G & A Gorrara Ltd & Ors v Kenilworth Court Block E RTM Co Ltd

In order to understand this issue we have to look again at section 27A(4) and (5) of the 1985 Act and at the decision of the Tribunal (HHJ Nigel Gerald) in Cain.

Section 27A(4)(a) and (5) provide:

In Cain the applicant applied to the FTT in 2014 to challenge service charges demanded and paid in the years 2002/3 to 2012/13. The FTT found that by paying the charges without protest for the years 2002/3 up to and including 2007/8 the applicant had admitted or agreed the charges and therefore it had no jurisdiction in respect of those years by virtue of section 27A(4), notwithstanding section 27A(5). The decision was appealed to the Tribunal, hence the decision in Cain. In the present appeal Ms Gourlay argued that Cain was not correctly decided, and as will be seen below I agree to some extent; I note that the Tribunal is not bound by its own decisions.

In Cain, the Tribunal upheld the FTT’s decision. HHJ Gerald said this:

The judge then looked at the facts of the case, and noted that some at least of the charges Mr Cain was challenging were matters that he could easily have found out about during the years that passed before he applied to the FTT. He only had to look out of his window to see whether the garden was being maintained, for example. So it was not as if he had no idea that there was anything wrong. The judge continued:

Within the paragraphs quoted above are a number of statements of principle, and it is useful to tease them out to see exactly what is being said.

First, it is said in paragraph 17 that the effect of section 27A(5) is that a single payment can never amount to agreement within section 27A(4). That is obviously correct.

Second, however, paragraph 17 also says that section 27A(5) refers only to a single payment, because of the words “only” and “any payment”. Mr Walsh supported that interpretation. Ms Gourlay argued that that is not right, and I agree. I think it is obvious that the word “only” in section 27A(5) means “absent any other circumstances”. And I do not think the words “any payment” mean “any single payment” or “any one payment”.

The judge went on in paragraph 18 to say “a series of unqualified payments may, depending on the circumstances, suffice” and that is obviously correct. A series of unqualified payments only does not indicate agreement, but it may do so, depending on the circumstances. Imagine a tenant who has paid the service charge without protest for twenty years until 2020. In 2022 she discovers - and could not have known before - that the heating system has not been serviced since 2015, despite the fact that the landlord has paid for the annual servicing and the service charge includes a sum in respect of that payment. She is of course entitled to challenge the charge, because she did not know and could not have found out about the problem.

The point of section 27A(4) is that payment alone does not convey enough information to enable the inference of agreement; it all depends. In circumstances where the tenant delayed before challenging the charge or charges, and had the information during that time to raise a challenge, then the payments in those circumstances may indicate agreement.

That is exactly what happened in Cain. I respectfully disagree with HHJ Gerald’s analysis at his paragraph 25 that:

That is not what the FTT did. What made it possible to infer agreement from a series of payments from 202/3 to 2007/8 was that the applicant had then left it another six years before challenging the charges, and had the information he needed to raise a challenge in the meantime.

To summarise, insofar as the Tribunal in Cain decided that a series of payments made without protest may, absent any other factors, indicate admission or agreement pursuant to section 27A(4), I take the view that that is a misconstruction of section 27A(5). The effect of section 27A(5) is not limited to single payments.

However, it is clearly correct that, as the judge put it at paragraph 25 of Cain,

Delay is not the only relevant factor. The availability of information may be another. But unqualified payment or payments alone do not meet the requirements of section 27A(4)(a), as is clear when one thinks through practical possibilities and as section 27A(5) expressly provides.

With that in mind I turn to the FTT’s decision in this case.

The FTT set out paragraphs 14 to 18 of the decision in Cain. It recorded the respondent’s argument:

The FTT found that the appellants had had the service charge accounts each year and were aware – or should have been if they had given it any thought at all - that the interim service charge was calculated on an estate-wide basis. The respondent argued that “the end of year procedure had been settled for many years and was or should not be a bar to a finding that the service charge process had been agreed for many years, evidenced by the unqualified payment of demands.”

The FTT decided that it should “apply Cain”. It said at paragraph 102:

Going back to Cain, the FTT expressed the view that section 27A(5) was limited in its effect, to a single payment, and that it was therefore not constrained by section 27A(5). Hence its conclusion at its paragraph 106, quoted above at paragraph 29, that it had no jurisdiction in respect of the charges from 2012/13 to 2015/16.

In the appeal Ms Gourlay argued for the appellants that they could not have agreed or admitted the service charges in dispute when they did not know, and still do not know, the amount of actual expenditure attributable to their block because there has never been the reconciliation or balancing exercise prescribed by the lease nor any statement or demand for final charges. She also argued that the FTT was wrong to take into account payments in the years preceding 2012, when those years were not in issue; earlier payments could have no bearing on later liability in the context of section 27A(5).

Mr Walsh relied upon the decision in Cain. He argued that once a leaseholder has made regular payments for some time, it is in effect prevented from challenging service charges unless they do so immediately – before the next payment, even if payments are made monthly as in the present appeal. As he put it, once there is a long enough period of undisputed payments the leaseholder moves into a regime where he or she has to protest fast if they want to dispute anything.

It will be clear from what I said above about Cain that I do not accept Mr Walsh’s argument. Indeed, in view of the facts in Cain it is not realistic to draw from it the proposition that the more faithfully and regularly the leaseholder pays service charges the less opportunity he or she has to seek a determination under section 27A. But insofar as Cain did decide that a series of payments is sufficient without more to indicate agreement I take the view that it was wrongly decided and Mr Walsh’s argument cannot succeed.

However, I remain unclear what the FTT decided that the appellants had agreed. If it thought that the appellants had agreed liability for the interim charges, or that they had agreed not to challenge the demanding of interim charges on an estate-wide basis, then it would be difficult to disagree, at least for the first three years in question (2012/13 to 2014/15; Ms Gorrara started to express disquiet during 2016, and made clear early in 2017 so the position is not the same as regards the charge for 2015/16). The FTT’s decision begins in paragraph 1 with the following statement:

But if that is what the FTT decided then it was unnecessary, since Ms Gourlay said at the FTT hearing and has confirmed on appeal that the interim charges are not in dispute. If that was what the FTT decided that leaves the appellants free to challenge the final charges for those four years.

If on the other hand the FTT intended to decide that the appellants had admitted or agreed the final charges – not yet demanded – from 2012/13 to 2015/16 then the FTT was clearly in error. It is not possible to understand, and the FTT has not explained, how agreement that interim charges are payable means agreement also to the final charges based on costs actually incurred. The appellants do not know what costs were incurred for Block E. They cannot be said to have delayed in challenging them because none have yet been demanded.

Accordingly the appeal succeeds on this ground; if the FTT decided that the appellants have agreed or admitted the final service charges for the years 2012/13 to 2015/16 that finding is set aside.

The FTT itself suggested that the respondent might argue that the appellants (or rather, again, the second and third appellants) were estopped by convention from challenging the estate-wide basis on which the interim charges were imposed in the years 2012/13 to 2015/16.

Having made its finding that it had no jurisdiction in respect of those years, the FTT noted that any finding of estoppel by convention would have no practical effect. I have set aside its finding on section 27A(4) and therefore I have to look at the effect of its finding about estoppel.

What exactly was the convention that was said to estop the appellants? The FTT at its paragraph 83 explained that the respondent’s case:

At its paragraph 107 the FTT set out the estoppel alleged in the respondent’s own words:

The FTT set out the law relating to estoppel by convention, as confirmed by the Supreme Court in Commissioners for HMRC v Tinkler [2021] UKSC 39:

The FTT found that the respondent and the second and third appellants shared a common assumption that the RTM companies were correctly managing the estate as a single unit; that by paying the service charges the appellants communicated that assumption to the respondent; that the respondent would have been influenced by that and that the appellants in failing to challenge the common assumption accepted that the respondent would rely on it. Mutual dealings followed on that basis. Whilst the appellants would suffer some detriment if estopped from asserting the correct basis of accounting, the respondents would suffer a greater detriment if they now had to unpick decisions made long ago on an estate-wide basis. In conclusion:

As we can see from the summary of the principles seen in Tinkler, estoppel by convention is a technical doctrine. It is useful in the contexts in which it was developed, namely commercial disputes where parties have adopted a conventional reading of, for example, a lease or a contract. Its requirements are demanding; the mere sharing of a common assumption is not enough, there has to be communication and there has to be an intention that the person alleging the estoppel was to rely upon the communicated assumption.

As we shall see in the present case, those requirements are going to be difficult to satisfy in a service charge dispute where arrangements can drift on for years without there being any communication about them. The Landlord and Tenant Act 1985 is intended to provide a workable code for landlords and tenants in the resolution of disputes about service charges. In a service charge case where the leaseholder has behaved in such a way that it is unfair to allow them to change tune now, it is tempting to explore estoppel because the situation, put like that, feels estoppel-ish. But there is no need to give in to that temptation; section 27A(4)(a) should be used instead. Its effect is that for the leaseholder to be prevented from changing its position and challenging something that it had previously gone along with, all that is needed is admission or agreement; there is no need to prove estoppel.

However, in the present case the FTT prompted the respondent to rely on estoppel by convention, and the argument succeeded. Again we face the difficulty that it is not clear whether the FTT decided that the appellants were estopped from contesting the basis of calculation of the interim service charges on an estate-wide basis, or whether the FTT found that the appellants are estopped from ever requiring final charges to be calculated for Block E. In light of what the FTT said at its paragraphs 139 and 140 (see paragraph 68 above) it rather looks as if the FTT thought that the respondent should never have to unpick the estate-wide calculations.

If the FTT’s finding on estoppel related only to the interim charges then it was unnecessary; the interim charges are not in dispute. It would in any event have to be set aside for the reasons I give below.

Insofar as the FTT’s finding was that the appellants are estopped by convention from ever requiring that final service charges be calculated for Block E separately, in line with the statutory powers of the respondent under the 2002 legislation, it is set aside, for the following reasons.

First, the “convention” or common assumption does not correctly describe what the respondent was doing. The estoppel that it claimed was, as set out in paragraph 66 above, “that the strict terms of the lease applied and were not affected by the exercise of the right to manage by the individual blocks in 2006 and 2007”. But the respondent never managed the estate in accordance with the strict terms of the lease; it never reconciled the interim and actual service charges nor balanced the under- and over-payments.

Second, even if the assumption is re-characterised as an assumption that the estate was to be managed as a single unit and not block by block, estoppel by convention cannot succeed because of the evidence of Mr Hodgkins, who was the director of the respondent at the material time, which the FTT accepted. He said that he did not rely upon any common assumption communicated to him by the appellants. He said (I quote from the transcript, set out in the grounds of appeal):

Mr Walsh for the respondent argued that the FTT’s finding of reliance was correct, but did not say why this evidence did not make it clear that there was no reliance by the respondent on anything communicated by the appellants.

Further grounds of appeal rely on the argument that it was only after 2016 that the appellants realised that the estate was being managed as a single unit and not block by block and that therefore they cannot have had the relevant common assumption in 2012. The FTT found as a fact that Ms and Mr Gorrara knew, or would have known if they had thought about it, that the estate was being managed as a single unit on the basis of what they were told in the service charge accounts. Again we run into the confusion as to whether the estoppel is supposed to be about the interim charges or the final charges; as to the interim charges the FTT’s finding of fact is clearly correct, the appellants knew or should have known of the basis on which interim charges were calculated. If the appellants accepted that, and communicated their acceptance to the respondent, then that might satisfy the requirement for a common assumption about the interim charges (which are in any event admitted) to be made and communicated; but again there could be no estoppel because of the absence of reliance.

As to the final charges, the FTT did not explain how an acceptance that the interim charges were calculated on an estate-wide basis could be the basis of an estoppel by convention relating to the final service charges. Nor did it say how such an assumption could have been communicated; I do not see how the payment of interim charges could communicate a common assumption about the final charges. Nor did the FTT say in what sense any such assumption could have been relied upon, since the respondent has never done anything about the final service charges.

Insofar as the FTT found that the appellants were estopped from going back on a common assumption that final charges would be calculated on an estate-wide basis, that finding is set aside because any such finding is unexplained and could have no basis in the evidence.

I add two further points.

The first is that so far as the interim charges are concerned, there could be no estoppel by convention because of the absence of reliance. Yet I found above (paragraph 59) that the appellants could have been found to have accepted or agreed that the interim charges were calculated on an estate-wide basis. That illustrates what I said above; the requirements of section 27A(4)(a) are simpler than those of estoppel by convention and there is no need to resort to the latter in the context of service charge disputes.

Second, I have not explored Ms Gourlay’s argument that, even if the requirements for estoppel by convention were met, it is not possible to defeat by estoppel the provisions of the 2002 Act which enable an RTM company only to manage its own block. An exploration of that difficult point would be futile in the present case because in any event estoppel by convention cannot succeed on the facts, and would have no benefit in future cases since estoppel is not the appropriate concept for circumstances such as these.

Since the appeal has succeeded on both issues, it follows that the FTT now has to decide the amount in which final service charges are payable for the eight years from 2012/13 to 2019/20.

As I indicated above this has the potential to be a herculean task, and the proceedings have become enmired in preliminary issues. Urgent work on Block E may be delayed, and much-needed resources of the respondent are being wasted, while this dispute is further protracted. There are essentially three issues for decision: the first is the correct apportionment (if that is still in dispute), the second is the amount of final service charges for the eight years, and the third is the appellants’ claim for set-off.

I suggest to the FTT, and it is no more than a suggestion, that it give directions for the determination of all outstanding issues at a single hearing, even if that hearing lasts a fortnight or more, so that all parties are obliged to bite the bullet of looking at this case as a whole and counting the cost of proceeding. I suggest to the parties, and again I can only suggest, that they ask themselves what they would settle for and then try again to settle (I know that mediation has been attempted), in the hope that the parties can move on from this litigation and work towards constructive co-operation.