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Cite as: [2015] UKUT 22 (LC)

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UPPER TRIBUNAL (LANDS CHAMBER)

UT Neutral citation number: [2015] UKUT 0022(LC)

LT Case Number: LRX/19/2014

TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

LANDLORD AND TENANT – appointment of manager – proper construction of order appointing the manager – whether First Tier Tribunal had jurisdiction to interpret the order – whether manager entitled to recover service charges from the lessor in respect of flats not let on long leases – First Tier Tribunal correctly held the manager was entitled to recovery service charges from the lessor pursuant to the order appointing him

IN THE MATTER OF AN APPEAL AGAINST A DECISION OF THE

FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY)

BETWEEN:

EAGLESHAM PROPERTIES LIMITED Appellant

and

LEASEHOLDERS OF FLATS 2, 3, 6, 7, 8 Respondents

AND 12 DRYSDALE DWELLINGS

Re: Drysdale Dwellings,

Dunn Street,

Hackney,

London E8 2DH

Before Her Honour Judge Alice Robinson

Sitting at: Royal Courts of Justice, Strand, London WC2A 2LL

8 January 2015

Philip Sissons instructed by Scott Cohen Solicitors for the Appellants

John Jeffrey in person for the Respondents

The following cases are referred to in this decision:

Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98, HL Maunder Taylor v Blaquiere [2002] EWCA Civ 1633

Cawsand Fort Management Co Ltd v Stafford [2007] EWCA Civ 1187

The following further cases were cited in argument:

EF Phillips & Sons Ltd v Clarke [1970] 1 Ch 322

DECISION

Introduction

1. This is an appeal against a decision of the Leasehold Valuation Tribunal for the London Rent Assessment Panel (“LVT”), now the First Tier Tribunal Property Chamber (Residential Property) (“FTT”) dated 4 June 2013. Permission to appeal was granted by the FTT on 4 September 2013.

2. I will return to the grounds of appeal in more detail but in summary the appeal raises two issues

(1) whether the LVT had jurisdiction to determine the proper construction of orders appointing a manager and, if so

(2) whether, properly construed, the orders permitted the manager to recover monies equivalent to service charges from the freehold owner of flats not let on long leases.

The Background

3. Eaglesham Properties Limited (“the appellant”) is the freehold owner of a block of 12 flats known as Drysdale Dwellings, Dunn Street, Hackney, London E8 2DH (“the Property”). Seven of the flats are let on long leases and five are retained by the appellant for letting on short term tenancies. I shall refer to the latter as the appellant’s flats. The respondents are the long lessees of 6 flats in the Property (flats 2, 3, 6, 7, 8 and 12).

4. For a number of years the respondents have been unhappy with the appellant’s management of the Property as a result of which they have made several applications for the appointment of a manager pursuant to s.24 of the Landlord and Tenant Act 1987 (“the 1987 Act”). On 24 June 2009 John Mortimer Property Management Limited (“the Manager”) was appointed manager and receiver of the Property for an interim period of 12 months. After expiry of that appointment, on 17 January 2011 the LVT purported to extend the appointment of the Manager until 24 June 2011. That extension was later overturned by the Tribunal on the grounds that, once the interim order had lapsed, there was no jurisdiction to extend the order. In the meantime the respondents had made a further free standing application for appointment of a manager as a result of which on 16 June 2011 the Manager was again appointed until 24 June 2012 or 28 days after determination of the appeal against the January 2011 management order.

5. On 8 February 2012 the Manager began proceedings in the county court against the appellant for recovery of ‘arrears of service charge’ and costs relating to the appellant’s flats. The appellant denied that it had any obligation to pay such service charges and on 4 January 2013 the Manager’s claim was stayed by the county court pending further directions and/or clarification by the LVT in relation to its order and the powers granted to the Manager.

6. In its decision dated 4 June 2013 the subject of this appeal the LVT had two sets of proceedings before it. First, an application by the Manager for rulings and further directions as to his powers under the June 2011 management order (LON/00AM/LVM/2011/0003) (“the Manager’s application”). Second, a further application by the respondents for the appointment of a manager and an application by them pursuant to s.27A of the 1987 Act for a determination as to the reasonableness of service charges levied by the appellant (LON/00AM/LAM/2013/0012) (“the lessee’s applications”).

7. The LVT dismissed the Manager’s application on the grounds that it did not have jurisdiction to determine the issues raised by it as to the ambit of the Manager’s powers. Applications for permission to appeal by the appellant against that aspect of the decision were refused by the FTT on 15 July 2013 and the Tribunal on 22 January 2014.

8. However, in the lessee’s applications, the LVT determined the issue raised as to the ambit of the Manager’s powers, in effect by way of preliminary issue. Having done so, the FTT went on to decide the substantive issues raised by those applications in a later decision dated 4 October 2013. In the meantime, on 4 September 2013 the FTT granted permission to appeal against its decision on the ambit of the Manager’s powers, stating

“…the tribunal’s conclusions on the proper construction of the management orders raise questions of law in respect of which the applicant’s point of view is perfectly arguable.”

On 22 January 2014 the Tribunal extended the time for serving notice of appeal.

The Lease

9. The Tribunal was informed that the long leases of the 7 flats in the Property are in similar form and that dated 6 October 1988 relating to flat 2 was relied upon. The Particulars set out the parties, premises, premium, rent, the term of 99 years and the ‘Tenant’s share of total expenditure’ as ‘One-twelfth’.

10. Clause 3 contains Tenant’s covenants with the Lessors alone. Clause 4 provides:

“4. THE Tenant HEREBY COVENANTS with the Lessors and with and for the benefit of the Flat Owners that throughout the term the Tenant will:-

…

(4) Pay the Interim Charge and the Service Charge at the times and in the manner provided in the Fifth Schedule hereto both such Charges to be recoverable in default as rent in arrear.”

The Flat Owners are defined in clause 1 as “the tenants and their successors in title of the other flats or maisonettes comprised in the Building who may from time to time hold the same upon terms substantially similar to those herein contained (save as to the matters set out in the Particulars).”

11. Clause 5 contains the Lessors’ covenants with the Tenant including:

“(2) That every lease or tenancy agreement of a flat or maisonette in the Building already granted or to be granted by the Lessors shall contain regulations and covenants to be observed by the Tenant thereof in similar terms to those contained in this Lease and during any period or periods during which no such lease or tenancy agreement subsists to comply themselves with the said regulations and covenants.”

Clause 5(5) contains covenants to repair and maintain, insure and other covenants relating to management of the Property. Clause 5(5)(l) contains a covenant to set aside a sinking fund to be held on trust to pay for future expenditure on repairs, maintenance and renewals.

12. The Fifth Schedule sets out detailed provision for payment of the Interim Charge and Service Charge to meet Total Expenditure incurred in carrying out the obligations in clause 5(5) of the lease. The Service Charge means the percentage of Total Expenditure specified in the Particulars, paragraph 1(2). Provision is made for service by the Lessors of a Certificate of Total Expenditure, the Interim Charge and Service Charge with any excess to be credited to the Tenant’s account and any shortfall to be paid within 28 days.

The Law

13. Section 21 of the 1987 Act gives a tenant the right to apply for the appointment of a manager subject to the requirements of that section. Provision is made for the service of notice on the landlord and then application to the FTT whose powers are set out in s.24 (so far as relevant):

“(1) The appropriate tribunal may, on an application for an order under this section, by order (whether interlocutory or final) appoint a manager to carry out in relation to any premises to which this Part applies—

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

(b) such functions of a receiver,

or both, as the tribunal thinks fit.

(2) The appropriate tribunal may only make an order under this section in the following circumstances, namely—

(a) where the tribunal is satisfied—

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

(ii) . . .

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

(ab) where the tribunal is satisfied—

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

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

(aba) where the tribunal is satisfied—

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

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

(abb) where the tribunal is satisfied—

(i) that there has been a failure to comply with a duty imposed by or by virtue of section 42 or 42A of this Act,”

Interposing, this is a requirement for service charges to be held on trust in a designated account

“and

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

(ac) where the tribunal is satisfied—

(i) that any relevant person has failed to comply with any relevant provision of a [code of management practice], and

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

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

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

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

(b) such incidental or ancillary matters,

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

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

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

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

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

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

(6) Any such order may be granted subject to such conditions as the tribunal thinks fit…

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

14. The Landlord and Tenant Act 1985 (“the 1985 Act”) restricts the right to recover service charges to those which are reasonable which means:

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

(b) where they are incurred on the provision of services or the carrying out of works, only if the services or works are of a reasonable standard;” s.19(1)

15. Provision is made in s.27A of the 1985 Act for applications to the FTT to determine the issue of reasonableness:

“(1) An application may be made to the appropriate 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,

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

(e) the manner in which it is payable.”

The LVT decision

16. The LVT dealt first with the appellant’s argument that it did not have jurisdiction to issue any further directions or express any view on the effect of previous orders appointing a manager after they have expired. The LVT considered that s.24(4) of the 1987 Act is wide enough to permit an application by a manager to be made after the expiry of his appointment and that this was consistent with the relationship between the manager and the Tribunal described in Maunder Taylor v Blaquiere [2002] EWCA Civ 1633 at paragraph 41. The LVT concluded:

“30. In our judgment it is unnecessary, and would be anomalous, for the Tribunal to turn its back on a manager whom it has appointed and who seeks its assistance in understanding the scope and consequences of his appointment or in dealing with a situation which has arisen out of his appointment after it has come to an end. There is nothing in the language or purpose of Part II of the 1987 Act which requires or entitles the Tribunal to treat the expiry of the appointment as a guillotine terminating the relationship for all purposes.”

17. The LVT continued that it was not prevented from reaching that view by virtue of the Tribunal’s decision overturning the January 2011 order appointing a manager. The decision then states:

“33. The questions on which the Manager (and the county court) seeks the assistance of the Tribunal concern the proper interpretation of the Tribunal’s orders and the validity of the steps taken by him pursuant, as he understood it, to those orders. It would, in our view, be perfectly legitimate for a manager to seek assistance of that sort during the period of his appointment, and Mr Sandham did not argue otherwise. Once a Manager’s appointment has been completed the position may be different, depending on the purpose for which the assistance of the Tribunal is sought.

34.Where there is a live issue before the Tribunal which raises a question of construction of an earlier order, it is clearly within the power of the Tribunal to interpret its earlier order as a step to determining that issue. One example might be where a challenge is made under section 27A of the 1985 Act to the recovery through the service charges of costs incurred by a manager. Where the manager’s appointment had lapsed by the time the challenge is made, and where the challenge raises issues of the scope of the manager’s powers to incur the disputed costs, it would obviously be necessary for the Tribunal to rule on the extent of those powers; the fact that the appointment itself had lapsed would not be an obstacle to that exercise.

35.Where there is no live question before the Tribunal which depends on the interpretation of its earlier orders, we agree with Mr Sandham that the Tribunal has no jurisdiction to interpret those orders. The Tribunal’s job is done. In particular the Tribunal cannot act as a consultant or sub-contractor to another judicial decision maker. If an issue arises before another court which turns on the interpretation of the order, the task of interpretation should be undertaken by the court in which the issue arises and not by this Tribunal. An expression of opinion by this Tribunal would not be determinative, and it might be thought that in those circumstances, the opinion would best be left unexpressed.

36. The situation in which the Tribunal finds itself is not so neatly divided. The scope of the earlier orders is a live issue with potentially significant consequences in the leaseholder’s applications. In the Manager’s own application the same issue is free standing; it comes before us because of a request by the county court for clarification in the context of proceedings in which this Tribunal has no judicial function. If the Manager’s own application stood alone, it would be difficult for this Tribunal to express any view, despite the request of the county court. We could be accused of usurping the functions of the county court in the case before it.

37. Fortuitously, as we see it, the same issue arises in all three applications. There is no reason why, having heard all of the argument, we should not make a decision on the issue of interpretation in the context of the leaseholder’s applications. The Manager is not a party to those applications, so no question of issue estoppel or res judicata would arise between the Manager and Eaglesham. It will remain open to the county court to from its own view in the proceedings before it, giving such weight as it thinks appropriate to the conclusions this Tribunal has expressed on the same issue.

38. For these reasons we determine that the Tribunal does have jurisdiction to consider the Manager’s application for clarification of the previous orders, albeit only in the leaseholders’ applications and not in the Manager’s. We reach that conclusion with some relief, the Tribunal and the parties having expended significant time and resources in arguing the substantive issue before us. Both Mr Mortimer and Mr Jeffrey were understandably baffled by the jurisdictional arguments into which the hearing descended. It would be no service to them, or to Eaglesham, for this Tribunal to require that they go through the same experience for a second time.”

18. The LVT went on to refer to the terms of the leases and in paragraphs 45 to 52 held that, as between the appellant and the lessees, clause 5(2) required the appellant to hand over money representing its contribution towards the Interim Charge and Services charge in respect of the appellant’s flats. It concluded:

“52. The effect of clause 5(2) of the Lease is therefore to make Eaglesham liable to contribute for each of its flats on the same basis in every respect as if it was a leaseholder subject to the same terms as the other leaseholders….”

19. It should be noted that there is no appeal against this aspect of the LVT decision and it was confirmed on behalf of the appellant at the hearing before me that the LVT’s decision in paragraphs 45 to 52 is accepted by the appellant.

20. The LVT then turned to the key issue as to the proper interpretation of the management orders. After referring to the terms of the orders and the parties submissions, the decision sets out the LVTs reasoning in the following paragraphs:

“60. We approach the question of the effect of the management orders as a question of construction or interpretation. Our task is to explain what the orders means, and not to supplement or improve them.

61. We begin by making the assumption that the management orders were intended to be effective, and were intended to confer on the Manager’s sufficient powers to enable him to discharge the responsibilities which the Tribunal placed on him. It is of course possible that the orders were defective, as Mr Sandham submits, but if they are capable of a sensible reading which avoids the effect which Eaglesham invites us to give on them, we ought, we believe, to read them in that way.

62. We are satisfied that the natural and proper reading of each of the management orders permits the Manager to enforce Eaglesham’s obligations to contribute to the service charge as if it were the lessee of each of its in-hand flats. We reach that conclusion by two alternative routes.

63. First, we are satisfied that the over arching direction to the Manager in paragraph 5 of the 2009 order is sufficient to confer on him all of the powers he requires. That direction is that the Manager must “carry out the management obligations of Drysdale Dwellings in accordance with the provisions of the Leases and in particular and without prejudice to the generality of the foregoing:...[There is then set out a list of specific duties and powers including to observe Eaglesham’s covenants and to enforce the covenants of the lessees]. When the leases were drafted no provision was made for a manager, so the reference to “management obligations” being carried out “in accordance with the provisions of the Leases” is clearly intended to confer on the Manager a general responsibility to ensure that the Building is run in the manner contemplated by the leases. A necessary corollary of that general responsibility is the power to ensure that all parties comply with their obligations under the leases including, in the case of Eaglesham, its obligation to contribute five twelfths of the cost of providing the services.

64. A similar over arching direction, with the same consequence, can be found in paragraph 3 of the order of 17 January 2011 where the Manager is tasked with managing the property in accordance with “the respective obligations of the landlord.” Those obligations include the obligation to contribute five twelfths of the cost of services.

65. Alternatively, we consider that it is both legitimate and necessary to construe the management orders in the light of clause 5(2) of the leases. Whenever a flat is not subject to a lease imposing the standard regulations and covenants clause 5(2) imposes an obligation on Eaglesham “to comply themselves with the same regulations and covenants” Thus the leases treat Eaglesham as if it were the lessee of the un-leased flats, and the management orders ought to be construed in the same way. Where the orders refer to the obligation of the lessees they are to be construed, so far as is necessary to give effect to the purpose of the orders, as including the obligations of Eaglesham as deemed lessee of the flats it has chosen not to lease on the standard terms. Thus the instruction to the Manager in paragraph 3 of the 2009 order to collect all the various funds reserved and made payable by the Lessees in the respective Leases of the flats in the property, includes those sums which the clause 5(2) of the leases make payable by Eaglesham as if it were the lessee of the un-leased flats. Similarly the obligation imposed on the Manager by paragraph 5.h of the 2009 order to “enforce the Lessee’s covenants” empowers the Manager to enforce the covenant given by Eaglesham that it will comply with the standard lessee’s covenants in relation to the un-leased flats.

66. The same approach is appropriate when construing the January 2011 order. In particular, paragraph 2 of the Directions, which requires the Manager to “collect all the various funds reserved and payable by the Lessees… in the respective leases … of the flats” includes all of the sums which clause 5(2) makes payable by Eaglesham in its capacity as deemed lessee of the un-leased flats. Similarly, the power in paragraph ii of the service charge section of the Schedule of Functions and Services, to demand and collect service charges and other payment due from the lessees, includes sums due from Eaglesham in its capacity as deemed lessee of the five flats which it chooses not to lease.

Conclusion

67. We are therefore satisfied that the Manager was not only entitled, but was obliged by the orders of the Tribunal, to demand Eaglesham’s service charge contributions for its five flats and, when Eaglesham refused to pay, to instruct solicitors and commence proceedings for their recovery. That claim was properly expressed as one which arose under the Tribunal’s orders and by reference to the terms of the leases, in particular clause 5(2). The Manager’s appointment terminated on 24 June 2012, at which point he ceased to have any role in the management of Drysdale Dwellings. It was therefore open to him to discontinue the proceedings and to leave the leaseholders to enforce the obligations of Eaglesham, as they have now done by commencing their own applications in this Tribunal, putting the extent of those obligations in issue.”

The appeal

21. The appellant’s Statement of Case which was served with the Notice of Appeal contained five grounds of appeal. However, Mr Sissons, who appeared on behalf of the appellant, agreed that the grounds effectively raised two issues. First, whether the LVT had jurisdiction to determine the issue as to the proper construction of the management orders at the hearing which took place on 22 May 2013 that led to the decision dated 4 June 2013 the subject of this appeal (“the jurisdiction issue”). Second, whether the terms of the management orders entitled the Manager to recover from the appellant sums by way of contribution to the costs incurred in managing the Property i.e. the service charges which the appellant would otherwise be liable to the lessees to pay pursuant to clause 5(2) of the lease in respect of the appellant’s flats (“the construction issue”).

22. Mr Sissons submitted that it had been procedurally premature and unfair for the LVT to decide the construction issue when it did and that as a matter of law it did not have jurisdiction to do so at that stage of the proceedings.

23. There is no dispute that the Manager’s application was made on 26 February 2013 and was to be finally determined following the hearing on 22 May 2013. The lessees’ applications were made on 30 April 2013 and it had not been anticipated, at least before the hearing on 22 May 2013, that the LVT would do more than issue directions at that hearing in respect of the lessees’ applications.

24. Having decided that it did not have jurisdiction to determine the construction issue in the Manager’s application, Mr Sissons submitted that the LVT should not have gone on to finally decide that issue in the lessees’ applications instead of merely giving directions. He submitted that the appellant had not had an opportunity to make submissions or prepare a statement of case in the lessees’ applications addressing the relevance of the construction issue to those applications as opposed to its relevance to the Manager’s application which was fully argued. The LVT should, as a matter of basic procedural fairness, have declined to deal with that question before the appellant had had a proper opportunity to state its case as to the relevance of that issue to the lessees’ applications. Had it been given the opportunity to do so, the appellant would have submitted that the issue of the construction of the management orders was of no relevance to the lessees’ applications and that therefore the LVT had no jurisdiction to determine the point in relation to those applications.

25. If the LVT was entitled to determine the construction issue in the lessees’ applications, it reached the wrong answer. The Manager is a court appointed officer whose rights and obligations derive wholly from the order, not the leases of the 7 flats in the Property, see Maunder Taylor v Blaquiere at paragraphs 41 to 43. Therefore the manager’s powers must be set out clearly. The management orders fall to be construed objectively and it is not a legitimate part of the process of construction to improve upon the order or to correct deficiencies which must be the subject of an application for a variation, see Cawsand Fort Management Co Ltd v Stafford [2007] EWCA Civ 1187 at paragraph 35.

26. Mr Sissons submitted that although the June 2011 management order incorporates by reference the terms of the two previous management orders, neither of them contained any provision conferring an entitlement on the Manager to demand money from the appellant. The obligation to manage the Property cannot be construed so as to entitle the Manager to enforce a contractual obligation owed by the appellant to the lessees. Any right given to the Manager to enforce the lessees’ covenants cannot apply to enforcement of clause 5(2) because the appellant is not and never has been a lessee of the Property.

27. The LVT simply overlooked the need for the management orders to give the Manager a power to enforce clause 5(2) of the leases and it was not open to the LVT to correct that error by a process of construction.

28. Mr Jeffrey supported the LVT decision and said it should be upheld for the reasons given in the decision. In practice all the necessary information for the LVT to take a decision was available and the applicant was aware of the lessees application and grounds for them.

29. The intention of the management orders was for the Manager to manage the Property and rectify the breaches caused by the appellant’s neglect. No sensible person could think that the orders would enable the appellant not to contribute its share of the service charges for the appellant’s flats. If the appellant’s construction was correct, the Manager would be unable to function as a manager.

30. Further, by the time the January 2011 management order was made, the appellant was refusing to pay its share of the service charges to the Manager which was one of the grounds on which the order was made. He also asserted that at the hearing which led to that order being made the appellant’s representative cited the wording of the June 2009 management order as the reason for non-payment. Accordingly the LVT was well aware of those issues and must have believed that the wording of the management order was sufficient to allow the Manager to recover the appellant’s service charge contributions.

31. Mr Jeffrey believed that this was yet another attempt by the appellant to evade its responsibilities under the leases towards management of the Property. Despite the fact that the appellant asserted the January 2011 management order was invalid, it did not pay its service charge contribution to its own agents during this period. In fact, it did not pay its outstanding contributions until shortly before the substantive hearing of the lessees’ application for the further appointment of a manager in September 2013.

Decision – the jurisdiction issue

32. The appellant’s arguments on this issue are twofold. First, it is said that the appellant’s did not have notice before the hearing on 22 May 2013 that the LVT was going to determine the construction issue in the lessees’ applications at that stage. Therefore to do so was unfair because it prevented the appellant from putting forward its case. Second, if the appellant had been given notice that the LVT were considering the construction issue in the lessee’s applications, it would have submitted that the LVT had no jurisdiction to do so.

33. The sequence of events which led up to the LVT hearing of the lessees’ applications on 22 May 2013 and its decision to decide the jurisdiction issue on those applications is set out in paragraphs 16 to 20 of the decision:

“16. Shortly before the hearing of the Manager’s application, on 30 April 2013, Mr Jeffery and the leaseholders issued their applications for the appointment of a new manager under section 24 of the Landlord and Tenant Act 1987, and for determinations relating to service charges under section 27A of the Landlord and Tenant Act 1987.

17. The Tribunal informed the parties on 19 April (at a time when the further applications by Mr Jeffery and the other leaseholders had been intimated but not issued) that those applications would be considered at the hearing before us, but that we were likely to be able to deal with them substantively. When the hearing commenced we stated that our consideration of the further applications would be likely to be limited to giving directions.

18. In the event the scope of the further applications was considered in some detail in the course of the hearing. As a result of the submissions made by the parties, and on reflection, it became apparent to the Tribunal that there was some significant overlap between the questions raised in the original application brought by the Manager and the issues raised in the latest applications. In particular, it is part of the leaseholders’ case under section 24 that Eaglesham has not paid its contributions to the service charge account between June 2009 and June 2012 (the period of the Manager’s involvement) and that that failure was a breach of Eaglesham’s obligations under their leases and therefore a ground for the appointment of a manager. Eaglesham also indicated that it would challenge some of the professional fees included in the service charge, since these related to the costs of the legal proceedings brought by the manager in the County Court which, it is said, the Manager had no power to bring.

19. The basic question before the Tribunal concerns the scope of the Manager’s powers and duties under its earlier orders. Was it open to the Manager to require Eaglesham to make a contribution to the service charge, and to commence proceedings when it refused to do so? That basic question arises in all three applications before us: the Manager’s application for directions, and the leaseholder’s applications for the appointment of another manager under section 24 and for the determination of service charge issues under section 27A.

20. The most fundamental submission of Mr Sandham was that the Tribunal did not have jurisdiction to issue any further directions to the Manager or to express any view on the effect of its previous orders. Those orders, he submitted, meant what they meant, and could not be varied or supplemented by this Tribunal. Mr Sandham agreed that it was open to the Tribunal, in appropriate circumstances, to explain what the orders meant, but where a question of interpretation arose in proceedings in the county court it was for the county court to undertake that exercise; any view expressed by this Tribunal would not be binding in the county court and so, he suggested, no view should be expressed. Having heard full argument on the scope of the Tribunal’s previous orders, which is very much in dispute between the parties, and having been specifically invited by the county court to clarify the effect of those orders, the Tribunal was reluctant to send the parties away empty handed and to leave them to repeat the same arguments once more in the county court.”

34. Thus the lessee’s applications had been issued only a short while before the hearing and there is no dispute that no statements of case had been served. At the start of the hearing both parties anticipated that the only steps which would be taken by the LVT at that stage of the lessees’ applications would be the giving of directions. Therefore it does appear that the appellant may have been taken by surprise by the LVT deciding the construction issue in the lessees’ applications in its decision dated 4 June 2013. There is no evidence as to whether the LVT members told the parties at the hearing that they proposed to take this course and for present purposes I assume that they did not.

35. However, whether the LVT’s decision was unfair for this reason depends on whether the appellant was in fact prejudiced by not being able to rely on further representations or evidence at that stage. The appellant was well aware that the LVT would decide the construction issue in the Manager’s application if it rejected the argument that it had no jurisdiction to do so. The appellant was able to and did make any submissions it wished to about the construction issue. Mr Sissons submits that was insufficient because the appellant was deprived of the opportunity to argue that the LVT had no jurisdiction to determine the construction issue in the lessees’ applications.

36. It could be said that whether the LVT had jurisdiction to determine the construction issue in the lessee’s applications was and is a question of law. Therefore the appellant has now had all the opportunity it requires to put its case on this issue to the Tribunal which thus cures any unfairness (subject to the question of costs). Mr Sissons submitted this was not correct because the LVT and now the Tribunal did not have the benefit of all of the factual information that would be necessary to decide whether there was jurisdiction to determine the construction issue in the lessee’s applications.

37. He submitted that whether the ambit of the Manager’s powers was relevant to the lessees’ applications could only be determined by going into all of the facts of the lessees’ application and in particular whether it was just and convenient to make an order appointing a manager. Put another way, the LVT had no jurisdiction to decide the construction issue unless and until it was necessary to do so as part of the ratio of its’ substantive decision on the lessees’ applications. He pointed to the fact that in its substantive decision dated 4 October 2013 on the lessees’ applications the LVT did not mention the management orders at all. Further, he submitted that the ambit of the Manager’s powers could not in any event be relevant to the lessees’ application to determine the reasonableness of service charges.

38. In my view this is to take an unduly narrow view of the powers of the LVT (and now FTT). There is no doubt that a main ground of the lessees’ application to appoint a manager was that the appellant had failed to pay its share of the service charges at any stage, including during the currency of the management orders. The appellant asserted that it was under no obligation to pay the Manager and Mr Sissons submitted that such non-payment could not be a breach of “any obligation owed by [the appellant] to the tenant under his tenancy” for the purposes of s.24(2)(a)(i) of the 1987 Act because it was not an obligation owed to the lessees. However, it is clear that s.24(2)(b) gives the FTT power to appoint a manager where it is satisfied that other circumstances exist which make it just and convenient for the order to be made. In my judgment, breach of an obligation owed to a previous court appointed manager could in principle be grounds for making a further management order as such “other circumstances”. Therefore, on the face of it and, as the LVT said in paragraph 18 of the decision, whether the appellant was required to pay service charges to the Manager was an issue that arose in the lessees’ application to appoint a manager.

39. At the time of the LVT hearing in May 2013 the appellant’s position was that it was not in breach of any obligation owed to the respondents actually to hand over any service charge monies (see paragraph 47 of the decision) nor did it owe any obligation to pay service charges to the Manager. The LVT determined both those issues against the appellant. Mr Sissons does not suggest that the LVT did not have jurisdiction to determine the former despite the fact that not all the facts were known as to whether it would be just and convenient to make the management order in the lessees’ application.

40. By the time of the substantive hearing in September 2013 the appellant had paid both sets of monies. That was one of the reasons the FTT gave for concluding that it was not just and convenient for a manager to be appointed, see paragraph 35. Thus the LVT’s decision dated 4 June 2013 on both those issues paved the way for the appellant’s success in the 4 October 2013 decision. The LVT having found against the appellant on those preliminary issues the appellant decided to pay the outstanding sums as a result of which those breaches had been remedied. In those circumstances it was not necessary for the FTT to go into the construction issue or non payment of service charges by the appellant to the Manager in its 4 October 2013 decision. If that point had not already been decided, in all likelihood the appellant would still have been asserting it had no obligation to pay service charges to the Manager and the FTT would have had to decide the point at the substantive hearing. Therefore the LVT’s decision on the construction issue was in fact relevant to the final decision whether or not to appoint a manager.

41. Further, as Mr Sissons was at pains to point out in his submissions on the construction issue, whether the appellant had an obligation to pay service charges to the Manager is a question of construction of the wording of the management order itself which forms “the entire basis of the manager’s functions and powers” (paragraph 27 of the appellant’s Skeleton Argument). This is a question of law. Mr Sissons was not able to point to any authority as to the correct approach towards construing a court order. He submitted that by analogy with the approach towards construction of a contract in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98, HL the management orders should be given the meaning which they would convey to a reasonable person having all the background knowledge which would reasonably have been available to the LVT at the date the management order was made, per Lord Hoffman at p.114. However, at no stage did he identify any evidence as to background knowledge available to the LVT when the management orders were made which the LVT was not aware of in June 2013 let alone any evidence that he said would have made a difference to its decision on the construction issue.

42. In my judgment, Mr Sissons submissions conflated two categories of decision which the LVT had to make in the lessees’ application for a manager. First, to resolve any issues of fact or law which may have arisen and second, in the light of the resolution of those issues, to decide whether it was just and convenient to make the order which is a question of judgment. Whether the appellant was under any duty to pay service charges to the Manager and, if so, whether the service charges had been paid fall into the first category. If an LVT (or FTT) considers that it would assist it and/or the parties to determine one or more issues of fact or law by way of preliminary issue before deciding others and the second ‘just and convenient’ issue, that is a matter for the LVT (or FTT). The LVT had power to regulate its own procedure including to give “any direction that appears to the tribunal necessary or desirable for securing the just, expeditious and economical disposal of proceedings”, rule 12(3)(a) of the Leasehold Valuation Tribunals (Procedure) (England) Regulations 2003 (SI 2003 No.2099). The Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 (SI 2013 No.1169) now make express provision for the FTT to order that an issue in the proceedings be dealt with as a preliminary issue, see rule 6(3)(g).

43. In my judgment the LVT was therefore right to decide that the construction issue was relevant to the lessees’ application for a manager and it had jurisdiction to determine that issue in the lessees’ application for a manager by way of a preliminary issue on 4 June 2013 in advance of the substantive decision on 4 October 2013.

44. I also consider that the LVT was correct to decide that the construction issue was relevant to the lessees’ s.27A application to determine the reasonableness of the service charges, see the last sentence of paragraph 18. That application specifically asked the LVT to take a decision on the costs associated with the Manager’s attempts to recover service charges from the appellant. In order to do so the LVT would have to decide whether they were payable and reasonable pursuant to sections 19 and 27A of the 1985 Act and it could not have done so without first deciding the construction issue. Indeed, when I asked Mr Sissons what practical purpose the appeal on the construction issue had now that the appellant had paid the service charges, he specifically mentioned those costs (see below). In the event for reasons I am unaware of, it does not appear that the FTT considered those costs in its decision dated 4 October 2013. However, that does not detract from the fact that whether those costs were payable was squarely raised on the face of the lessee’s S.27A application and therefore the LVT had jurisdiction to decide the construction issue in that application.

Decision – the construction issue

45. Given that the appellant has paid into the service charge fund all the service charges due under clause 5(2) of the lease, including those which fell to be paid during the operation of the management orders, I enquired at the beginning of the hearing as to why the appeal was not academic. Mr Sissons submitted that it was relevant for two reasons. First, the Tribunal’s decision would be persuasive in the county court claim by the Manager against the appellant for service charges and therefore would assist in deciding who should bear the legal costs of that action. Second, the Manager had included in the service charges a professional management fee relating to the recovery of service charges from the appellant. The appellant is liable to contribute to those fees in respect of the appellant’s flats. Whether the fees are payable and reasonable would depend on whether the Manager was in fact entitled to claim service charges from the appellant.

46. Despite the fact that the service charges have been paid by the appellant on a without prejudice basis Mr Sissons could not identify on what contingency they might be repayable and said the appellant did not intend to repay those monies to itself even if this appeal succeeded. After taking instructions Mr Sissons gave the Tribunal an undertaking on behalf of the appellant that, whether or not the appeal was successful, the appellant would not seek to recoup any sums paid by way of service charges in respect of any period during which the management orders were in force save the Manager’s professional fees mentioned above and save to the extent that any service charge was not reasonably and properly incurred.

47. In order to determine the construction issue it is necessary to refer to the terms of the management orders. The June 2011 order simply states that the appointment is “on the same terms and conditions as previous orders.” That assumes the previous orders were on the same terms. They were not but there is no suggestion of any relevant inconsistency.

48. Paragraph 1 of the June 2009 management order appoints the manager “for an interim period of 12 months with effect from 24 June 2009”. Paragraph 3 states:

“During the period of the appointment, the Manager shall collect all the various funds reserved and made payable by the Lessees (“the Lessees”) in the respective leases (“the Leases”) of the flats (“the Flats”) in the property including but not limited to:

a. Ground rent

b. Insurance rent

c. Service charges

d. And the arrears of any of the above”

49. Paragraph 4 refers to documentation and paragraph 5 states:

“During the period of appointment the Manager shall carry out the management obligations of Drysdale Dwellings in accordance with the provisions of the Leases and in particular without prejudice to the generality of the foregoing:…”

There follows a long list of management functions including establishing the current balance of the service charge and reserve fund, establishing an account for them, appointing accountants to prepare accounts, insuring the Property, arranging for surveys to be carried out and drawing up plans of work. The order continues:

“g. He shall observe the [Landlord’s] covenants under the Leases in respect of the flats in the property with regard to insurance, repairs, services and alterations to the property.

h. He shall enforce the Lessee’s covenants”

Provision is also made for the Manager to charge a fee.

50. The January 2011 management order was later found to be invalid, but as its terms were incorporated into the June 2011 management order by reference, its terms remain relevant. Paragraph 3 states:

“The Manager shall manage the Property in accordance with:

(a) The directions and schedule of functions attached to this order.

(b) The respective obligations of the landlord under the leases… and in particular with regard to repair, decoration, provision of services and insurance of the Property….”

51. Paragraph 2 of the Directions states that

“The Manager shall during the period of the appointment collect all the various funds reserved and payable by the Lessees (“the Lessees”) in the respective Leases (“the Leases”) of the flats (“the Flats”) and in the property including but not limited to (a) Ground Rent (b) Insurance (c) Service charges and (d) the arrears of any of the above. The Manager shall account forthwith to the Respondent for the payment of ground rent received by him and shall apply the remaining amounts received by him (other than those representing his fees) in the performance of the Respondent’s covenants in the said leases.”

52. Provision is again made for payment of a fee and the Manager is directed to maintain a service charge and reserve fund account, arrange for the preparation of accounts and to use existing reports on the Property to prepare a plan of work. The Schedule of Functions and Services requires (in summary) the Manager to insure the Property, administer the service charge and maintain the Property.

53. I have already identified the test which Mr Sissons submitted should be adopted towards construction of the orders (paragraph 41 above). However, he did not take issue with the test which the LVT set out for itself in paragraphs 60 to 62 of the decision. In summary this is that the object is to explain the orders, not to supplement or improve them, it is to be assumed that the orders were intended to be effective and if a sensible, natural and proper reading permits them to require the appellant to pay service charges to the Manager they should be read in that way.

54. Whichever approach is adopted, in my judgment the LVT correctly construed the orders as requiring the appellant to pay service charges to the Manager pursuant to clause 5(2) of the leases. In my view this is most clearly evident in the wording of paragraph 3 of the January 2011 management order. This requires the Manager to ‘manage the Property in accordance with the respective obligations of the landlord under the leases and in particular with regard to repair, decoration, provision of services and insurance of the Property’. The obligations of the landlord under the leases include clause 5(2) which itself plainly includes (as the LVT found) an obligation by the landlord to pay service charges in respect of the appellant’s flats. Service charges by definition relate to the ‘repair, decoration, provision of services and insurance’ of the Property.

55. That this is the correct construction is not surprising. In the LVT decision of 17 January 2011 which led to the making of the management order, attention was specifically drawn to an ambiguity in the June 2009 management order. This related to what would happen on expiry of the order rather than the construction issue but it shows the LVT were alive to the need for careful drafting. Further, the LVT’s reasons for making the order include this:

“We were also troubled by the failure of the Respondent to pay the proportion of service charges for the five properties owned by them…” paragraph 42

Thus, whether or not the appellant’s representative told the LVT that the reason service charges had not been paid was because they were not payable on the wording of the June 2009 management order, one reason the LVT made the management order in January 2011 was because the appellant was not paying service charges. It is to be expected therefore that the LVT would make an order the terms of which enabled the Manager to recover such monies from the appellant.

56. To the extent that the LVT was expressing a view to the contrary in its letter dated 27 July 2011, that was an informal opinion given 6 months after the order was made, it is not clear whether the chairman was the same as the one which sat on the panel that made the January 2011 management order and, significantly, it is clear that s/he was unaware of the terms of the lease.

57. Although the June 2009 management order may not be quite as clear in that it does not refer to ‘the obligations of the landlord’ in the same way, in my judgment it also requires the appellant to pay service charges to the manager. Paragraph 5 requires the Manager to carry out the management obligations of the Property ‘in accordance with the provisions of the Leases’ which is wide enough to embrace payment of service charges pursuant to clause 5(2). It is true that paragraphs 5g. and 5f. make specific provision for the Manager to observe the appellant’s covenants with regard to insurance, repairs, services and alterations and to enforce the lessee’s covenants but do not mention enforcement of the appellant’s covenant in clause 5(2). However, the obligation to manage in accordance with the provisions of the leases has to be read in the context of the order as a whole and its purpose.

58. The June 2009 management order contains detailed provisions the object of which is to ensure that the Property is insured, maintained, that steps are taken towards carrying out repair work, that service charges are paid and the service charge and reserve funds are properly administered. Clause 3, which empowers the Manager to collect ‘all the various funds reserved and made payable by the lessees in the respective leases of the flats in the property’, does not refer to only 7 flats and clearly envisages that service charges will be paid in respect of all the flats. Although the appellant is not a ‘lessee’, clause 5(2) imposes an obligation to comply with the lessees’ covenants i.e. that the appellant should stand in the shoes of the lessee for that purpose. Paragraph 2 of the Directions to the January 2011 order contains a similar provision.

59. As the court said in Cawsand Fort Management Co Ltd v Stafford at paragraph 34, the practical purpose of these provisions of the 1987 Act is

“to protect the interests of lessees of premises which form part of a building by enabling them to secure, through the flexible discretionary machinery of the appointment of a manager, the carrying out of the management functions which they are entitled to enjoy “in relation to” the premises of which their flats form part.”

Even though there is no evidence that in June 2009 the LVT was aware of the need to ensure the appellant paid its’ share of the service charges, the intention of the LVT was plainly to ensure that the Property was properly managed and that the management order was effective to achieve that. Mr Sissons frankly accepted that, on his client’s approach to construction of the management orders, management of the Property would be impossible. It is therefore to be expected that the LVT would make a management order the terms of enabled its purpose to be achieved rather than for its purpose to be entirely thwarted and as the LVT said (paragraph 61), if the management orders are sensibly capable of being read in such as was as to achieve their purpose, they should be read in that way.

60. For all these reasons, in my judgment the management orders can properly be construed so as to include an obligation by the appellant to pay service charges to the Manager in accordance with clause 5(2) of the leases.

61. Accordingly this appeal is dismissed.

62. This decision is final on all matters other than costs. The parties may now make submissions on costs and a letter giving directions for the exchange of submissions accompanies this decision. As agreed by both parties at the hearing, any such submissions must be made within 7 days. The parties attention is drawn to the restrictions as to the award of costs in rule 10 of The Tribunal Procedure (Upper Tribunal)(Lands Chamber) Rules 2010 as amended by The Tribunal Procedure (Amendment No. 3) Rules 2013.

Dated 16 January 2015

Her Honour Judge Alice Robinson