Avon Ground Rents Ltd v Child [2018] UKUT 204 (LC)

As many readers will of this blog will be aware we have a number of different courts and tribunals involved in residential property. In some cases, notably leasehold service charges, there is sometimes a need to engage with two of these entities (namely the County Court and the First Tier Tribunal) in the same matter. This situation arises particularly where a money judgement or possession order is sought for non-payment of service charges and is defended on the basis that the charge is unreasonable or excessive. This question is properly a matter for the FTT and under s176A of the Commonhold and Leasehold Reform Act 2002 the County Court may transfer to the FTT “so much of the proceedings as relate to the determination of that question”. This is an enormous amount of hassle and in an effort to improve the situation there has been a CJC-led pilot running whereby FTT Judges (all of whom are also County Court judges by virtue of s5, County Courts Act 1984) actually sit “double-hatted” dealing with the FTT and Courts aspects in one go. This has been described in an entertaining speech by Vos LJ as a “sticking plaster” and is one of the reasons for calls for reform and a single Housing Court (although see NL on that topic here). Anyway, back to the case!

Facts
Avon Ground Rents (A) owns a block of flats in Basildon, one of which is occupied by Ms Childs (C). After a range of demand letters were sent they issued proceedings against C in October 2016 for £1,698.18 plus court fee of £115 and representative’s costs of £80. This was the culmination of a process of seeking to obtain payment and in fact £1355.16 of that sum were accrued administration charges for the demand letters. At about the same time as the proceedings were being issued C paid A the sum of £343.02, being the outstanding service charge sum, less the various administration charges. C then defended the proceedings on the basis that she had paid, that she had not received the demand letters, and that the administration charges were not payable. The County Court promptly transferred the matter to the FTT of its own volition. In March 2017 the FTT made a directions order in the case requiring various arguments and witness statements to be served, which both parties did. On 31 May 2017 the FTT wrote to the parties stating that the FTT Judge (Judge Edgington) would like to use his powers as a County Court judge to deal with the whole matter in one go. However, this was now pretty shortly before the hearing on 8 June. A replied (through its solicitors) seeking confirmation that the costs (which on their view had been incurred in the County Court) would not be dealt with by the FTT as they were not within the FTT jurisdiction and also sought a paper determination of the entire matter to save costs. The FTT replied repeating that Judge Edgington was a County Court judge, saying that he would deal with matters that required those powers at the end of the FTT hearing while everyone was still there and also saying that a paper determination was not possible so late in the day and with some questions which needed to be resolved. Presumably reassured to a degree A then sent a costs schedule in the correct form (form N260) for a County Court summary assessment seeking the sum of £4,425. This costs summary included VAT, fees for both the Court and the Tribunal and costs for both the County Court and Tribunal elements of the claim. This reassurance only went so far though as A’s solicitors asked again for clarification as to how the costs claim would be dealt with the extent of the FTT’s powers to do so. This letter was not answered by the FTT as it was now very close to the hearing. More (so much more) on this issue in a moment!

At the hearing the FTT decided that the service charge demands had been sent and so decided for A. They then considered the reasonableness of the additional administration charges and cut these from the claimed £1355.16 to a far lower sum of £473.16, 35% of the sum claimed. They also added the court issue fee of £115 making a total of £588.16. So far so good and none of this part of the decision has been appealed.

However, the FTT then went on to do something more controversial. They picked up the N260 and proceeded to determine all of the costs claimed “contractually as administration charges”. They reduced these costs from the claimed £4,425 to £2,208 including VAT and the FTT hearing fee (the Court fee had already been determined). Even more oddly the FTT delivered a written decision on 13 June but Judge Edgington (now operating as DJ Edgington) made an order on 9 June stating that the FTT order was “known to the court” (although not of course to the parties for another four days), allocating the claim to the small claims track, and giving judgement for A in the sum of £2,481.96 plus £315 of court and FTT fees, a total of £2,796.96 (remember this number).

On 7 July A asked the FTT to review its decision and to give permission to appeal to the UT. The FTT refused both requests on the basis that it would be disproportionate to the sums involved and that the points made were unjustified. In this refusal the FTT refused to make clear whether an appeal should be made against the County Court decision, would not give guidance on how cases should proceed when judges were double-hatted because this was “already known” and repeated that the costs had been assessed as administration charges due to the fact that when the case was transferred to the FTT it already included unspecified costs.

The UT did not agree with this and gave permission to appeal as the point was of general importance in order to give guidance on the issue of double-hatted sitting. The UT also invited the parties to consider whether the County Court judgement should be appealed. It was and permission was given out of time and the appeal transferred to the County Court in Central London. The two UT judges who heard the appeal are also (of course) County Court judges and it was agreed that they could determine both appeals. Just to add to the mix C now filed an application to reduce or remove her obligation to pay any administration charges for A’s costs for the appeal. In the end A acquiesced to this application and such an order was made.

The Appeal Grounds
There were four grounds of appeal:

1. The FTT had no right to treat the costs incurred in the County Court as administration charges. A had not asked them to do so and they had no power to assume this jurisdiction.
2. This was an alternative to ground 1. This was that if the FTT did have a power to determine the costs as administration charges then the County Court had no power to simply adopt that decision and make an order. It should have waited for A to apply to the County Court to enforce the FTT decision.
3. The FTT failed to make clear the procedure it was adopting. It suggested initially in correspondence that costs would be dealt with under the County Court jurisdiction but actually dealt with them under its FTT jurisdiction and in fact the judge appeared during the hearing to move seamlessly (and not very clearly) between the two roles. This made it impossible to understand which judicial body had made which decision. This was important because it affected routes of appeal and also obscured the role played by tribunal wing members in the making of the County Court decision, if any (they should not of course have had any role).
4. Breach of natural justice. It is accepted that Tribunals cannot just make novel decisions without allowing the parties the opportunity to make representations. The FTT plainly did not do so here because they considered the costs in a summary fashion but not before the parties and did so privately later on. This deprived A’s counsel of any ability to make representation as to level of fee earner, hours claimed etc.

UT Decision
The UT began by making clear that the powers of the FTT and County Court are different and the procedural rules and law which underwrite those powers are also different. Sitting double-hatted does not change that fact and where a judge is sitting in a double-hatted capacity it is “essential that where a judge acts on the same occasion both as a judge of the FTT and as a judge of the County Court, that judge is very clear in his or her own mind as to which “hat” is being worn in relation to each aspect of the decision-making process, and that he or she maintains and articulates a clear distinction at all times between the discrete functions and roles being performed.”

On the issue of County Court costs the UT decided that the powers of the FTT were strictly circumscribed, it is in that sense a creature of statute. It cannot give itself more powers nor can it be gifted power on a temporary basis by another body, such as the County Court. The FTT accordingly simply had no power under any reading of what occurred to determine the costs in the County Court. The FTT plainly did try to determine the County Court costs by treating them as a variable administration charge and it should not have done so. It should have done what it indicated it would do in the pre-hearing correspondence and as the pilot intended and dealt with costs after the main hearing using its County Court jurisdiction.

The UT held that as the various post-issue costs items had never been demanded from C they were not properly due yet under the lease and so were not administration charges which fell within the FTT jurisdiction at that stage. This actually creates a problem, which the UT identified as a carousel, in that post-issue costs before the FTT are not determinable in the hearing to which they relate because they have yet to be demanded. This would require the hearing to conclude, a demand to be made for those costs as an administration fee, and a further hearing held before the FTT to determine the further administration fee. These new proceedings would themselves generate further post-issue costs and these would then have to be demanded under the lease and a further FTT hearing held to adjudicate on these costs, and so on and on forever….

In fact, the only way out of this endless circuit of litigation would be for a service charge payer to make an application of the type made by C in the appeal for the costs to be reduced or extinguished as an application of this sort can be made in respect of contemplated costs which have yet to be incurred.

The double-hat approach also offers a way out of this scenario but it is not entirely desirable. If a County Court, using the double-hat process determines the costs then there is no need for the FTT to do so. A County Court can determine the FTT costs as well as it has the power to do so. However, the costs regimes are different. The FTT determines administration costs as payable only “so far as is reasonable” while the County Court generally gives effect to contractual arrangements which require costs to be paid in full on an indemnity basis (the normal wording in a lease) unless there is a good reason not to following the decision in Chaplair Ltd v Kumari [2015] EWCA Civ 798.

The UT offered no clear solution to this issue. They said that the only current options were for a service charge payer to always make an application for reduction or extinguishment of litigation costs where they are challenging recoverability of service or administration charges, the court using its full range of powers to control costs, or a reconsideration of Chaplair and the interaction between lease terms and the relevant costs rules in the UT and FTT.

Rulings on the Grounds
The UT, as is probably obvious by this stage, granted the appeal on ground 1, holding that the FTT should not have determined the costs at all, with the Judge doing so in his capacity as a County Court judge under the appropriate rules for the County Court.
This meant that Ground 2 fell by the wayside but the UT expressed a view and rejected it. They held that the County Court could make an order based on the FTT decision without the necessity of being asked to do so.
Ground 3 was also rejected. The FTT had made very clear what it intended to do and also what it had done, even though those two things were different. So there was little doubt as to the procedure the FTT had adopted even though it was not in fact the proper procedure.
Ground 4 also feel by the wayside but the UT emphasised again the need to ensure that the party seeking costs had an opportunity to respond to any criticisms made by the FTT (or Court) of items in the costs statement.

The Costs Determination
The UT had to therefore set aside the existing costs order of the FTT. It therefore had to re-determine those costs as a County Court under the appropriate rules and taking into account Chaplair which it proceeded to do. The starting point was to give effect to the contract and award all the costs unless it was unreasonable to do so. In doing so the UT criticised the size of the bundles laid before the FTT and the UT. It also reduced time allowances and hourly rates. I am not going to explore all of this part in detail as I am of the view that it was a bit of a sham exercise. The upshot of all this was that the UT made a costs order as a County Court of the same number as before, £2,796.96!

Comment
Despite the arguable pointlessness of the exercise in that the sum of money awarded did not change in any way this was an important exercise. It highlighted the key issues in dealing with transferred and double-hatted proceedings. The UT summarised these as:
1. The FTT can only deal with things it has the statutory authority to deal with, regardless of the matters that the County Court sees fit to transfer to them;
2. The FTT cannot obtain a different jurisdiction by consent. The wording of the pilot contains errors in this regard by suggesting that a double-hatted FTT judge may decide things that are outside its own jurisdiction but within that of the County Court. This is not correct. An FTT may not decide anything outside its own jurisdiction but may, when sitting as a County Court, decide things that are within the County Court jurisdiction;
3. The FTT only has powers to determine costs within its own rules, not within the rules of the County Court;
4. An FTT judge can sit as a judge of the County Court to determine costs matters and this cannot be reasonably objected to. But he or she must sit as a judge of the County Court, must be and make clear that he or she is doing so, and must not involve wing members in County Court determinations in which they do not have a role. He or she must also give effect to the rules of natural justice and allow the parties to address the court on any points they might have around costs.
The pilot will likely continue and be widened. However, this case to some degree highlights the risks involved in what Vos LJ has called “sticking plasters” and it would probably be helpful to thin through the terms of such a pilot more carefully in future even if wholesale reform is not in fact on the cards.