Chasewood Park Residents Ltd v Kim [2010] EWHC 579 (Ch) is a rent/service charges case that should serve as a useful object lesson: first for parties to remind them of the importance of precise pleading and the use of evidence; and second, I hope, to first instance judges as to the perils of abandoning the normal formalities of a trial.

Mr and Mrs Kim are tenants under a long lease of Chasewood. Chasewood, a company set up by the then residents’ association of which the Kims were members, had acquired the interest of the previous landlord in 2007.

The claims

Chasewood made two claims: for arrears of ground rent (£50 per annum) and failure to pay service charges. There appears to have been a fairly messy procedural history, including a failed application by Chasewood for summary judgment, which resulted in both parties relying on re-amended statements of case.

The Kims defended the rent claim on the ground that Chasewood were estopped by virtue of the following statement made by the residents’ association in a newsletter in 2006:

“Dear Chasewood Resident,

As many of you already know, from the previous two Residents’ Meetings, your Committee has been keen to pursue the acquisition of the Freehold of Chasewood Park.

The benefits of owning the freehold can be summarised as follows:

…

no ground rent to pay (currently £100 per annum per flat)

…

If we do manage to acquire the freehold, those owners that have not participated will continue to pay ground rent to a Company formed to acquire the freehold. …”

and that further communications from Chasewood (once it had come into existence) adopted this representation.

Chasewood’s reply was that (i) they had not made the statement; and (ii) the Kims had not in fact relied on it and so estoppel was not made out.

The Kims defended the service charge claim on the basis that they were not reasonable, complaining of “poor service” and also of a failure of Chasewood to permit Mrs Kim from examining any documents that would confirm the basis on which the service charges were levied. Several specific incidents, such as damage to the Kims’ car because of an installation for which Chasewood was responsible were cited in support.

Unfortunately the Kims’ defence was not well pleaded and included the allegation that the service charges “are not reasonable service charges within the meaning of section 27A of the Landlord and Tenant Act 1985”. Alas section 27A gives the LVT jurisdiction to determine the payability of service charges, and has nothing to do with reasonableness, for which see section 19. In my view it was self-evident what was intended.

Chasewood replied:

“17. The reference in paragraph 13 to the Defendants’ disputing whether the service charges are reasonable ‘within the meaning of section 27A of the Landlord and Tenant Act 1985 makes no sense: section 27A is a jurisdictional provision concerning the leasehold valuation tribunal, not a substantive provision dealing with reasonableness of service charges. The Claimant assumes that the defendants intended to refer to section 19(1)(a) of the said Act …

18. In these circumstances the Claimant hereby gives notice that unless its solicitors hear to the contrary within 7 days of the service on the Defendants of this Reply and Defence to Counterclaim, it will assume that the Defendants put it to proof as to the reasonableness of each and every element of the service charge claimed in this action. The claimant will prepare its evidence on this basis and if it is successful in the claim and gets an order for costs such costs will include the cost of this exercise.”

To which the Kims offered no further response.

Despite this rather robust reply, it appears not to have occurred to Chasewood that any evidence concerning the service charges might be relevant. In disclosure only the financial statements, and not any of the supporting documents, were listed. The Kims, despite their pleadings concerning this very point, made no application for specific disclosure.

Worse, Chasewood’s only witness statement dealt with service charges like this:

“… we have not received any complaints from other residents.

In our normal duties as managers, we always where necessary obtain estimates or tenders for our services provided.

We always try to ensure that we get the best possible value for money and that we spend no more than is reasonably required to do things which the claimant is required as landlords do. I am confident that we have achieved this objective.

We have many times offered Miss Kim to come into our office to examine our books. She has never replied to these invitations.”

Quite why Chasewood thought that a bland and general denial to a specifically pleaded case against them was adequate beats me. It is certainly one of the most ineffectual witness statements I have seen in such a case.

Lastly the Kims counterclaimed for misrepresentation and breach of contract, the latter being based on the same incidents as the service charges claim.

In Willesden County Court

Chasewood’s rather laid back attitude to evidence and pleading was clearly well founded. The case, though listed for four hours on the fast track, came on well into the afternoon. Rather than adjourn, HHJ Copley proceeded to decide the case, or at least some of it, though exactly how he did so is, like much else, unclear.

Instead of hearing evidence and submissions from counsel, the judge held what was described by the Kims’ counsel as a “colloquy” with the trainee solicitor representing the Kims, at the end of which he held that there was nothing in the Kims’ defence and gave judgment for Chasewood on the claim. The counterclaim appears not to have been addressed at all.

No formal judgment was given and the reasons for the judge’s decision and even its jurisdictional basis, were and are unclear.

Sanity in the High Court

On appeal to the High Court, Arnold J did a great deal to put matters right, in a clear and sensible judgment.

First he found that the judge’s reasons were sufficiently unclear that he would be unable to review them and so the matter would have to be remitted for retrial, unless it was clear that the judge had reached the right conclusion.

The parties agreed that what the judge had done was to strike out the Kims’ defence under CPR 3.4(2)(a) – that the statement of case disclosed no reasonable grounds for defending. This was, as Arnold J put it, an attempt to rationalise what the judge had done.

The two issues in the rent claim were (i) whether, as a matter of construction, the documents were sufficient to show that Chasewood had adopted the representation on which the estoppel was said to be based; and (ii) whether there had been reliance by the Kims. Arnold J thought that (i) was “well arguable”, although it would require consideration of the factual matrix, and that (ii) was a plain issue of fact and not something that could be dealt with on a strike-out.

A nugget of really interesting thought was raised by the Kims, who came up with a new ground of defence. A tenant under a long lease is not liable to pay rent unless they had received a notice pursuant to section 166 of the Commonhold and Leasehold Reform Act 2002. On the evidence it would appear that they had not. Arnold J held that “it is for the landlord claiming unpaid ground rent under a long lease to plead and prove compliance with section 166”. Whether or not he would have allowed this fresh point to be raised on appeal was irrelevant because the matter was being remitted for trial anyway.

As a result of Chasewood’s statement in reply, Arnold J found that it was common ground between the parties that Chasewood was put to proof of each item of service charge expenditure claimed. There were disputes of fact which were unresolved between the parties and the only proper way to deal with those was at trial.

It is also possible that a section 20 consultation was not properly carried out, but that was of course immaterial to the appeal once it had got this far.

Moral

The result of the case, so far, is that the parties have spent lots of money, lawyers have earned lots of the same and little real progress has been made. Why is this? It seems to me that:

• Judges should be very wary of departing from normal trial procedure especially a case which involves relatively complicated statutory provisions as any leasehold case does. Formality is there for a reason. While it is possible to be overly pedantic about rules, the opposite approach can be equally disastrous. Nothing excuses the kind of mess the parties were forced to suffer in Willesden County Court.
• Leasehold law is, regrettably, complicated and therefore care in pleading a claim or defence is a vital part of success. Any competent advisor should have checked whether s.166 was complied with at the very start. Neither party’s lawyers seem to have done so until the matter went to appeal. The same remark goes, in spades, to compliance with section 20. If you are involved (as a party, lawyer or judge) in such a case the very first thing you should be asking (after reading the lease and establishing the relationship of the parties) is whether statutory formalities apply and have been complied with.
• Evidence, and particularly documentary evidence, matter a great deal in service charge cases. Both sides appear not to have been sufficiently focussed on the evidence and its availability. If you are involved, getting the evidence right can be the difference between success and failure.

All these points should go without saying, sadly it appears they do need to be restated.