on the same terms as had already been rejected by the LVT. The lease terms are more favourable to the Appellant than the terms ordered by the LVT; in particular the demise included the roof and air space above the ground floor flat and part of the garden which the LVT had considered went far beyond the premises to which the appellant was entitled; the new lease also includes a number of bespoke terms which the LVT had refused to incorporate on the grounds that they were unreasonable and unworkable.

13. Despite its divergence from the terms ordered by the LVT, the new lease granted by the appellant is accepted by Mr Gallagher, the respondents’ counsel, as being a valid lease which will bind the respondents when their acquisition of the freehold reversion is completed.  That concession by Mr Gallagher was made subject to any rights that the respondents may have either to have the new lease set aside as being an unlawful conspiracy to breach the terms of settlement referred to in paragraph 5 above, or to acquire the new lease if its grant was a relevant disposal for the purpose of the right of first refusal conferred by Part I of the Landlord and Tenant Act 1987.  Although the respondents had served their initial notice under the 1993 Act in November 2004 no steps had been taken by their solicitors to protect the notice by noting it against the appellant’s freehold title at the Land Registry, as contemplated by section 97(1) of the 1993 Act.  Had that step been taken it would not have prevented the grant of a new lease of the first floor flat, but it would probably have prevented the inclusion in such a lease of the air space and garden (see Hague: Leasehold Enfranchisement, 5^th edition, paragraph 25-15 n.121 and Cawthorne v Hamden [2007] Ch 187).

14. Mr Gallagher contended, and Mr Hinds acknowledged, that the grant of the new lease had rendered the appeal redundant.  Entitlement to a leaseback of a flat on the occasion of an acquisition under the 1993 Act arises only where, at the time of acquisition, the flat has no qualifying tenant or is occupied by a resident landlord (1993 Act, Schedule 9, paragraphs 5 and 6).  Neither of those conditions could now be satisfied in relation to the first floor flat because the lease was to qualifying tenants (the appellant and his wife), and they were not both the freeholder.  Mr Hinds therefore withdrew the appeal on that basis and because the appellant had already achieved all he could have hoped for by pursuing the appeal.

Costs

15. Although the appeal became redundant on the grant of the new lease on 8 October 2012, the facts which gave rise to that redundancy were not disclosed by the appellant until very shortly before the date fixed for the hearing of the appeal.  That fact prompted Mr Gallagher to make an application for the respondents’ costs of the appeal to be paid by the appellant.

16. The earliest hint that all was not as it appeared to be was contained in an email sent by the appellant to the respondents’ solicitors on 26 June 2013 which included the following: “as your clients have no prospect of granting a leaseback there is surely little merit in you opposing the forthcoming appeal”. Puzzled by this pregnant assertion the respondents’ solicitors asked for an explanation.  By letter sent on 1 July 2013 the appellant purported to explain: “I elected to transfer the freehold of the property. Your clients’ notice of enfranchisement is therefore now void”.

17. The respondents continued to prepare for the appeal while they investigated the suggestion that the freehold had been transferred, but a Land Registry search carried out on 4 July 2013 showed only that the appellant was still the registered proprietor.  On the same day the respondents registered a unilateral notice against the freehold title.  I was told by Mr Hinds that the freehold had been transferred by the appellant to his wife in January 2013 but, for reasons unexplained, had then been transferred back to the appellant.  What the Appellant said in his letter dated 1 July 2013 was therefore, at best, an incomplete and misleading account.

18. The respondents first became aware of the grant of the new lease when their solicitors received a copy of a letter from the appellant to the Tribunal on 4 July 2013, which stated:

“The Appellant has .....elected to transfer the freehold of the property, and accordingly the Appellant is of the view that the enfranchisement notice served by the respondents is now void. The Appellant has further granted a lease of the first floor flat. Accordingly the respondents have no remit to grant a leaseback”.

19. That letter informed the Tribunal and the respondents of the grant of the new lease some 9 months earlier; it was received 11 days before the date of the hearing.  Rather than offering to withdraw the appeal, the appellant invited the respondents to concede at that stage.  When the respondents did not do so the appellant provided a skeleton argument and bundle of documents for the appeal, neither of which mentioned the new lease, and instructed solicitors of his own, EMD Law LLP, who suggested that the refusal to concede was an act of vindictiveness.  They threatened to make an application for the costs of the appeal on the grounds that the hearing would be a waste of the Tribunal’s time and, interestingly, pointed out that the Tribunal now had a discretion to make an unlimited award of costs.

20. The researches of the appellant’s solicitors had correctly identified that the Tribunal’s jurisdiction to make awards of costs in appeals from the LVT has recently changed and is now found in rule 10(3)(b) of the Tribunal Procedure (Upper Tribunal)(Lands Chamber) Rules 2010 as amended by the Tribunal Procedure (Amendment No. 3) Rules 2013 (“the 2010 Rules”).  The appellant’s ambitious threat to seek his costs from the respondents was wisely not pursued by Mr Hinds, who has instead had to meet an application by the respondents for their costs.

21. Before 1^st July 2013, apart from wasted costs, and reimbursement of fees, the Tribunal’s power to award costs in an appeal against a decision of a leasehold valuation tribunal was restricted by rule 10(7)(c) to cases where the Tribunal considered that a party had acted unreasonably in bringing, defending or conducting the proceedings. The highest sum which the Tribunal could award in such a case was £500, which coincided with the upper limit of the costs jurisdiction of the LVT. The Tribunal’s new power, conferred by rule 10 of the 2010 Rules as amended, is free of the former financial limit but is still exercisable (on appeals from the leasehold valuation tribunal) and now the First-tier Tribunal of the Property Chamber only as a response to unreasonable behaviour in bringing, defending or conducting proceedings.

22. Rule 10 of the Tribunal Procedure (Amendment No. 3) Rules 2013 is a transitional provision designed to ensure that no unfairness is caused by the application of the 2010 Rules in their amended form to proceedings commenced before 1 July 2013.  It provides that:

“In proceedings which were started in the Lands Chamber of the Upper Tribunal before 1st July 2013, the Tribunal may give any direction to ensure that the proceedings are dealt with fairly and, in particular, may—

(a) apply any provision of the Tribunal Procedure (Upper Tribunal) (Lands Chamber) Rules 2010 which applied to the proceedings before 1st July 2013, and

(b) disapply any amendment made by these Rules.”

23. The effect of that transitional provision on the award of costs in cases such as this is to empower the Tribunal to treat itself as bound by the limit of £500 which applied to awards made before 1 July 2013. The purpose for which that power has been made available, and which must guide its exercise, is to ensure that proceedings are dealt with fairly. 

24. When considering whether a party has acted unreasonably in bringing, defending or conducting proceedings before the Tribunal, it is relevant to have in mind the overriding objective of the Tribunal’s own procedures, identified in rule 2(1) of the 2010 Rules, which is to enable the Tribunal to deal with cases fairly and justly; the concept of dealing fairly and justly with cases includes avoiding delay, so far as is compatible with proper consideration of the issues.  Rule 2(4) imposes an important obligation on parties to proceedings before the Tribunal by requiring that:

“Parties must –

(a) help the Tribunal to further the overriding objective; and

(b) co- operate with the Tribunal generally.”

25. Far from helping the Tribunal to further its over-riding objective or co-operating with the Tribunal, I am satisfied that the appellant has sought to manipulate the Tribunal’s procedure to his own advantage despite the fact that the appeal had become redundant. From reading the material he has prepared for the appeal, I have no doubt that the appellant knows his way around the 1993 Act. Nor have I any doubt that his objective since the service of the notice of claim in 2004 has been to delay the enfranchisement for as long as possible.  He has displayed skill and determination in doing so, although at times he has been assisted by the omission of the respondents’ solicitors to conduct the proceedings with the energy that the appellant’s tactics demanded.  The result has been four hearings before the LVT, at only one of which the appellant appeared or was represented, and four applications for permission to appeal to this Tribunal, only one of which was granted.

26. The grant of the new lease two months before the date originally scheduled for the hearing of the appeal was a step which the appellant was entitled to take, and cannot be held against him as itself amounting to unreasonable behaviour.  Nonetheless, I have no doubt that the appellant was well aware of the impact which the grant of the new lease would have on the appeal, at least at a practical level.  That is apparent from his letter of 4 July 2013 (written before he instructed solicitors) in which he pointed out to the Tribunal that he had granted a lease of the first floor flat and that “accordingly, the respondents have no remit to grant a leaseback”. Given that understanding by the appellant it is necessary to consider the significance of and reasons for his delay in informing the respondents and the Tribunal of the new circumstances which affected the appeal.

27. Had the appellant informed the respondents in October 2012 that he had granted the lease of the first floor flat the most likely outcome is that they would have applied to strike out the appeal, and would have asked the LVT to settle the terms of the transfer without making provision for a lease-back.  Had they done so these proceedings would have been completed many months earlier than they will now be and the resources of the respondents and of the Tribunal would not have been diverted to what had become a wholly academic appeal.

28. Mr Hinds limited himself to submitting that the appellant’s failure to notify the respondents of the grant of the new lease on the terms rejected by the LVT was an oversight on his part.  I am quite sure that it was no such thing, but rather that the appellant deliberately kept the new lease quiet for as long as possible to prolong the appeal and delay completion of the enfranchisement.  In my judgment that manner of conducting the proceedings was unreasonable and justifies an award of costs against the appellant.

29. If, as had originally been intended, the appeal had been heard before 1 July 2013 the Tribunal would have had no to power make an order for costs exceeding the former £500 limit. In those circumstances, and despite the behaviour of the appellant, I do not consider that it would be fair for the Tribunal to exercise the powers contained in the 2010 Rules as amended to make an unrestricted award of costs.  The Tribunal Procedure (Amendment No. 3) Rules 2013 were not laid before Parliament until 22 May 2013 and to make full use of them in this case would involve an unattractive retrospectivity which the transitional provisions in rule 10 were intended to avoid.  I therefore propose to exercise the power to award costs as if it were subject to the same restrictions as applied before 1 July 2013. 

 

Disposal

30. The appellant is therefore ordered to pay £500 towards the respondents’ costs of the appeal.  That will no doubt represent only a modest proportion of the costs incurred by the respondents since October 2012, when the appropriate course would have been for the appellant to have notified them of the grant of the new lease.

31. Regrettably these proceedings are not yet at an end.  Both parties agreed that it was necessary for the application under Part I of the 1993 Act to be remitted to the LVT for it to settle the form of transfer of the freehold of the property, and I so order.  

32. This written record of the decision delivered orally on 16 July has been compiled with the assistance of notes made by Counsel present at the hearing.  I am grateful to them both for their assistance.

 

Dated: 10 September 2013

 

 

Martin Rodger QC, Deputy President