Winchester Park Ltd v Sehayek

This is an appeal against an order of Mr Recorder Thomas at the Central London County Court that the Defendant, Winchester Park Ltd, pay the costs of the Respondent, Mr Raymond Sehayek, in the sum of £10,845.40. That order was made immediately following the dismissal of the Respondent’s claim for a mandatory interim injunction.

I had the benefit of written and oral submissions from Mr Nigel Woodhouse, for the Appellant, and Mr Daniel Dovar, for the Respondent, for which I am very grateful.

From 2003, the Respondent and his wife have been the joint registered proprietors of a long lease on flat 3, 1 Palace Gate, London, W8 5LS. The Appellant is the proprietor of the freehold of the premises. The lease was dated 29 May 1997 and ran for 999 years.

By clause 4(3) of the lease the Appellant covenanted to use its reasonable endeavours to provide services, including the services of a lift “so long as the lessee shall pay the service rent”. By clause 1(Q)(viii), any covenants on the part of the lessor contained in the lease were deemed conditional upon the lessee paying the rents and performing and observing covenants and agreements contained in the lease.

Part 2 of the 3^rd schedule of the lease provided that the Defendant shall maintain:

“1(a) The whole of the building common parts…

(d)

The fixtures and equipment, fittings and the machinery in or forming part of the building common parts and the conducting media serving the building.”

In 2014 the parties became embroiled in a dispute about the payment of service charges and in mid-February of that year, the Appellant discontinued service of the lift to the Respondent’s floor of the premises. In their letter dated 19 February 2014, the Appellant’s solicitors explained that the lift service had been cut off “to save a substantial amount of electricity. Our client is facing an electricity bill of £20,000 which arises because our client has not been in the position to pay the electricity charges”.

County court proceedings had been commenced in respect of unpaid service charges. The issues as to the reasonableness of, and liability to pay, service charges was referred to the First Tier Tribunal (Property Chamber) (“the Tribunal”).

On 28 April 2014, the Respondent made a payment of £12,770 in respect of service charges for the year end 2014. On 9 June 2014, the Respondent issued a claim form seeking an interim mandatory injunction to restore a full lift service at the building.

On 11 June 2014, the Appellant’s solicitors informed the Respondent’s solicitors that if the sum of £3,622.91 was paid in respect of an interim service demand dated 30 May 2014, the lift service would be restored the same day.

Two days later, on 13 June 2014, whilst at court, the Appellant agreed to restore the lift service and the Respondent agreed to pay £980 once the service was restored. The matter was adjourned with liberty to apply.

On 15 July 2014, the hearing before the Tribunal was adjourned part heard. The Tribunal hearing eventually concluded on 26 November 2014, and the Tribunal provided its determination on 3 March 2015. The Tribunal found that the Appellant had failed to credit the Respondent with various payments that had been made, that £1,000 was payable in respect of electricity charges for the years ending 2011 to 2014, and that a number of demands for payment of service charges were not valid. The Tribunal also found that the statutory consultation procedures under section 20 of the Landlord and Tenants Act 1985 had not been followed in respect of major works during 2012 and 2013. On 13 July 2015, the Appellant sought dispensation from such procedures and on 16 November 2015, the Tribunal granted dispensation on terms to be agreed or determined.

In October 2015, the Respondent applied to restore the application for the interim mandatory injunction. It was listed for hearing on 11 December 2015. At that hearing, the Respondent invited the Judge to dismiss the claim on the basis that lift services had been restored and there was no further utility in the application. The Respondent also invited the Judge to award him the costs of the interim injunction application and the Judge made that order.

The Recorder’s judgment speaks for itself and I do not lengthen this judgment unnecessarily by reciting lengthy passages from it. Mr Dovar, however, draws particular attention to the following passages:

“3.

… the Tribunal determined the issues arising between the parties as to the principle upon which the charges should be made and the practical outcome in respect of the various demands made over the years.”

“8.

… it was determined by the Tribunal that the amount of money owing by each Lessee in respect of electricity charges of the lighting of common parts and the running of the lifts was about, on the best estimates and calculations available to the Tribunal, £1,000 per annum. In fact the claim made by the Landlord was in the sum of £15,000 for electricity and clearly there was a very substantial disparity between the sums claimed and the sums found to be due…”

“9.

… the matter has I am now told been substantially resolved as a result of the Tribunal hearing subject to one or two issues on actual calculations of sums due and owing… A careful analysis of that combined with a letter written by No 1 International, the Landlord’s Agent, dated 25^th June 2015 to which is appended a schedule, shows by looking at that Schedule, which again is drawn up by reference to the Statement of Account of 31^st January 2015 whereby the Landlord’s agent analysed the figures, that the sums due, by comparison to the dates of the Demands and the sums demanded as appearing in the 31^st January statement, were far in excess of anything which could be owed by the Claimant to the Defendant or by Wayland to the Defendant.”

“10.

I am satisfied on the basis of that analysis which appears from the documents to which I have referred that at the date the application was issued for an injunction in June 2014 far from there being any sums due by the Claimant to the Defendant it was in fact the other way round and that the Claimant enjoyed a substantial credit on his and its account with regard to Service Charges. On that basis it seems to me that on any argument there cannot have been any failure on his part, the Tenant’s part, to comply with his obligations under the terms of the Lease.”

“12.

The Claimant says that he, Mr Sehayek, obtained a substantial practical advantage out of making the application, namely, he got the lift works again, and really I do not think there can be any dispute about that; that is exactly what happened, and I am perfectly satisfied that had the application not been made then he and his family would have found themselves using the stairs rather than the lift.”

Mr Woodhouse advances three grounds of appeal.

First, he says that the Recorder was wrong to embark on a factual investigation as to the account between the parties in respect of service rent. He says that the request for the dismissal of the claim was the equivalent of a decision to discontinue the claim. Citing the Court of Appeal decision in Nelson’s Yard Management Company v Eziefula [2013] EWCA Civ 235, he says that that being so, the merits of the claim were irrelevant and the Judge should have declined to make findings as to the state of the account. He points out that although the Tribunal had made relevant determinations, the account had not been agreed by the parties and was still the subject of extant proceedings in the county court.

Mr Woodhouse argues further that the evidence relied upon by the Respondent to persuade the Judge that no service rent was outstanding had only been served the day before the hearing and that it had not been possible for those acting for the Appellant to obtain instructions on the claim as it was then put forward.

In response to that ground, Mr Dovar for the Respondent contends that there had been no discontinuance. Instead the Judge was faced with an agreement by which the Respondent had obtained the relief claimed, namely the restoration of the lift.

Mr Dovar argues further that the documents referred to were common to the parties. He says that the Respondent had been trying to get a response from the Appellant about the final account for many months. He says that if the Appellant was troubled about the reliance on the documentation at the hearing they could have sought an adjournment, but they did not.

Mr Dovar argues that the investigation which the Judge was invited to conduct did not necessitate making findings or applying the law; it was simply “a question of going through the figures”. Because the Tribunal had already made the findings of fact, this, it is said, was simply a mathematical exercise. The Respondent argues that in deciding how to exercise his discretion on costs, the Judge was entitled to take a view as to who had succeeded in the Tribunal hearing and in the matter before him.

The Appellant’s second ground is that the Judge was wrong to construe the lease as not entitling the Appellant to withhold services if service rent had not been paid. Mr Woodhouse argues that the express provisions of the lease made the provision of the lift service dependent on the obligation to pay the service charge. In support of that assertion he relies upon Bluestorm Ltd v Port Vale Holdings Ltd [2004] 2 EGLR 38.

In response, Mr Dovar argues, first, that this ground of appeal only becomes relevant if the Judge was wrong in his conclusion that there was in fact no service charge due at the date of the injunction application.

Second, Mr Dovar argues, that the Appellant has an obligation under the lease to keep the lift in working order. He says the Court of Appeal’s decision in Yorkbrook Investment Ltd v Batton [1986] 18 HLR 25, establishes that in such circumstances the landlord’s obligation is not contingent on payment. In any event, he says, any precondition based on payment of service charges was subject to the tenant’s rights to make legitimate challenges to those service charges, and was subject to statutory consultation, under sections 19 and 20 of the Landlord and Tenant Act 1985.

The third ground advanced by Mr Woodhouse is that the Judge was wrong to find that the application had been properly brought by only one of two joint tenants. He says that, although the claim was framed as seeking a mandatory injunction, it was in substance an application for specific performance of the lease and, following Tito v Waddell [1977] Ch 106, specific performance should be refused unless all parties entitled to enforce the contract are before the court.

Mr Dovar responds that, as the Judge and the Defendant were aware, at all times Mrs Sehayek was ready to be joined as a party to proceedings. That did not prove necessary because the relief sought had been obtained.

This was an exercise of discretion by the Recorder. Accordingly, I am only entitled to interfere if that exercise of discretion was wrong as a matter of principle or was irrationally exercised.

That that is the correct approach emerges from the Court of Appeal’s decision in R v Croydon London Borough Council [2012] 1 WLR 2607. At paragraph 44 of his judgment in that case, Lord Neuberger MR said:

“Any decision relating to costs is primarily a matter for the discretion of the trial judge, which means that an appellate court should normally be very slow indeed to interfere with any decision on costs. However, while wide, the discretion must be exercised rationally and in accordance with certain generally accepted principles… If the trial judge departs from rationality or the correct principles then it is legitimate for an appellate court to interfere with his conclusion.”

Lord Neuberger went on to identify what were likely to be appropriate orders as to costs in different circumstances. At paragraph 49 he said that if a claimant “is accorded by consent all the relief he seeks” it is difficult to see why he:

“should not recover his costs from the defendant, at least in the absence of some good reasons to the contrary. In particular it seems to me that there is no ground for refusing the claimant his costs simply on the ground that he was accorded such relief by the defendant’s conceding it in a consent order, rather than by the court ordering it after a contested hearing.”

He continued:

“50.

The outcome will normally be different in cases where the consent order does not involve the claimant getting all or substantially all, the relief which he has claimed. In such cases the courts will often decide to make no order for costs in his favour.

51.

In many cases which are settled on terms which do not accord with the relief which the claimant has sought, the court will normally be unable to decide who has won, and therefore will not make any order for costs. However in some cases the court may be able to form a tolerably clear view without much effort.” (emphasis added)

The Appellant contends that the request by the Respondent for the dismissal of his claim was the equivalent to a decision to discontinue his claim. I do not agree. A claim is discontinued by service of a notice of discontinuance under CPR 38.3(1). Discontinuance in accordance with part 38 has certain prescribed consequences, one of which is that unless:

“the court orders otherwise, a claimant who discontinues is liable for the costs which a defendant against whom the claimant discontinues incurred on or before the date on which notice of discontinuance was served on the defendant.” (38.6)

There was no discontinuance here. Instead, the Respondent invited the Judge to dismiss the claim on the basis that he had obtained the relief he sought, namely the restoration of the lift service. Continuation of the claim would have been pointless. That is, as a matter of both form and substance, entirely different from discontinuance. In those circumstances, the approach indicated in Nelson’s Yard is inapplicable.

Instead, the costs were at large and it was a matter for the Judge to determine the appropriate costs order. The merits of the claim were potentially relevant to the exercise of discretion on costs.

That being so, the Judge was entitled to consider whether the factual background was sufficiently clear to enable him to draw conclusions, without conducting a trial, as to the respected merits of the parties’ position. Given the findings of the Tribunal, in my judgment the position was “tolerably clear” (to use Lord Neuberger’s words). The Tribunal had reached a number of conclusions on the facts which made it possible to analyse the account in short order and come to a conclusion as to whether, in fact, the Respondent’s account was in credit or not. That is what the Judge did. In my judgment, he was entitled to do so and then to base the exercise of his discretion on the conclusions he reached.

The Appellant complains that the material on which the Judge proceeded had only been disclosed the day before the hearing. But as Mr Dovar points out, that was material common to the parties and was material that had been available to the Defendant for some time. The parties had come to terms on the two principle issues between them, namely the resumption of the service of the lift and the payment of interim service charges. No notice of discontinuance had been served. In those circumstances, the question of costs was likely to be the subject of debate before the court. I see no reason why the Appellant should not have been in a position to deal with the application for costs.

If there was real difficulty with that, the Appellant should have sought an adjournment. They did not and in those circumstances I see no grounds for complaint.

Given my conclusion on the first ground of appeal, the question as to proper construction of the lease does not arise. On the basis of the Judge’s conclusions, no service charges were due at the date of the injunction application and accordingly there was no question of the Appellant being entitled under the lease to discontinue service of the lift.

In case it should prove relevant hereafter however, I set out briefly my view if the position were otherwise.

In my judgment the Recorder was right to observe that in 1997 when the parties entered this lease:

“there was a statutory right to challenge service charges… In the context of this lease, there was no right on the part of the landlord to withhold services in circumstances where there was a proper challenge to the level of those services, which stand out to be completely justified as matters turned out in the Tribunal.”

That approach is entirely consistent with the Court of Appeal’s approach in Yorkbrook Investment:

“The proper approach for the court is set out in Foa (8th ed.) at page 119.

The question whether liability in respect of one covenant in a lease is contingent or not upon the performance of another is to be decided, not upon technical words, nor upon the relative position of the covenants in the case, but upon the intentions of the parties to be gathered from the whole instrument.

What was the true intention of the parties? Is this a condition precedent? In seeking the answer, it is in our judgment right to look at the state of the statutory provisions in June 1976; to look for guidance and indications from within the Deed itself; and to examine the possible consequences of each interpretation put forward.

We have already referred to section 91A(1) earlier in this judgment. Subsection (3) reads as follows:

‘(3) The High Court or the county court, on the application of the landlord or tenant of a flat, may by order, in relation to any chargeable items specified in the order, declare:

(a)

that they have or have not been provided to a reasonable standard; and

(b)

that the amount alleged to be payable in respect of them is or is not reasonable,

and may direct the amount to be paid by the tenant in consequence of the declaration.’

It is clear from that section and in particular those parts which I have cited, that the statute envisages that there will be a number of items for which service charges will be made. Secondly, it is apparent that the service charges are to be ‘recoverable’ from the tenant and indeed in the last part of subsection (3) it is envisaged that the tenant will be directed by the county court to make payment to the landlord. Last, it is clear that the tenant is only liable to pay a reasonable amount for each item of service charged and that that item must be reasonable as to standard and as to cost. It is against this background that the lease was entered into.

…

Applying the tests which we have formulated above, looking at this matter from each of those aspects and looking at the whole scheme of the deed, as did Kay J, in our judgment it is abundantly clear that the parties to this deed did not intend that the words at the beginning of clause 6 should be a condition precedent.

It follows therefore that, with respect to the learned judge's view in a difficult case, we have reached the conclusion that the defendant is entitled to recover damages in respect of the breach of covenant by the plaintiffs to provide a good, sufficient and constant supply of hot water and an adequate supply of heating in the hot water radiators. Failing agreement between the parties, the case will have to go back for damages under this head to be assessed.

The appeal is allowed and the sums recoverable by the defendant and available for set-off will be as stated in the judgment.”

In Bluestorm the Court of Appeal held, obiter, that Yorkbrook could be distinguished and that where a tenant’s failure to pay the service charges on his flat was a substantial cause of the claimant’s non-performance of its repairing obligation, the landlord would be entitled to recover the charges regardless of that failure. But here, in my judgment, it was not established that the failure to pay the service charge made difficult or impossible the provision of the lift service; the additional electricity costs were far from prohibitive.

Accordingly, had this issue been live, I would have held that the judge was entitled to reach the conclusion he did.

I accept Mr Woodhouse’s submission that what in substance the Respondent was seeking in the application for the mandatory injunction was specific performance of the lease. I also accept his submission that, following Tito v Waddell [1977] CH, 106 at 324-325, specific performance will not be ordered unless all parties entitled to enforce a contract are before the court.

The issue before the Judge, however, was not the grant of specific performance or the issue of a mandatory injunction. The claim for the mandatory injunction was being dismissed by consent. What was before the Judge was an application for costs following the dismissal of the claim. There are sound reasons of policy why specific performance cannot be ordered in the absence of the parties entitled to enforce the contract; those considerations do not apply when the Judge is deciding whether or not to exercise his discretion to award costs.

As the Judge was made aware, the Respondent’s wife was ready and willing to be made a party to the proceedings if that was necessary. In essence, this is a pleading point being taken against the Respondent in answer to an application for costs. In my judgment the Judge was entirely correct to regard it as of no real substance.

In those circumstances this appeal is dismissed.