Cussens v Realreed Ltd

Last November HHJ Saggerson sitting in the Central London County Court heard two claims by a landlord for relief by way of a declaration that the defendant tenant was in breach of terms of her leases. It issued two proceedings because the tenant leased two flats, and the landlord made similar complaints in relation to each. On 21 November 2012 the Judge made orders, “1. That for the purposes of Section 168 of the Commonhold and Leasehold Reform Act 2002 it is hereby determined and declared that the Defendant is in breach of Clause 2 of Part A of the Fifth Schedule of the two leases that are the subject matter of these actions... 2. That the Defendant pay the Claimant’s costs of these actions on the standard basis subject to detailed assessment if not agreed”. The tenant appeals against his order by permission given by Foskett J on 6 March 2013 at an oral hearing after Males J had refused permission on the papers.

Section 168 of the Commonhold and Leasehold Reform Act 2002 (the “2002 Act”) is concerned with long residential leases, and is headed “No Forfeiture Notice Before Determination of Breach”. It requires a landlord under a long lease of a dwelling before serving notice under section 146 of the Law of Property Act 1925 to satisfy at least one of three conditions set out in sub-section 2, which provides as follows:

it has been finally determined on an application under subsection (4) that the breach has occurred,

the tenant has admitted the breach, or

a court in any proceedings, or an arbitral tribunal in proceedings pursuant to a post-dispute arbitration agreement, has finally determined that the breach has occurred”.

Sub-sections (4) and (5) concern applications to a leasehold valuation tribunal (“LVT”) and provide as follows:

A landlord under a long lease of a dwelling may make an application to a [LVT] for a determination that a breach of a covenant or condition in the lease has occurred.

But a landlord may not make an application under subsection (4) in respect of a matter which -

The leases are both of flats in a block called Chelsea Cloisters, London SW1. They are dated 4 May 1988 and 21 July 1989. The tenant is not the original lessee under either lease. The landlord is the original lessor under the second lease but not the earlier one. Both leases provide that “No Apartment may be used for any unlawful or immoral purpose and the Lessee shall not do any act or thing that may be or become a nuisance disturbance damage annoyance or misery to the Landlord or the occupiers of any other part of Chelsea Cloisters” In his judgment the Judge said this about his jurisdiction to make the orders:

“The declaration sought is actually an application for a determination that a breach of a covenant or condition in each of the respective leases has occurred, pursuant to section 168(4) of the Commonhold and Leasehold Reform Act 2002. That being a necessary precursor to the service of notice under section 146 of the Law of Property Act 1925 and proceedings for forfeiture of the leasehold interest held by the tenant.

It is accepted that this court has jurisdiction to hear these matters, notwithstanding the reference in section 168(4) to the LVT. Although the defendant’s costs position has been reserved in light of the claimant’s choice to use the courts facilities to resolve the issues between the parties rather than the [LVT].”

He went on to find that the two flats had, when sub-let, been used for prostitution, that the leases imposed on the tenant absolute obligations that they should not be, and that therefore in the case of each lease the tenant was in breach of her covenant.

In the notice of appeal the tenant stated that she wished to appeal against “(1) The finding that there was sufficient admissible evidence to hold that [one of the flats] was being used in breach of the terms of the lease. (2) The decision to award costs to the claimant on the standard basis”. Grounds of appeal were attached to the notice, and they were that the Judge “incorrectly ruled that the County Court could hear an application for a “declaration” by [the landlord] under section 168(4)” of the 2002 Act; and that the Judge “incorrectly ruled that notwithstanding the statutory language of schedule 12 to the Act, he was entitled to follow the normal rule of awarding costs on a standard basis to the successful party... even though a land (sic) valuation tribunal designated to hear such applications under section 168(4) of the Act had no such power”.

There is nothing in the complaint that there was not sufficient admissible evidence to hold that one of the flats was being used in breach of the terms of the lease. The Judge heard sufficient evidence to properly to satisfy him that it was being used for prostitution from two police officers, Inspector Flynn and Sergeant Aspinwall, and from Mr. Culling, another leaseholder in the block. It was effectively unchallenged. Once it was accepted, it followed that the flat was used for immoral purposes and that the tenant was in breach of the absolute obligation of the lease that it should not be so used. Males J so held when initially refusing permission to appeal and, if not formally abandoned, that point is not pursued.

The challenge to the costs order reflects an argument based on schedule 12 of the 2002 Act, which is about procedure before LVTs. Paragraph 10 of the schedule concerns costs of proceedings before a LVT and is as follows:

“(1)

A leasehold valuation tribunal may determine that a party to proceedings shall pay the costs incurred by another party in connection with the proceedings in any circumstances falling within sub-paragraph (2).

(2)

The circumstances are where -

(a)

he has made an application to the leasehold valuation tribunal which is dismissed in accordance with regulations made by virtue of paragraph 7, or

(b)

he has, in the opinion of the leasehold valuation tribunal, acted frivolously, vexatiously, abusively, disruptively or otherwise unreasonably in connection with the proceedings.

(3)

The amount which a party to proceedings may be ordered to pay in the proceedings by a determination under this paragraph shall not exceed -

(a)

£500, or

(b)

such other amount as may be specified in procedure regulations.

(4)

A person shall not be required to pay costs incurred by another person in connection with proceedings before a leasehold valuation tribunal except by a determination under this paragraph or in accordance with provision made by any enactment other than this paragraph.”

It was argued that the Judge should have recognised that the 2002 Act contemplates that proceedings of this kind should be subjected to this costs regime, whereby costs are awarded only in limited circumstances and in a limited amount. That argument was rejected by the Judge. He said this:

Implicit in this reasoning is that the County Court had jurisdiction to make declarations of the kind made by the Judge. Males J dealt with the question of jurisdiction by saying it was “far too late” for the tenant to challenge the County Court jurisdiction. Foskett J, who has provided a note about his ruling although a transcript of the hearing is not available, apparently observed that the Judge could hear the cases under “the ordinary County Court jurisdiction”.

That is not what the Judge purported to do. He considered that he had jurisdiction conferred by section 168(4) of the 2002 Act. I cannot accept that. Mr. Jonathan Seitler QC, who represented the landlord, argued that “given that the subsection is permissive, stating that the proceedings “may” be brought before the Leasehold Valuation Tribunal, it cannot be interpreted so as to deprive other courts, including the County Court, of a parallel jurisdiction to make a determination”; and he cited in support of this argument Phillips v Francis [2010] 2 EGLR 31, in particular at paragraph 7. I agree with his submission of far as it goes, but it does not answer the point. The question is not whether section 168(4) removes from the County Court jurisdiction that it would otherwise have, but whether there is jurisdiction in the first place. In Phillips v Francis, which concerned the jurisdiction of LVTs under section 27A of the 2002 Act to determine whether a service charge is payable, the proceedings were in the High Court which has inherent jurisdiction, unless statue provides otherwise. Here the position is different.

Initially Mr. Seitler argued before me that section 168(2) confers on county courts jurisdiction to make determinations of this kind. He said that section 168(2)(c) contemplates that an application for a determination can be made to any court, and, as I understood his submission, it impliedly confers such jurisdiction on all courts. I do not accept that section 168(2) does do so either implicitly or otherwise. That is not the natural reading of the section, and the implication of it (I observe by way of reductio ad absurdum) is that applications might be made to magistrates courts or crown courts.

The section contemplates firstly that the determination required before notice of forfeiture may be made on application to the LVT. Unsurprisingly the 2002 Act recognises that this protection for the tenant is not necessary in two circumstances: where the tenant has admitted his breach, and where a court has determined that there has been a breach and so any question about that has been resolved and is res judicata (or it has been resolved by a competent arbitral tribunal with jurisdiction under a postdispute arbitration agreement). It does not follow that section 168 contemplates that proceedings may be brought in the County Court simply for the purposes of obtaining a determination. Section 168(2)(c) could simply cover cases in which it has been determined that a breach has occurred: for example, in proceedings brought by a landlord for damages for breach of covenant, or an injunction to restrain it, or proceedings by a tenant for a declaration that a planned user of the demised premises would be lawful. Such an interpretation is consistent with the use of the word “determination” in section 168(2)(c), and it might be said that the structure of subsection (2) (placing the standard procedure in a subsection (a), followed by the qualifications to it) lends some support to the view that the statue contemplated that prima facie determinations would be made by LVTs. However that might be, I cannot accept that section 168(2) confers on the County Courts jurisdiction to make such determinations.

However Mr. Seitler had a second argument: that county courts have jurisdiction under what Foskett J surely had in mind when he referred to the “ordinary” county court jurisdiction. Under section 15 of the 1984 Act County Courts may hear “any action founded on contract ...”. Mr Seitler submitted that these proceedings are “founded on contract”, even though there was no privity of contract between the landlord and the tenant. I accept that submission. A lease is, of course, a contract. Sections 78 and 79 of the Law of Property Act 1925 (the “1925 Act”) provide that covenants in leases, if they are covenants “related to any land” of the covenantee or, as the case might be, the covenantor, are deemed to be made with or on behalf of persons deriving title from them. A landlord is entitled to enforce a tenant’s covenants: section 141 of the 1925 Act. This, it seems to me, means that proceedings of this kind brought by a landlord against a tenant between whom there is privity of estate are “founded on contract” within the meaning of section 15.

This conclusion is supported by authority. In Hutchings v Islington LBC, [1998] 1 W.L.R. 1629 the Court of Appeal considered a case about pension rights in which the judge at first instance had concluded that the county court had no jurisdiction to hear the claim because it was not founded on contract under section 15. The Court of Appeal allowed the appeal, holding that, even if the pension rights were statutory in nature, the claimant’s entitlement and so his claim arose from, or was “founded on”, his contract of employment. Evans LJ said this (at p,1637D):

“ .... My reasons shortly are these: (1) the parties, correctly in my view, treated the issue as arising from the terms of the contract of employment: and (2) even if the plaintiffs pension rights under the scheme strictly should be categorised as statutory, nevertheless he enjoys them by virtue of his contract of employment. As a matter of common sense, and in law also in my opinion, his claim to enforce them is “founded on” that contract for the purposes of section 15(1). That phrase may be a term of art in English law: see the divergence of judicial opinion between Bramwell and Brett L.JJ. in Bryant v.Herbert. (1878) 3 C.P.D. 389 (described as a “curious conflict” in Stroud's Judicial Dictionary , 5th ed. (1986), vol. 2, p. 1026), but even if it is, the present action falls within it: “The rule ... that ... if, in order successfully to maintain his action, it is necessary for [the plaintiff] to rely upon and prove a contract, the action is one founded upon contract:” see per A. L. Smith L.J. in Turner v. Stallibrass, [1898] 1 Q.B. 56,58. The plaintiff cannot “found” his claim without alleging and proving what his terms of employment were. It therefore falls within the scope of section 15(1) as so defined.”

The position here is analogous: the landlord had to allege and prove the terms of the lease on which he based the claims.

There is further support in Great Yarmouth Corporation v Gibson [1956] 1 QB 573 and Agobzo v Bristol City Council [1999] 1 WLR 1971, cases in which the Court of Appeal considered claims for sums which, it was said, statutes (the Public Health Act, 1936 and the Building Act, 1984) provided could be recovered as contract debts. It was held that the claims were covered by s.15 of the County Courts Act, 1984 (or its predecessor), being founded on contract. The effect of sections 78 and 79 of the 1925 Act is similar.

Thus far Mr Christopher Marsh-Finch, who represented the tenant, did not dispute Mr Seitler’s argument that the County Court had jurisdiction under section 15. However, he submitted that what he calls the landlord’s “application under the 2002 Act for a final determination” is not an “action” within the meaning of section 15 of the 1984 Act. The expression “action” is defined in section 147(1) of the 1984 Act as “any proceedings in a county court which may be commenced as prescribed by plaint” (a definition corresponding to that in section 151(1) of the Senior Courts Act, 1981: “‘action’ means any civil proceedings commenced by writ or any other matter prescribed by the rules of court”). Mr Marsh-Finch’s argument was that no proceedings could be properly be brought for a “determination” of the kind sought here before the 2002 Act and that no rules of court have introduced a right to bring such proceedings.

The flaw in the argument is that the landlord did not seek “determinations” under section 168 as a form of relief. It claimed declarations, albeit of course, if granted, the declarations which would be a form of determination which under section 168 would clear the way for forfeiture proceedings. Declarations can be made by county courts, and actions seeking declaration can be brought there. Before it was amended by the High Court and County Courts Jurisdiction Order 1991 (made under the Courts and Legal Services Act 1990), section 15 of the 1984 Act provided that the county court had jurisdiction to “hear and determine any action founded on contract ... where the debt, demand or damage claimed is not more than” a specified limit, and this was interpreted as meaning that the county courts had jurisdictions to make declarations only if they were ancillary to another claim within their jurisdiction: HumberConservancy Board v Federated Coal and Shipping Ltd, [1928] 1 KB 492. However, since 1 July 1991 and the amendment of section 15, county courts have been free to grant declaration where the action is “founded on contract”: see Zamir & Woolf, The Declaratory Judgment, (4^th Ed, 2011) paras 3-47. The landlord’s proceedings for declarations were within the jurisdiction conferred by section 15. The determinations of breach made in them are effective under section 168 of the 2002 Act, just as they would have been had the landlord (as it could have done) claimed damages (whether nominal or not) for the tenant’s breach of the covenants or sought an order to restrain them.

Mr Marsh-Finch had another argument. He referred to section 35 of the 1984 Act, which provides that “It shall not be lawful for any [claimant] to divide any cause of action for the purpose of bringing two or more actions in one or more of the county courts”. His submission is that, by bringing these proceedings for the purpose of later bringing separate proceedings for forfeiture, the landlord is acting in breach of the section. I reject that argument: I would indeed suppose that the purpose of these proceedings is to clear the way for forfeiture proceedings, but that does not mean that a claim for a declaration and a later claim for forfeiture of the lease to which it relates are a single cause of action: they are not.

I add that Mr. Seitler sought to bolster his submission that the county court had jurisdiction by reference to schedule 12 to the 2008 Act, paragraph 3 of which, it was argued, contemplates that courts have concurrent jurisdiction with LVTs to make determinations of this kind because it provides for transfer to a LVT of a question falling within its jurisdiction. I cannot accept that argument: if anything the paragraph might be deployed against Mr Seitler’s submission, although not fatally. As Marsh-Finch pointed out, it does not appear to contemplate that there will be court proceedings only for a determination of breach in that it provides for the transfer of “so much of the proceedings as relate to the determination of that question” and for how the court may deal with “all or any remaining proceedings”.

Having concluded that the county court had jurisdiction under section 15 of the 1984 Act, I mention only briefly an alternative argument of Mr. Seitler based on section 18, which I reject. Section 18 allows parties in some circumstances to confer jurisdiction on county courts by agreement and a memorandum signed by them or their respective legal representatives. Mr. Seitler suggested that, since jurisdiction was impliedly asserted in the County Court proceedings by the landlord in its pleading and this was not disputed by the tenant in her defences, the parties are to be taken to have agreed that the County Court should have jurisdiction over the claims and the pleadings constitute a memorandum of such agreement. I am unable to accept either that the pleadings evince an intention by the parties to make an agreement of this kind or that the pleadings can be regarded as a memorandum of one.

Having rejected the tenant’s challenge to the jurisdiction, I need not decide whether the appeal should be dismissed on the grounds that the challenge was too late. Generally, of course, parties cannot by an agreement confer jurisdiction on the courts (in the absence of a relevant statutory provision, such as section 18 of the 1984 Act), and in my judgment equally (perhaps a fortiori) parties cannot confer jurisdiction on a court by acquiescence or waiver. However, Mr. Seitler relied on CPR 52.11(3). which provides that the “appeal court will allow an appeal where the decision of the lower court was (a) wrong; or (b) unjust because of a serious procedural or other irregularity in the proceedings in the lower court”. He submitted that:

I have difficulty in accepting the first stage of this reasoning: I consider that a decision made by a court that had no jurisdiction is “wrong” within the meaning of CPR 52.11, even if jurisdiction was not challenged by any party; and therefore I prefer to reserve my position as to whether, as Males J suggested, the challenge to the jurisdiction could properly be dismissed on the grounds that it was “far too late”. In view of my decision on the challenge itself I need not reach any concluded view about this, and do not do so.

I therefore come to the point on the appeal which, as I understand it, led Foskett J to grant permission for it. Did HHJ Saggerson impermissibly exercise his discretion with regard to costs when he made an order that the tenant pay the landlord’s costs subject to a detailed assessment? On the face of it, this challenge to his order faces an uphill struggle. An appellant court recognises the wide discretion that a judge had with regard to costs: see, for example, Roache v News Group Newspapers Ltd, [1998] EMLR 161, 172, cited with approval in AEI Ltd v Phonographic Performance Ltd, [1999] 1 WLR 1507, 1523C/D. Moreover, the Judge clearly applied the general rule in CPR 44.3(2)(a) is that “the unsuccessful party will be ordered to pay the costs of the successful party”. The only question is whether he made an error of principle in not making a “different order” under CPR 44.3(2)(b).

HHJ Saggerson considered that in making the declarations or determinations he was exercising a jurisdiction under section 168(4) of the 2002 Act, or, if it was a slip of the tongue when he referred to that sub-section, at least a jurisdiction under section 168. I consider that he was wrong about that. However, that did not drive his decision about costs, or materially affect his essential reasoning. The Judge also appears to have misunderstood the costs regime governing proceedings before LVTs: he apparently thought that what he called the “costs capping provisions” related only to applications dismissed as frivolous, vexatious or abusive. However that too was not crucial to his decision. His real reason for rejecting the tenant’s argument was that she had had every opportunity to apply before the trial that the proceedings be transferred to a LVT, but she did not apply.

It is not really relevant for present purposes whether an application of this kind would in fact have succeeded, although to my mind that it would have had good prospects of success. The tenant might have challenged in other ways the landlord’s decision to bring proceedings in the court rather than an LVT: for example, by making an application to strike them out as an abuse. In some cases, if it thought that the tenant should have gone to the LVT for a determination, a court might decline to exercise its discretion to make a declaration. However that might be, the simple fact is that in this case until the trial neither party objected to the proceedings in the County Court. Both parties appeared content with that forum: after all, had the tenant been successful in resisting the claims, she would probably have recovered her own costs. In these circumstances I can well understand why the Judge saw no good reason to depart from the general rule. I see no error in principle or injustice in his decision or in the essential reasons that he gave for it.

I therefore dismiss the appeal, but I add this: the Judge ordered that costs be assessed on the standard basis, so that the landlord is entitled to recover costs that have been reasonably incurred, reasonable in amount and proportionate to the matters in issue. Although I have not heard argument about this, I see no proper or principled objection to the costs judge taking into account on the assessment the alternative procedure available to the landlord, and, to some extent, to restrict the costs awarded on the assessment in light of that. That however was not a matter for the Judge and is not a matter that directly before me. It is for the costs judge to consider.