Veena SA v Cheong [2003] EWLands LRX_45_2002 (20 February 2003)

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Cite as: [2003] 1 EGLR 175, [2003] EWLands LRX_45_2002

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[2003] EWLands LRX_45_2002 (20 February 2003)

LRX/45/2000

(consolidating

LRX/45/2000 &

LRX/20/2002)

LANDS TRIBUNAL ACT 1949

SERVICE CHARGE – appeal and cross-appeal – whether costs of full-time porter and part-time cleaner and replacement of extractor fan reasonably incurred – whether s20C order of LVT just and equitable – procedural matters including rehearing or review and burden of proof – Landlord and Tenant Act 1985, ss 18, 19(1) and (2A)(a) and 20C.

IN THE MATTER of APPEALS against a DECISION of a LEASEHOLD

VALUATION TRIBUNAL of the LONDON RENT ASSESSMENT PANEL

BETWEEN VEENA SA Appellants

and

EUGENE CHEONG Respondent

Re: 37/38 Clarges Street

London W1

Before: P H Clarke FRICS

Sitting at 48/49 Chancery Lane, London WC2A 1JR

on 6 & 7 November 2002

The following cases are referred to in this decision:

Yorkbrook Investments Ltd v Batten [1985] 2 EGLR 100

Wellcome Trust Ltd v Romines [1999] 3 EGLR 229

Hyde Housing Association Ltd v Williams (2000) (unreported LRX/53/99)

Posner v Scott-Lewis [1986] 1 EGLR 56

Iperion Investments Corporation v Broadwalk House Residents Association [1995] 2 EGLR 47

Sherbani v Doren Ltd (2001) (unreported LRX/37/2000)

Russell v Laimond Properties Ltd (1984) 269 EG 947

Ashworth Frazer Ltd v Gloucester City Council [2001] UKHL 59

Scott v Martin [1987] 1WLR 841

Forcelux Ltd v Sweetman and Parker (2001) (unreported LRX/14/2000)

Havenridge Ltd v Boston Dyers Ltd [1994] 2 EGLR 73

Palser v Grinling [1948] AC 291

Re El Sombrero Ltd [1958] 3 All ER 1

Billson v Tristrem (2000) (unreported)

Tanfern Ltd v Cameron Macdonald [2000] 1 WLR 1311

Guppys Properties Ltd v Knott (No.3) [1981] 1 EGLR 85

St Mary's Mansions Ltd v Limegate Investment Co Ltd [2002] EWCA Civ 1491; [2003] 05 EG 146

In Re Elgindata Ltd (No.2) [1992] 1 WLR 1207

Viscount Tredegar v Harwood [1929] AC 72

Holding & Management Ltd v Property Holding & Investment Trust Plc [1989] 1 WLR 1313

Mr Mark Sefton instructed by P Chevalier & Co, solicitors, for Veena SA.

Mr Kenrick Cheong with permission of the Tribunal, for Mr Eugene Cheong.

DECISION OF THE LANDS TRIBUNAL

This is an appeal by the landlords and a cross-appeal by the tenant of Flat 31, 37/38 Clarges Street, London W1 from a decision of a leasehold valuation tribunal determining that certain service charge costs were or were not reasonably incurred and that the landlords' costs of the proceedings were not relevant costs to be taken into account when determining the service charge.

Mr Mark Sefton of counsel appeared for the landlords and called Mr Asad Rushd, the representative of Veena SA in the United Kingdom and formerly a director of Erida Property Services Limited. Mr Rushd gave evidence in the landlords' appeal but not in the tenant's cross-appeal.

Mr Kenrick Philip Cheong, a professional economist, of Flat 12 in 37/38 Clarges Street, appeared with permission of the Tribunal for Mr Eugene Cheong, the tenant in these proceedings, and gave evidence in both the landlords' appeal and the tenant's cross-appeal.

I heard oral evidence over a two-day hearing and, by agreement with the parties, received closing submissions in writing.

FACTS

The parties were unable to agree a statement of agreed facts. On the evidence I find the following facts.

The property which is the subject of these appeals, 37/38 Clarges Street, London W1, is a six-storey terraced building in Mayfair comprising a restaurant on the ground floor and basement and seven flats on the upper floors. It was purpose-built in about 1980. Access to the flats is by a separate entrance on the ground floor controlled by an entryphone system leading to an entrance hall with reception desk and lift and staircase to the flats. There is a plant room at the top of the building containing a boiler, cold water tank, hot water tank, expansion tank, electricity control panel and air conditioning and heating plant. There is a small pavement vault containing electricity meters.

The landlords, Veena SA, have been the owners of the subject property since 17 February 1995 when they acquired the freehold reversion from Erima GMBH. Veena are appellants in their appeal and respondents in the tenant's cross-appeal. The respondent or appellant tenant is Mr Eugene Cheong of Flat 31. To avoid confusion with his advocate and witness, Mr K Cheong (also a tenant in the building but not a party to these appeals), I will refer to Mr Eugene Cheong as Mr E Cheong or the respondent tenant or the appellant tenant.

The respondent tenant has a lease of Flat 31 dated 28 May 1987 for 68 years from 1 January 1987 at a rent of £200 per annum for the first 23 years rising to £300 per annum for the next 23 years and to £400 per annum for the remainder of the term. By order of Mr Recorder Nicholl in Central London County Court on 25 October 1996 a declaration was given on the application of Mr K Cheong as to the true construction of the lease of Flat 12, particularly the Fourth Schedule. The terms of this order are incorporated in the following summary of the service charge provisions (in so far as relevant to these appeals). I have not been provided with a copy of the lease of Flat 12 and no reference has been made by the parties to what is no doubt the similarity between the leases of these two flats. In the absence of representations on this point I am proceeding on the assumption that the wording of the two leases is the same in all material respects with regard to the service charge and that the order of Mr Recorder Nicholl also applies to the lease of Flat 31. Clause 4(ii)(a) of the lease requires the tenant to contribute and pay half yearly in advance a rateable proportion of the costs, expenses, outgoings and matters mentioned in the Fourth Schedule. The following provisions of this Schedule are relevant to these appeals.

Paragraph 2 refers to the expenses of cleaning and providing for the lighting of the main entrance, entrance halls, landings, staircases and lifts.

Paragraph 11 refers to the cost of the supply and maintenance of suitable air conditioning plant for the flats and the common areas of the building. The order of Mr Recorder Nicholl restricts the recoverable costs to the heating of the flat.

Paragraph 12 refers to the costs of maintenance of the services of a porter or porters. The order of Mr Recorder Nicholl states that these costs are referable to the flats and the common parts, including the shell and roof (excluding the restaurant), and is the cost to be borne by the flats only.

The landlords' obligations under the lease are set out in clause 5. Paragraph (v) is relevant to these appeals and provides that, subject to contribution and payment, the landlords will so far as practicable keep clean and provide for the lighting and heating of the entrance hall, landings and staircases.

On 10 August 1998 the tenants of Flats 12 and 31 made application to a leasehold valuation tribunal for the London Rent Assessment Panel for a determination as to the reasonableness of service charges incurred for the years 1993 to 1997. Following a hearing on 20-23 September 1999 the tribunal issued decisions on 15 November 1999 and 17 February 2000. The relevant parts of these decisions are summarised as follows:-

(i) The professional management of such a small block of flats of this quality did not require the exclusive services of a full-time porter and a part-time cleaner. The costs of cleaning and porterage were not reasonably incurred and reduced costs were determined to be recoverable (paragraphs 13 and 14).

(ii) The cost of the replacement of an extractor fan (£348.15) was reasonably incurred (paragraphs 35 and 36).

(iii) Under section 20C of the Landlord and Tenant Act 1985 the costs incurred by the landlords in connection with the proceedings before the LVT shall not be regarded as relevant costs to be taken into account in determining the amount of any service charge (paragraph 5 of the decision dated 17 February 2000).

On 6 December 1999 Veena made application to the LVT for leave to appeal to this Tribunal. This was refused on 24 February 2000. On 10 March 2000 Veena made application to this Tribunal for leave to appeal and this was granted on 2 January 2001. This is appeal LRX/45/2000. It relates to porterage and cleaning costs and the section 20C order. The respondent tenant has responded to this appeal.

On 4 February 2002 Mr E Cheong made application to the LVT for leave to appeal and this was granted on 20 February 2002. The appeal was lodged with this Tribunal on 15 March 2002. It relates to electricity charges and the replacement of an extractor fan. This is the cross-appeal LRX/20/2002. Veena have responded to this appeal.

On 28 June 2002 the registrar ordered that the two appeals be consolidated into one appeal (LRX/45/2000) with Veena SA as the appellants and Mr Eugene Cheong as the respondent.

STATUTORY PROVISIONS

It will be convenient to set out here the relevant statutory provisions. Sections 18 to 30 of the Landlord and Tenant Act 1985 ("the 1985 Act") are concerned with service charges. Sections 18 to 20C are relevant to this appeal.

Section 18 sets out the meaning of "service charge" and "relevant costs":-

"(1) In the following provisions of this Act 'service charge' means an amount payable by a tenant of a dwelling as part of or in addition to the rent -

(a) which is payable, directly or indirectly, for services, repairs, maintenance or insurance or the landlord's costs of management, and

(b) the whole or part of which varies or may vary according to the relevant costs.

(2) The relevant costs are the costs or estimated costs incurred or to be incurred by or on behalf of the landlord, or a superior landlord, in connection with the matters for which the service charge is payable.

(3) For this purpose -

(a) 'costs' includes overheads, and

(b) costs are relevant costs in relation to a service charge whether they are incurred, or to be incurred, in the period for which the service charge is payable or in an earlier or later period."

Sections 19 to 20C contain provisions limiting the amount of service charge payable by a tenant. This appeal is concerned with section 19 (reasonableness) and 20C (costs of court or tribunal proceedings).

Section 19(1) provides for the limitation of "relevant costs" in a service charge by reference to two tests: whether the costs are "reasonably incurred" and whether the services or works are "of a reasonable standard." This appeal is solely concerned with the former. The material part of section 19(1) is as follows:-

"(1) Relevant costs shall be taken into account in determining the amount of a service charge payable for a period -

(a) only to the extent that they are reasonably incurred, ...

(b) ...

and the amount payable shall be limited accordingly."

Section 19(2A) gives the landlord or tenant the right to apply to a leasehold valuation tribunal for a determination as to reasonableness:-

"A tenant by whom, or a landlord to whom, a service charge is alleged to be payable may apply to a leasehold valuation tribunal for a determination -

(a) whether costs incurred for services, repairs, maintenance, insurance or management were reasonably incurred,

(b) ...

(c) ..."

Section 20C is concerned with limitation of a service charge by reference to the costs of tribunal proceedings:-

"(1) A tenant may make an application for an order that all or any of the costs incurred, or to be incurred, by the landlord in connection with proceedings before a court or leasehold valuation tribunal, or the Lands Tribunal, ... , are not to be regarded as relevant costs to be taken into account in determining the amount of any service charge payable by the tenant or any other person or persons specified in the application.

(2) The application shall be made -

(a) ...

(b) in the case of proceedings before a leasehold valuation tribunal, to the tribunal before which the proceedings are taking place or, if the application is made after the proceedings are concluded, to any leasehold valuation tribunal;

(c) in the case of proceedings before the Lands Tribunal, to the tribunal;

(d) ...

(3) The court or tribunal to which the application is made may make such order on the application as it considers just and equitable in the circumstances."

ISSUES

In the appeal Veena seek declarations that (i) the costs of porterage and cleaning included in the service charges for 1993-97 were reasonably incurred under section 19(1)(a) and (2A)(a) of the 1985 Act; and (ii) that the costs they incurred in connection with the proceedings before the LVT are relevant costs to be taken into account in determining the service charge under section 20C of the 1985 Act.

In the cross-appeal the appellant tenant seeks declarations that (I) the cost of replacement of the extractor fan was not reasonably incurred under section 19(1)(a) and (2A)(a) of the 1985 Act; and (ii) that the costs incurred by Veena in connection with the proceedings before this Tribunal are not relevant costs to be taken into account in determining the service charge under section 20C of the 1985 Act. Mr Cheong's grounds of appeal originally included the reasonableness of electricity charges but this was withdrawn during the hearing.

PROCEDURAL MATTERS

At the start of the hearing I outlined the procedure I proposed to adopt, namely two consecutive hearings (the Veena appeal and the Cheong cross-appeal), each to take the form of a rehearing with the burden of proof on the appellant in each case. The parties agreed to consecutive hearings but raised other procedural matters including rehearing or review and the burden of proof.

Mr Sefton agreed that appeals to this Tribunal usually take the form of a rehearing but submitted that the issue in the Veena appeal regarding porterage and cleaning should take the form of a review of the LVT's decision. He referred to paragraphs 12-14 of the decision and Lands Tribunal Practice Directions paragraph 5.8 and said that the LVT have not given any reasons for their decision. This is in itself a ground of appeal. The decision should be reviewed and found to be wrong.

I declined to follow this procedure. To hold the LVT decision to be wrong due to a failure to give reasons would leave the application undetermined. A failure to give reasons would carry no implication as to the reasonableness or otherwise of the porterage costs. On appeal from a decision of an LVT this Tribunal may treat the proceedings as a rehearing or a review, depending on the circumstances of the case. Rule 48 of the Lands Tribunal Rules 1996 gives the Tribunal a wide discretion regarding procedure at the hearing of any proceedings. Section 31A(7)(a) of the Landlord and Tenant Act 1985 provides that the Tribunal on appeal may exercise any power available to the LVT in relation to the original matter. This would include a rehearing. Appeal by rehearing is the usual procedure. In my judgment, a decision which is lacking in reasons and in findings of fact (as in these appeals) cannot usefully be reviewed. The lack of reasons makes a review of the decision difficult or perhaps impossible. Under these circumstances the most satisfactory procedure is a rehearing with both parties adducing evidence on the disputed matter. In the Veena appeal both parties have lodged witness statements regarding porterage costs and I can see no good reason why this part of the LVT's decision should not be dealt with as a rehearing.

As to the burden of proof, at the start of the hearing I thought that Mr Cheong agreed that the burden in each appeal rested on the appellant. During the cross-appeal, however, it became apparent that he was advocating a different burden of proof.

In his closing submissions Mr Cheong said that the burden of proof rests with the appellant to show that the decision of the LVT is wrong. He appreciated that, at a hearing before the Lands Tribunal with strict rules of evidence and the complexities and lack of co-operation by Veena in agreeing facts, arguably he is unable to show that the LVT decision is wrong. But in the cross-appeal he is able to demonstrate that there is a prima facie case which was not answered by Veena at first instance.

Mr Cheong referred to the observations on the burden of proof in Yorkbrook Investments Ltd v Batten [1985] 2 EGLR 100 at 102L. He said there is no legal burden of proof in a section 19 application on either the landlord or the tenant. The approach should be that the tenant must make out a prima facie case and then the landlord (with the right to arrange for the provision of a service) should be held fully accountable for the expenditure incurred and must, if challenged, prove that it was reasonably incurred. Thus, the evidential burden shifts to the landlord. Because a tenant does not have the legal burden, he does not have to satisfy a reasonable trier (sic) of fact on the balance of probabilities, but discharges the evidential burden by adducing sufficient evidence to leave the mind of a reasonable trier of fact in a state of equilibrium.

Evidence must be weighed in accordance with the power of one side to produce evidence, and the power of the other to contradict it. In a service charge dispute a landlord is at an advantage, particularly in relation to complex items. In the event of any residual doubt as to whether a cost was reasonably incurred, the evidential burden rests on the landlord. In the cross-appeal leave to appeal was given by the LVT. They must have had doubts regarding their decision.

In my judgment the position is as follows. In Yorkbrook Investments Wood J, giving the decision of the Court of Appeal, said (at 102L):-

"During argument on the issue of garden maintenance, it was indicated that registrars of county courts and those practising in this field were finding difficulty in dealing with the burden of proof when considering applications for declarations under the Housing Acts. Having examined those statutory provisions, we can find no reason for suggesting that there is any presumption for or against a finding of reasonableness of standard or of costs. The court will reach its conclusion on the whole of the evidence. If the normal rules of pleadings are made, there should be no difficulty. The landlord in making his claim for maintenance contributions will no doubt succeed, unless a defence is served saying that the standard or the costs are unreasonable. The tenant in such a pleading will need to specify the item complained of and the general nature – but not the evidence – of his case. No doubt discovery will need to be ordered at an early stage, but there should be no problem in each side knowing the case it has to meet, provided that the court maintains a firm hold over its procedures. If the tenant gives evidence establishing a prima facie case, then it will be for the landlord to meet those allegations and ultimately the court will reach its decisions."

Mr Cheong relies on this statement but Wood J is there referring to the burden of proof in proceedings at first instance. The proceedings on appeal to this Tribunal are usually in the form of a rehearing with the burden of proof on the appellant to show that the decision of the LVT is wrong. That decision stands unless it is shown to be wrong by the evidence at the hearing before this Tribunal (Wellcome Trust Ltd v Romines [1999] 3 EGLR 229 at 233B; Hyde Housing Association Ltd v Williams (2000) (unreported LRX/53/99), paragraph 29). Thus, the position is much simpler than that suggested by Mr Cheong. In the Veena appeal Veena must show that the LVT's decision is wrong and in the cross-appeal the appellant tenant must show that the LVT decision is wrong. These are the legal (or persuasive) burdens. A party who wishes to place a fact before the Tribunal must prove it. This is the evidential burden.

There were other procedural matters in dispute. First, the admissibility of some of Mr Cheong's evidence. Mr Sefton referred to Mr Cheong's trial bundle which contains e-mails, letters and agents' particulars regarding porterage in flats in Central London. Mr Cheong confirmed that he did not intend to call any oral evidence to support this written material. Mr Sefton asked for a direction that no reference should be made to it.

This material falls into two categories: evidence of opinion, eg. as to the whether the provision of a porter affects the marketability of a flat or whether a porter is usually provided for a small block of flats; and evidence of fact, e.g. whether a particular building has a porter. As to the opinion evidence, this is essentially expert evidence and is excluded under paragraph 3 of my order dated 9 September 2002 which provided that, the parties having failed to lodge expert reports, no expert evidence will be received at the hearing. As to the evidence of fact, this is hearsay and section 1 of the Civil Evidence Act 1995 provides that in civil proceedings evidence shall not be excluded on the ground that it is hearsay. Sections 2-6 of the Act contain safeguards and supplementary provisions. Civil proceedings include proceedings in this Tribunal (section 11). Mr Sefton submitted that Mr Cheong has not given notice of the hearsay evidence as required by section 2(1) of the Act. That is correct but subsection (4) of this section provides that failure to serve notice does not affect the admissibility of hearsay evidence although it may affect the weight to be given to it. Under this provision I declined to reject this hearsay evidence of fact but advised the parties that I could give little weight to it.

While dealing with the scope of the evidence I should add that I informed the parties during the hearing that I would only have regard to the evidence in the parties' bundles which was referred to at the hearing. This particularly applies to Mr Cheong's trial bundle which extends to over 600 pages, only a few of which were referred to in evidence and submissions.

Second, Mr Sefton requested that I give a ruling that my decisions in these appeals are binding on all parties to the hearing before the LVT. The respondent and appellant in these appeals is Mr E Cheong, one of the tenants of Flat 31; Mr K Cheong, although representing Mr E Cheong, is not a party to the appeal or the cross-appeal. Mr Sefton said that, if I do not rule that my decision is binding on all parties to the original LVT proceedings (including Mr K Cheong as tenant of Flat 12), this could defeat the effect of the decision.

The parties to this appeal and cross-appeal are Veena SA and Mr E Cheong. My overall jurisdiction is to determine whether certain service charge expenditure was reasonably incurred and whether the landlords' costs of the LVT proceedings, and these proceedings are relevant costs when determining the service charge. In my judgment I have no jurisdiction to decide whether my decision is binding on a third party, in this case Mr K Cheong, who although representing Mr E Cheong, is not a party to the proceedings. I declined to make a ruling as to the binding effect of my decision.

Third, Mr Cheong made an application for security for costs. He said that Veena are a company registered in Panama and, having regard to their statement that they receive only a modest ground rent and that they have committed their own resources to fund service charge expenditure, there should be an order for security for costs, particularly as the costs of these appeals are disproportionate to the amounts in dispute.

The Lands Tribunal is a statutory body and has only the powers given to it by statute and related rules. Section 3(5) of the Lands Tribunal Act 1949 gives the Tribunal power to order the payment of costs by one party to another party and to tax or settle the amount or direct the manner of taxation (now called assessment). Rule 52 of the Lands Tribunal Rules 1996 deals with costs. Paragraph (1) provides that "the costs of and incidental to any proceedings shall be in the discretion of the Tribunal", and paragraph (4) provides for the settlement or taxation of the amount of costs. There are no provisions, in statute or the Rules, giving the Tribunal power to make an order for security for costs. I am unable therefore to consider Mr Cheong's request for such an order.

Fourth, Mr Cheong raised the question of the recoverability by Veena of the service charges for 1993 and 1994. He said that Veena purchased 37/38 Clarges Street in February 1995 and cannot therefore collect the service charges for 1993 and 1994. The amounts for these years were included in the decision of the LVT. Veena pleaded in the Central London County Court in 1995 that it was not entitled to recover service charges before 17 February 1995 and that it had no knowledge of matters prior to that date. It cannot therefore be a landlord for the purposes of section 19 of the 1985 Act for the years 1993 and 1994. It is inequitable for Veena to litigate matters to which it has pleaded no knowledge. This will inevitably increase the costs of the proceedings. Mr Sefton replied that this was not a ground of appeal; it was Erima's view that Veena cannot collect service charges before February 1995 but this is not shared by Veena. The Lands Tribunal has no jurisdiction over this matter.

As I have already stated, my jurisdiction in these appeals is limited to determinations regarding service charge expenditure and the costs of the LVT and these proceedings. I cannot make a decision as to the recoverability of the service charge for past years. As to any extra costs in these proceedings due to the inclusion of the service charges for 1993 and 1994, Mr Cheong can make representations on this matter when I deal with costs following my substantive decisions in these appeals.

VEENA'S APPEAL

Veena's case

Veena seek declarations that the costs of porterage and cleaning claimed were reasonably incurred and that their costs in the LVT proceedings are relevant costs for inclusion in the service charge.

Mr Rushd was concerned with the management of the subject property until Ashbourne Estates Limited were appointed managing agents in January 1998. On Mr Cheong's recommendation Mr Cross of James Anthony and Co was appointed managing agent on 20 May 2002. Mr Rushd was formerly a director of Erida Property Services Limited, which managed the property from 1980 to 1997. They also managed a nearby building, 34/36 Clarges Street, from 1980 to 1986.

Mr Rushd said that the court order of 25 October 1996 restricted the cost of porterage in the service charge to the flats. The service charge provides for expenditure on more than one porter.

The flats are marketed on the basis that porterage is provided. The absence of a full-time porter would reduce their marketability. The particulars of sale in 1987 referred to porterage. In cross-examination Mr Rushd conceded that there are no documents to show that flats are now being marketed with a full-time porter. He expressed the opinion, however, that tenants selling or renting would require such a porter.

The other tenants in the building prefer the landlords to provide a porter to give the existing services. None of the other tenants live full-time in their flats but use it as a London base when not abroad. Four of the tenants are directors of Veena. They do not object to a charge for a full-time porter. It is important to them that post and deliveries are not left in the hall until their return. Also they wish to be able to contact a person on the property who has a key to their flats and can contact them abroad. In cross-examination Mr Rushd agreed that full-time porterage has only existed since 1995: previously the porter also looked after 34/36 Clarges Street (30% of the time). The change in 1995 was made without written notification to the tenants. The landlords relied on the porter to tell the tenants of the change from part-time to full-time porterage. Veena and the other tenants did not want a part-time porter. Mr Rushd accepted that the porter, although full-time, is sometimes absent from the building and is on duty between 9am and 5pm. A full-time porter during the day is necessary for reasons of security.

The current porter has been employed since August 1999. He now does the cleaning, a service previously provided by a part-time cleaner. The initial wages of the porter were roughly equivalent to the joint wages of porter and cleaner. His routine duties now include replacing light bulbs, collecting rubbish, mopping floors and dusting, cleaning the lift, watering plants, delivering post and attendance on lift engineers and other contractors. A note of the services provided to Mr Cheong by the porter in 2002 was put in evidence.

Mr Rushd said that he has seen no evidence that suitable porters can be employed on an occasional part-time basis, nor that the cost would be £5,000, £5,500 and £6,000 in the respective periods (i.e. the LVT's figures). In cross-examination Mr Rushd conceded that he had not tried to obtain evidence on these matters. He said that he did not feel the need to obtain such information.

Mr Rushd gave details of porters' annual remuneration from five sources, ranging from £10,000 just under £25,000 for a commissionaire. There is only one other building in Clarges Street with an entrance hall and flats above. This is no.30. It has full-time porterage.

When Erida managed the subject property it employed a full-time porter from March 1981 to look after 34/36 Clarges Street and the subject property. In June 1986 no.34/36 was redeveloped and the porter ceased to look after this building. He was transferred to the subject property following completion of redevelopment. The works at 34/36 continued to 1989 and all post for this property was delivered to the subject property. During 1986-89 14% of the porters' wages was charged to 34/36 Clarges Street. Upon completion of the works at 34/36 in 1989/90 the porter provided some services for the former building, including receipt of mail, giving access and handling keys. There is no porter's room in 34/36. The owners of this building paid 30% of the porters' wages. In April 1995 the adjoining owners discontinued the use of the porter who was then employed solely by Erida at the subject property. His duties were then reduced to exclude post collection on Saturdays.

Erida employed a cleaner in August 1983 to clean such buildings as directed. She spent 75% of her time at the subject property but only 50% of her wages was charged to this building. For both porter and cleaner there were no formal particulars of employment until October 1991.

Mr Rushd said that he had not made enquiries regarding the employment of a part-time porter between 1995 and 1997 because the majority of tenants require a full-time porter. This seemed reasonable bearing in mind the nature of the building and the terms of the leases. When the porter looked after 34/36 Clarges Street he was always based at the subject property.

Between 1993 and 1997 the cleaner was paid £64 per week for a 30 hour week, including 10 hours at 34/36 Clarges Street. This rate is so reasonable that Mr Rushd did not see any need to obtain other estimates. The costs were allocated equally between 34/36 and the subject property.

Mr Rushd put in evidence a schedule showing service charge payments for the years 1993 to 1997, including the porter's and the cleaner's wages. These varied from £10,287 to £10,911 for the porter and between £6,097 and £6,624 for the cleaner.

When the porter was absent (ill or on holiday) no replacement was employed. The expenses of an agency part-time porter, who did not know the services required, did not appear to be justified. The cleaner was asked to provide such services as she could.

In his submissions Mr Sefton said that the question regarding porterage is whether the cost of providing a full-time porter was reasonably incurred and was reasonable in amount? It is not for Veena to prove that a part-time porter could not have been recruited; it is for Veena to satisfy the Tribunal that it was reasonable for a full-time porter to be employed. This issue is to be dealt with by the Lands Tribunal at a rehearing. The respondent is not entitled to rely on any of the findings or opinions of the LVT. It is incorrect for Mr Cheong to say that the appeal must fail due to the absence of market evidence as to the cost of a part-time porter. The cost of a full-time porter was reasonable for the following reasons.

First, the correct question is not whether the tenants could reasonably have subsisted without a porter; it is whether it was reasonable for a luxury service of this nature to be provided in order that the tenant should have this additional comfort. This is a question to be answered from the viewpoint of a tenant in Mayfair. The Tribunal should take a liberal approach to this question. This is evidenced by the fact that the other tenants support the provision of a full-time porter. It is immaterial that some of these tenants are directors of Veena: they all pay a service charge.

Second, the appropriateness of the provision of a full-time porter is evidenced by the original sales particulars. The flats were marketed as luxury properties "with the benefit of … Porterage."

Third, the leases expressly contemplate the provision of a porter. The Fourth Schedule requires the tenants to pay for a porter or porters. This does not mean that there is an implied obligation on the landlords to provide a porter, but it is a material consideration that the provision of a porter was one of the services expressly contemplated when the leases were granted, with the costs recoverable from the tenants.

Fourth, the provision of a full-time porter is itself a compromise between the inadequacies of a part-time porter and the expense of a resident porter. It is contrary to common sense for Mr Cheong to submit that a non-resident porter is not valued for his presence or feeling of security.

Fifth, the full-time porter provides an extensive range of useful services. It is disingenuous for Mr Cheong to submit that the cost to the tenants of each parcel delivered is £950. The porter provides further services to individual tenants beyond the basic services. Mr Cheong has had a benefit of these services.

Sixth, many of the porter's ordinary duties could not be provided on a part-time basis, eg deliveries, dealing with problems and contractors. One of the significant benefits of a full-time porter is security (see Posner v Scott-Lewis [1986] 1 EGLR 56 at 58). This would be lost if the porter is not present throughout the day. It is not surprising that Mr Rushd has considered with the new managing agent the possibility of a part-time porter having regard to the respondent's complaints, but this is not evidence that it is unreasonable to employ a full-time porter.

Seventh, the wages that have been paid to the full-time porter are extremely low. It is wrong for Mr Cheong to say that Mr Rushd' evidence as to porters' wages is opinion or hearsay and should be given no weight. It is evidence of fact.

It is misleading for Mr Cheong to submit that Veena decided in 1995 to shift the cost of a porter from nos.34/36 to 37/38 Clarges Street. The decision was taken by the owners of the nearby building and Veena could not prevent them from making this decision.

As to the appeal in respect of the LVT's order under section 20C of the 1985 Act, Mr Sefton said that this is a power to direct that costs which might be recoverable under the service charge shall not be charged to the tenants. The purpose is to prevent an unsuccessful landlord recovering his costs in the LVT proceedings through the service charge (see Iperion Investments Corporation v Broadwalk House Residents Ltd [1995] 2 EGLR 47 at 49F). It is not to enable the LVT to assess the level of costs that it was reasonable for the landlord to incur; section 19 of the 1985 Act prevents the landlord from recovering excessive costs (see Sherbani v Doren Ltd (2001) (unreported LRX/37/2000)).

The fact that the LVT has no power to award costs does not of itself provide a good reason for an order under section 20C (see Sherbani at paragraph 21). The effect of an order under section 20C is to deprive the landlord of a property right and should be exercised sparingly (see Sherbani at paragraph 32).

The LVT did not state their reasons for the order under section 20C. It was therefore determined at the start of the hearing in the Lands Tribunal that the Tribunal would exercise its discretion afresh. Mr Cheong, in his closing submissions, argues that the discretion should not be exercised afresh but this point has already been decided. In any event it would not be possible to review the LVT's decision in the absence of reasons.

There is nothing in the circumstances of this case to make it just for the landlords to be deprived of any contractual right they may have to recover the costs of the LVT proceedings. These were begun by the respondent tenant and the landlords' defence cannot be said to have been unsuccessful. The respondent tenant claimed that the only reasonable expenditure in the service charge was £27,015 but the LVT found that £61,556 was reasonable, a figure about half way between the landlords' and tenant's figures. The respondent tenant challenged eleven heads of expenditure and said that no sums should be recoverable under seven of those heads. The LVT found that sums were recoverable under all eleven heads. If the landlords had not contested the claim, then the result would have been that £34,541 of reasonable expenditure would have been declared unreasonable, a sum already expended by the landlords, representing 172 years of ground rent. In the circumstances it cannot be said that the landlords acted abusively or oppressively by defending the claim. It is not therefore right to make an order under section 20C.

Mr Cheong refers in his closing submissions to "circumstances" referred to by the LVT but they are all trivial matters that fall very short of proving that the landlords' decision to contest the case was abusive or oppressive. There was no offer by the respondent tenant to settle the LVT proceedings at a sum equal to or below the LVT decision. If the proceedings had not been contested by the landlords they would have been improperly deprived of the ability to recover a substantial amount of reasonably incurred expenditure.

Respondent tenant's case

Mr K P Cheong, in giving evidence in this appeal, referred generally to relationships between the landlords, the tenants and the managing agent; the preferences of other tenants in the building; general matters regarding the service charge, including charges to the restaurant; and the past history of excessive charges and litigation.

With regard to porterage and cleaning, Mr Cheong made numerous criticisms of the services rendered by the porter, including frequent absences from the building "on company business", uncertainty regarding the porter's hours and holidays and his failure to test pumps in the plant room. Mr Cheong has never seen the porter carry out small repairs. There has been lack of consultation with the tenants as to the porter's duties. In Mr Cheong's view the amount of porterage time (as distinct from porterage services) is excessive for a small building with only seven flats. The time for which the porter was employed vastly exceeded the time needed for the services provided. In April 1995 the whole cost of porterage was shifted to 37/38 Clarges Street without warning or consultation. Previously the cost was shared 70:30 with 34/36 Clarges Street. Mr Cheong gave evidence regarding lack of cleaning and the poor quality of the work between 1993 and 1997. There has been an excessive cost escalation.

In cross-examination Mr Cheong said that he has not contacted agencies to inquire whether a part-time porter could be engaged. However, about 6 million people now work part-time and it should not therefore be difficult to find a part-time porter. About 17½ hours per week would be sufficient.

In his closing submissions Mr Cheong said that, for the appeal to succeed, Veena must show, on the evidence before the Lands Tribunal, that the decision of the LVT, that professional management did not require a full-time porter and a part-time cleaner, was wrong for a building well below the usual standard in Mayfair, and that a part-time porter could have been recruited within the budgetary amounts set out by the LVT. Veena abandoned many points in their appeal on the day before the hearing in this Tribunal.

The appellants' case is that the building is at the top end of the Mayfair market and justifies a full-time porter, but there is no evidence to overturn the findings of the LVT as to the poor quality of the building. It is not reasonable to spend such a disproportionate amount on porterage compared to the maintenance of the building. The absence of toilets facilities indicates that a full-time porter was not contemplated. The cost of a full-time porter does not represent value for money and is not reasonable, given the basic standard defined by the lease. Compared to the actual services provided, the attendance of a full-time porter is excessive. On the meaning of "reasonably incurred" and "reasonable" Mr Cheong referred to Russell v Laimond Properties Ltd (1984) 269 EG 947 at 951 and Ashworth Frazer Ltd v Gloucester City Council [2001] UKHL 59 at paragraph 5.

The need for a full-time porter for reasons of security was introduced by Veena on the day before the hearing. In the lease there is no covenant to provide a porter. A daytime only porter does not enhance security. Mr Cheong commented on Posner v Scott Lewis. No consideration has been given to alternative security arrangements. There have been burglaries despite the full-time porter.

The preference of other tenants for a full-time porter should be given no weight. None of these tenants live in the building. They are directors of Veena or a former director of Erida.

The market particulars which refer to a porter do not refer to a full-time porter. These particulars were not shown to be relevant to the "surrounding circumstances". The onus is on the party asserting "surrounding circumstances" as an aid to construction to prove those circumstances (Scott v Martin [1987] 1WLR 841 at 846). Veena have provided no evidence to show that the absence of a full-time porter detracts from marketability. A full-time porter is destroying market value.

Until April 1995 the porter was shared with 34/36 Clarges Street and was not full-time. The reason for the change has not been adequately explained. Mr Rushd's evidence on this point is not credible. Erima and Veena are controlled by the same people and the shift of burden was a deliberate tactic to increase the costs of the respondent and the tenant of Flat 12. This change resulted in a 42% increase in the cost of porterage overnight, a large increase that was not reasonably incurred under section 19 of the 1985 Act. Alternatively, there was a breach of section 13 of the Supply of Goods and Services Act 1982. This change shows that 34/36 Clarges Street is able to operate without a porter.

As to the porter's wages, Mr Cheong said that Veena's case is that there was no evidence before the LVT other than the costs in the service charge accounts. This is not accepted. On appeal the burden of proof shifts. Mr Rushd said that he has not sought evidence as to whether part-time porters can be recruited within the budget figures adopted by the LVT. It is frequently argued by landlords that "reasonably incurred" does not mean the cheapest available cost. This is accepted but there is evidence to show that the LVT did not apply the lowest costs. In Forcelux Ltd v Sweetman and Parker (2001) (unreported LRX/14/2000) the Lands Tribunal set out the tests to be applied when considering whether a cost had been reasonably incurred (paragraph 40). The second test is whether the amount charged is reasonable in the light of the evidence. Veena have made no attempt to test whether a part-time porter could have been recruited within the amounts determined by the LVT. In the absence of this market evidence the decision should stand.

Paragraphs 10.12 – 10.16 of Mr Rushd's witness statement (porter's remuneration from various sources) is either opinion evidence or hearsay and should be given no weight. Even if this evidence is admissible it supports the figures adopted by the LVT. Much of this evidence is unreliable. Veena did not obtain expert evidence nor call Mr Alan Burbridge who provided a report to the LVT.

Mr Cheong submitted that there is nothing in the lease to contradict the LVT's determination that part-time porterage was appropriate and there is much to support it. He referred to a pro-bono opinion of Ms Camilla Lamont of counsel, which concluded (a) that the costs of porterage are recoverable under the service charge provisions in the lease; and (b) that the lease does not expressly allow the recovery of the costs of a full-time porter, just the cost of a porter or porters, who as a matter of contract, could be full-time or part-time (paragraph 7). Mr Cheong submitted that the lease must be construed as a whole. Provisions which support a modest porterage service include those relating to insurance; cleaning, lightning, etc "so far as practicable"; no waste of hot water; flower box restrictions; and rubbish removal. The word "services" must be construed following the principle of no surplusage (see Havenridge Ltd v Boston Dyers Ltd [1994] 2 EGLR 73 and Palser v Grinling [1948] AC 291 at 310-311). Mr Cheong said that it is only the cost of maintaining the actual "services" which is recoverable. These could, in theory, be performed by a cleaner or outside maintenance man. There is nothing in the lease to suggest an excessive amount of non-productive time in the services of a porter. In the event of any ambiguity, the interpretation must be contra proferentem.

As to cleaning costs, Mr Cheong said that Veena have provided no evidence to show that the costs of cleaning were reasonably incurred or that 20 hours per week is a reasonable standard. He referred to paragraph 2 of Part I of the Fourth Schedule to the lease and said that there is no obligation to pay for any other cleaning costs nor the wages of a cleaner per se. The lease does not require anything beyond a practical standard (see Re El Sombrero Ltd [1958] 3 All ER 1). It was not reasonable to supply 20 hours of cleaning per week for the common parts or keep a cleaner on standby in case it rains.

Mr Rushd has admitted that the restaurant makes no contribution to the cost of a porter. Mr Cheong said that the restaurant nevertheless benefits from the porter. Veena are able to charge the restaurant (see Billson v Tristrem (2000) (unreported)). In addition to the restaurant there are many other interests benefiting from the porter. Such motivational factors for having a full-time porter are not appropriate. The Lands Tribunal should only consider what level of service it is reasonable to provide to a residential block of flats alone.

Having regard to the application to the LVT, it is open to the Lands Tribunal to reduce the landlords' figures on the basis that the cost was not reasonably incurred and if the standard fell below a reasonable standard. For the purposes of this appeal the respondent tenant accepts that porterage and cleaning were satisfactory, provided the standard is the modest standard defined in the lease. If the Lands Tribunal considers a "Rolls Royce" standard is appropriate then the services provided fell below a reasonable standard under section 19(2A)(b) of the 1985 Act and a quantum meruit should be applied. On appeal to the Lands Tribunal the burden of proof is on the appellants. Mr Cheong referred to the guidance on appeals in Tanfern Ltd v Cameron Macdonald [2000] 1 WLR 1311. On the evidence before the Lands Tribunal there is nothing to show that the LVT's determinations regarding costs and poor management exceeded the generous ambit available to them.

Turning to the section 20C order, Mr Cheong said that this section is an additional limitation on service charges extending the protection already contained in the 1985 Act.

Mr Cheong said that the Tribunal should not exercise the section 20C discretion afresh, as argued by Veena, but should limit itself to a review of the discretion exercised by the LVT. He referred to Guppys Properties Limited v Knott (No.3) [1981] 1 EGLR 85 and Sherbani. At the start of the hearing I raised the question of review or rehearing for these appeals and I summarise the submissions and my decision in paragraphs 26 to 33 above. Mr Cheong did not raise the matter of a review for the section 20C appeal at that time and it is now too late for him to do so. I gave my decision orally at the start of the hearing that I will treat both appeals as rehearings.

Mr Cheong said that Veena's first ground of appeal is that section 20C of the 1985 Act is an instrument of oppression denying a landlord a property right. It was Parliament in the Housing Act 1996 that decided to interfere with any property right a landlord may have in relation to the costs of LVT proceedings. The identical property right claimed by virtue of the management of the building is similarly not capable of being exerted. The proper application of the Act would not require a section 20C order for proceedings before an LVT under sections 18-30 of the 1985 Act because a landlord cannot enforce payment under section 31A(4) of the Act. Furthermore, there is no provision for the taxation of costs and, while the costs could be subject to a further section 19 determination, this would only apply if they were service charge expenditure under section 18. Section 31A(4) is therefore a much broader protection in LVT proceedings than section 20C.

Veena's appeal is made in respect of all costs whereas the best it can hope for is to recover the costs reasonably incurred and subject to a section 19 determination. The LVT were mindful of the history of litigation and decided to give the respondent a section 20C protection to avoid costly satellite litigation. This is a stronger property right than the one claimed by Veena. Alternatively, it is submitted that the lease does not allow the recovery of legal costs under paragraph 8 of the Fourth Schedule. Although the construction of this paragraph is not within the jurisdiction of the LVT or the Lands Tribunal, this is not a provision in clear and unambiguous terms (see St Mary's Mansions Ltd v Limegate Investment Co Ltd [2002] EWCA Civ 1491; [2003] 05 EG 146).

Litigation costs are in the discretion of the court and this should remain sacrosanct even where costs are dressed up as a property right. A section 20C order overrides the property right. The Lands Tribunal should deny that right if there is overwhelming evidence that the section 20C order of the LVT is wrong. Veena have failed to show that the decision is wrong. Veena have not dealt with the adverse comments by the LVT regarding their conduct and lack of professional management. Mr Cheong identified numerous circumstances which caused the LVT to make the section 20C order, particularly the inspection. The LVT did not refer to any unreasonable behaviour by the respondent tenant.

Mr Cheong said that Veena's second ground referred to Veena as the successful party in the LVT proceedings. In Sherbani Judge Rich made it clear that success alone is not the relevant criterion. All circumstances must be considered including the conduct and circumstances of the parties. If a landlord has behaved improperly or unreasonably he cannot normally expect to recover his costs of defending such conduct.

As to the outcome of the LVT proceedings, Veena's figures fail to include significant concessions made by Veena during the LVT proceedings. It is a gross error to examine the differences between the parties' figures in determining success. The principal reason for the apparent differences is that a number of grounds in the appeal to the LVT were held to be outside the Tribunal's jurisdiction (see paragraph 3 of their decision). Both parties had successes and failures on jurisdictional matters. It can also be argued that some of the determinations in favour of Veena would have a reasonable prospect of being overturned on appeal. The refusal of leave to appeal by the LVT shows that they did not regard Veena as the successful party.

If Veena had applied the court order of 25 October 1996 it would not have been necessary for the respondent tenant to make application to the LVT regarding the matters covered by that order. Some concessions made by the respondent were on a no-prejudice basis.

Veena did not appeal the award of fees to the respondent and co-applicants and cannot now overturn this award. There can therefore be no grounds for removing the section 20C order: a party awarded his costs should not be asked to pay any part of the other party's costs (see Iperion and In Re Elgindata Ltd (No.2) [1992] 1 WLR 1207).

The statutory right to challenge service charges without disproportionate legal costs is important. Section 19 applications are intended to be on a no-costs basis (see now section 175 of the Commonhold and Leasehold Reform Act 2002). It is the respondent's submission that the discretion of the LVT as to a section 20C order must be respected and altered only under extreme cases of misuse (see Sherbani and Iperion). This is the correct approach because the Lands Tribunal cannot recreate the LVT proceedings nor examine the conduct of the parties. Veena has the burden of proof and have not demonstrated that the decision of the LVT was not just and equitable in the circumstances.

Decision

I look first at the appeal relating to porterage and cleaning. Clause 4 (ii)(a) of the lease requires the tenant "to contribute and pay half yearly in advance a rateable proportion of the costs expenses outgoings and matters mentioned in the Fourth Schedule." Paragraph 2 of that Schedule refers to "the expenses of cleaning … of the main entrance entrance halls landings staircases and lifts" leading to the flats in the building. Paragraph 12 refers to "the cost of the maintenance of the services of a porter or porters". Under the order of Mr Recorder Nicholl of 25 October 1996 these costs are to be borne by the flats only. Under Clause 5(v) of the lease the landlords (subject to contribution and payment) "will so far as practicable keep clean … the entrance hall landings and staircases" of the building. There is no express obligation on the landlords to provide porterage services.

The tenant's obligation under the lease to reimburse the costs of cleaning and porterage is, however, subject to section 19(1)(a) of the 1985 Act which provides that those costs must have been "reasonably incurred". A service charge is therefore limited to those costs which have been "reasonably incurred" and a landlord or tenant may apply to an LVT (and on appeal with leave to this Tribunal) for a determination as to whether costs were reasonably incurred (section 19(2A)(a) of the 1985 Act). The application in this case was made by the tenants of Flats 12 and 31. The decision of the LVT as to porterage and cleaning is contained in paragraphs 13 and 14 of their decision. Paragraph 13 states:

"The Tribunal considered that professional management of such a small block of this quality, even in Mayfair, did not require the exclusive services of a full-time porter as well as those of a part-time cleaner. Therefore, the Tribunal determines that the cost incurred for cleaning and porterage were not reasonably incurred."

Accordingly, the tribunal reduced the costs for the years 1993 to 1997 from Veena's figures of between £10,861.03 and £14,156.94 to the smaller amounts of £5,000, £5,000, £5,500, £5,500 and £6,000 for each of these years (paragraph 14).

The appeal against this decision is by Veena. It has proceeded by way of a rehearing and must therefore be determined on the evidence presented to this Tribunal. The burden of proof is on Veena to show that the decision of the LVT is wrong. That decision stands until it is shown to be wrong. If I am satisfied on the evidence before me that the decision of the LVT is wrong then I must allow the appeal, otherwise I must dismiss the appeal (see Wellcome Trust Ltd v Romines at 223 A-C).

The question for my determination is therefore whether Veena have been able to show on the evidence that the determination in paragraphs 13 and 14 of the decision of the LVT, namely that the costs incurred for cleaning and porterage were not reasonably incurred under section 19(2A)(a) of the 1985 Act, is wrong.

No guidance is given in the 1985 Act as to the meaning of the words "reasonably incurred". Some assistance can be found in the authorities and another decision of this Tribunal. In Ashworth Frazer Ltd v Gloucester City Council (a case concerned with a covenant to assign with the landlord's consent, such consent not to be unreasonably withheld) Lord Bingham of Cornhill said (paragraph 5):-

"… I would respectfully endorse the observation of Viscount Dunedin in Viscount Tredegar v Harwood [1929] AC 72 at 78 that one 'should read reasonableness in the general sense'. There are few expressions more routinely used by British Lawyers than 'reasonable', and the expression should be given a broad, common sense meaning in this context as in others."

Lord Rodger of Earlsferry expressed himself in similar terms (paragraph 67):-

"The test of reasonableness is to be found in many areas of the law and the concept has been found useful precisely because it prevents the law becoming unduly rigid. In effect, it allows the law to respond appropriately to different situations as they arise…. In this context I would follow Viscount Dunedin's advice in Viscount Tredegar v Harwood [1929] AC 72 at p78 that one 'should read reasonableness in the general sense'".

In Russell v Laimond Properties Limited the issue before the court was whether, under the terms of a lease of high quality flats, the landlords were under an obligation to provide residential porterage services. In his judgment Judge Main (sitting as a High Court judge) referred to Schedule 19 to the Housing Act 1980 (which contained similar provisions to those now under consideration in the 1985 Act) and said (at 40B):-

"Under Schedule 19 to the Housing Act 1980, the only costs that can be recovered are costs that have been reasonably incurred and that means that the landlords cannot recover more than reasonable porterage costs. If they provide non-residential porters and a court is satisfied that residential porterage would be adequate to discharge their obligations and cheaper, then the cost which they can recover is limited to the cost of a residential porter and vice versa if they provide a residential porter. If the court is satisfied that a non-residential porterage system would adequately comply with their obligations and would be cheaper, than the costs which they can recover is limited to that."

In Forcelux Ltd v Sweetman and Parker this Tribunal (PR Francis) drew a distinction between the terms "reasonable" and "reasonably incurred":-

"39. In determining the issues regarding the insurance premiums and the cost of major works and their related consultancy and management charges I consider firstly Mr. Gallagher's submissions as to the interpretation of s.19(2A) of the 1985 Act and specifically his argument that the section is not concerned with whether costs are "reasonable", but whether they are "reasonably incurred". In my judgment his interpretation is correct, and is supported by the authorities quoted. The question I have to answer is not whether the expenditure for any particular service charge item was necessarily the cheapest available, but whether the charge that was made was reasonably incurred.

40. But to answer that question, there are, in my judgment, two distinctly separate matters I have to consider. Firstly the evidence, and from that whether the landlord's actions were appropriate, and properly effected in accordance with the requirements of the lease, the RICS Code and the 1985 Act. Secondly, whether the amount charged was reasonable in the light of that evidence. This second point is particularly important as, if that did not have to be considered, it would be open to any landlord to plead justification for any particular figure, on the grounds that the steps it took justified the expense, without properly testing the market.

41. It has to be a question of degree, and whilst the appellant has submitted a well reasoned and, as I have said, in my view a correct interpretation of 'reasonably incurred', that cannot be a licence to charge a figure that is out of line with the market norm."

I obtain the following guidance from these decisions. The word "reasonableness" should be read in the general sense and given a broad, common sense meaning. It should be distinguished from the words "reasonably incurred" as used in section 19(2A)(a) of the 1985 Act. The question is not solely whether costs are "reasonable" but whether they were "reasonably incurred", that is to say whether the action taken in incurring the costs and the amount of those costs were both reasonable. The question in this part of the appeal is whether Veena acted reasonably in employing a full-time porter and a part-time cleaner and, if so, whether the amounts charged for those services were reasonable. Both parts of the question must be answered affirmatively for Veena to succeed. I heard some evidence as to the reasonableness of the amounts included in the service charge as figures, but the main issue between the parties was whether it was reasonable to employ a full-time porter and a part-time cleaner for this small block of flats. Veena put forward the following reasons why this arrangement and the consequent charges are reasonable.

The first is that, from the viewpoint of a tenant of a flat in Mayfair, it is reasonable for porterage to be provided as a luxury service in order that the tenant should have this additional comfort. I agree that one of the circumstances in which this appeal is to be considered is the location of the flats. I agree that it is reasonable for flats in Mayfair to have a porter. But this leaves unanswered the further, and more important, question whether that porter should be full-time or part-time. Mr Rushd said that there is only one other building in Clarges Street with an entrance hall and flats. This is no.30 which has a full-time porter. I give this brief statement little, if any, weight. I do not know the number of flats in 30 Clarges Street, nor the lease terms nor any of the other circumstances. I do not know the source of Mr Rushd's statement that a full-time porter is provided.

It is also argued that the other tenants at 37/38 Clarges Street support the provision of a full-time porter. It is immaterial that they are directors of Veena. This is in the evidence of Mr Rushd. He said that these tenants do not live full-time at their flats: they are often abroad and use the flats as a London base. They require a full-time porter for post and deliveries in their absence and as a contact when they are away.

There are seven flats in 37/38 Clarges Street. The respondent tenant (Mr E Cheong) and Mr K Cheong are tenants of two of the flats. Of the remaining five, four are let to directors of Veena, the landlords, and the other flat is let to Mr E Anser, formerly a director of Erida (Property) Services Limited, the company responsible for managing the block until December 1997 (the whole of the period of the disputed service charge).

I am not persuaded by these submissions and the evidence of Mr Rushd for two reasons. First, I do not know the source of Mr Rushd's statement of tenants' preferences. Has he spoken to them on the matter? Have Veena written to the tenants asking for their preferences? I am doubtful whether Mr Rushd's statement can be adequately supported. I believe that it would be more accurate to describe it as an opinion. Second, it seems unlikely that the other tenants would object to a full-time porter due to their relationship with Veena. Four tenants are directors of Veena, and each pay a service charge out of their own pocket into Veena's pocket in which they have a financial interest, and the other tenant was a director of the company managing the flats during the relevant period. I think it likely that they prefer a full-time porter, due to their particular part-time use of their flats, with part of the costs of such porter provided by two other tenants unconnected financially with the landlords. I have the impression from Mr Cheong's evidence that the porter is used for Veena's business in addition to his porterage duties. Overall, I do not find the arguments and evidence under this head persuasive in support of the appeal.

Second, it is said by Veena that the appropriateness of a full-time porter is evidenced by the original sales particulars in 1987. These were put in evidence by Mr Rushd who said that the absence of a full-time porter will reduce the marketability of the flats. There is some confusion in this part of Veena's case as to whether it refers to the original sales of the flat in 1987 and/or the sales of the flats today or during the period of the disputed service charge. The only evidence of substance I have on this matter relates to the sale of the flats by Erima in 1987. The particulars include the following paragraph:-

"Erida House is a newly developed block of flats offering various quality amenities. The Entrance and Staircase has been marbled and renovated to the highest standard, and all the flats come with the benefit of lift; Air Conditioning; Heating; Video Entry phone; Constant Hot Water and Porterage."

In cross-examination Mr Rushd agreed that air conditioning and heating are no longer provided to the flats.

I do not find this argument and evidence persuasive. The reference to "Porterage" in the sales particulars is general. It does not indicate a full-time, part-time or resident porter. The word "Porterage" cannot be said to mean necessarily a full-time porter. These particulars relate to the position in 1987, five years before the start of the 1993-1997 service charge period in issue in this appeal. The mere reference to "Porterage" in the sales particulars gives no indication that the costs of a full-time porter were reasonably incurred. Mr Rushd's evidence that the absence of a full-time porter will reduce the marketability of the flats should carry no weight. Mr Rushd is not an estate agent or surveyor and cannot competently express an opinion on this property matter.

Third, Mr Sefton submits that the lease expressly provides for "a porter or porters". This is a material consideration. The provision of a porter was one of the services contemplated when the leases were granted, with the cost recoverable from the tenants.

It is true that under the lease the tenant has an obligation to pay a service charge which includes "the cost of the maintenance of the services of a porter or porters", and that, by entering into the lease, he has accepted this obligation. But it is accepted in general terms. The lease allows recovery of the cost of more than one porter but I do not think that even Veena could contemplate charging the tenants for two porters to service only seven flats. This provision in the Fourth Schedule to the lease is merely an enabling provision for recovery in general terms. It does not indicate that the cost of a part-time or full-time porter or even two porters is a cost reasonably incurred. The scheme of sections 18-30 of the 1985 Act is that, notwithstanding a landlord's power to recover particular costs through a service charge, those costs are only recoverable from the tenant to the extent that they are reasonably incurred. The statutory provisions override the lease. There is a two-part inquiry. Are the costs recoverable under the service charge provisions in the lease? Are they reasonably incurred? The fact that the first question can be answered affirmatively does not necessarily mean that the same answer must be given to the second question. I do not find this part of Veena's case persuasive.

Fourth, Mr Sefton said that the provision of a full-time porter is a compromise between the inadequacies of a part-time porter and the expense of a residential porter. Thus, the landlords have restricted the possible cost by employing a porter who is only present during the day.

I do not accept that a part-time porter is necessarily inadequate nor does it follow that the middle way of a daytime porter is in itself an indication that the costs of such a porter have been reasonably incurred, which is the criterion to be applied. It would be not be illogical for the lesser of the three options suggested to be the only one where it could be said that those costs are reasonably incurred. I do not find this point persuasive in support of the appeal.

Fifth, it is said that the porter provides an extensive range of useful services, including services to tenants which go beyond the porter's basic duties. Mr Rushd gave evidence of the porter's duties: Mr Det La Cruz from August 1999 (which includes cleaning) and those provided by Mr Ruddick in 1981 to 1999, which includes the period of the disputed service charges. These latter comprised: checking and replacement of light bulbs, watering plants once a week, delivery of post, answering the telephone and taking messages, portering the reception area, meter reading and attendance on engineers and contractors. From August 1983 to 1999 a part-time cleaner was also employed. Mr Rushd said that no replacement porter was employed during the porter's absence, on holiday or when ill, and the cleaner was asked to provide such services as she could. Mr Rushd put in evidence an extract from the porter's diary for the period from 8 January to 20 September 2002 showing services provided to Mr K Cheong. (I observe that many of these services relate to this service charge litigation; generally I do not find this extract of assistance). In my judgment, the porter's duties during the period of the disputed service charge were insufficient in extent to justify the employment of a full-time porter and a part-time cleaner for only seven flats. In my view, with efficient management, these duties could have been carried out on a part-time basis. They do not support Veena's appeal on this issue.

Sixth, it is said by Veena that many of the porter's duties could not be provided on a part-time basis. The particular benefit of a full-time porter is that he is present to take in deliveries and deal with problems as they arise. It is impossible to predict when most duties will need to be performed. One of the significant benefits of full-time porterage is security. Mr Rushd said that the porter's duties require him to be present in the building from 9.00am to 5.00pm. He has seen no evidence that suitable porters can be employed on a part-time basis, nor that they can be employed at costs of between £5,000 and £6,000 a year (as determined by the LVT).

I agree that a full-time porter would be more convenient and would make the management of the flats easier, but that is not the same as determining that the cost of a full-time porter was reasonably incurred in respect of only seven flats. Before 1995 the porter at 37/38 Clarges Street (although based in this building) also provided porterage for 34/36 Clarges Street and part of his wages was chargeable to that building. I was told that a new managing agent has been appointed and the possibility of employing a part-time porter is being considered. The presence of a full-time porter will usually enhance security but Mr Cheong gave evidence that burglaries have still occurred. Mr Rushd referred to the lack of evidence that part-time porters can be employed at the figures determined by the LVT. The burden of proof is, however, on Veena to show the impossibility of employing a part-time porter at the determined rates. Mr Rushd acknowledged in cross-examination that he has not sought evidence to support his assertions: he relied on the absence of evidence produced to him, presumably by Mr Cheong. I am not persuaded that a part-time porter could not be provided at 37/38 Clarges Street.

For the reasons given above, I am not satisfied that Veena acted reasonably in employing a full-time porter and a part-time cleaner during the period under consideration, 1993-97. Veena have failed to discharge the burden of proof. They have not shown that the determination of the LVT in paragraphs 13 and 14 of their decision is wrong. I am satisfied that a part-time porter would have been adequate at a cheaper cost and therefore the appeal fails on this issue. As decided by the LVT the service charge recoverable in respect of porterage and cleaning is limited to the figures determined by them. Costs of full-time porterage and part-time cleaning in excess of those amounts were not reasonably incurred. It is not necessary for me to consider whether the figures contended for by Veena for a full-time porter and part-time cleaner were reasonable, as figures, due to the failure by Veena to satisfy the first part of the question, namely that the employment of a full-time porter and part-time cleaner was reasonable.

I turn now to Veena's appeal against the section 20C order of the LVT. Under this section a tenant may apply to the LVT for an order that the landlord's costs of the proceedings before the tribunal are not relevant costs for inclusion in a service charge and the tribunal will make such order "as it considers just and equitable in the circumstances."

At the close of the hearing in the LVT Mr Cheong requested that the cost of the application be refunded to him and the tribunal considered this to be just and equitable. Mr Cheong's application for an order under section 20C was adjourned to enable Veena to make written representations. Following receipt of these representations and a response from Mr Cheong, the LVT determined that Veena's costs of the LVT's proceedings "are not to be regarded as relevant costs to be taken into account in determining the amount of any service charge payable." No reasons were given other than that the LVT considered it just and equitable to make the order. Veena appeal against that decision and have the burden of proof of showing that it is wrong.

I derive assistance as to the purpose and application of section 20C of the 1985 Act from two decisions. In Iperion the Court of Appeal were concerned with two questions: whether the defendant landlords' legal costs in forfeiture proceedings fell within the service charge payable by the tenant under the lease (the plaintiff in those proceedings); and whether those costs were relevant costs to be taken into account in determining the service charge under section 20C of the 1985 Act. Peter Gibson LJ referred to section 19 of the 1985 Act (which he said "prevents a landlord from recovering so much of a service charge as consists of costs unreasonably incurred") and section 20C ("which goes further") and then said (at 49F):-

"Thus it is apparent that the court has a discretion to direct that litigation costs be excluded from a service charge, even if the costs have passed the test of section 19 and have been reasonably incurred. The obvious circumstances which Parliament must be taken to have had in mind in enacting section 20C is a case where the tenant has been successful in litigation against the landlord and yet the costs of the proceedings are within the service charge recoverable from the tenant."

He referred to the costs of the litigation and said (at 49H):-

"To my mind, it is unattractive that a tenant who has been substantially successful in litigation against his landlord and who has been told by the court that not merely need he pay no part of the landlord's costs, but has had an award of costs in his favour should find himself having to pay any part of the landlord's costs through the service charge. In general, in my judgment, the landlord should not 'get through the back door what has been refused by the front': Holding & Management Ltd v Property Holding & Investment Trust plc [1989] 1 WLR 1313 at p1324 per Nicholls LJ."

In Sherbani Judge Rich QC (sitting as a member of the Lands Tribunal) set out the principles upon which the discretion under section 20C should be exercised:-

"28. In my judgement the only principle upon which the discretion should be exercised is to have regard to what is just and equitable in all the circumstances. The circumstances include the conduct and circumstances of all parties as well as the outcome of the proceedings in which they arise.

29. ….

30. Where, as in the case of the LVT, there is no power to award costs, there is no automatic expectation of an Order under s.20C in favour of a successful tenant, although a landlord who has behaved improperly or unreasonably cannot normally expect to recover his costs of defending such conduct.

31. In my judgement the primary consideration that the LVT should keep in mind is that the power to make an order under s.20C should be used only in order to ensure that the right to claim costs as part of the service charge is not used in circumstances that make its use unjust. Excessive costs unreasonably incurred will not, in any event, be recoverable by reason of s.19 of the Landlord and Tenant Act 1985. Section 20C may provide a short route by which a tribunal which has heard the litigation giving rise to the costs can avoid arguments under s.19, but its purpose is to give an opportunity to ensure fair treatment as between landlord and tenant, in circumstances where even although costs have been reasonably and properly incurred by the landlord, it would be unjust that the tenants or some particular tenant should have to pay them.

32. Oppressive and, even more, unreasonable behaviour however is not found solely amongst landlords. Section 20C is a power to deprive a landlord of a property right. If the landlord has abused its rights or used them oppressively that is a salutary power, which may be used with justice and equity; but those entrusted with the discretion given by s. 20C should be cautious to ensure that it is not itself turned into an instrument of oppression."

In my judgment, the matters I should have particular regard to when exercising my discretion under section 20C in this appeal are: (i) the outcome of the LVT proceedings, and (ii) the conduct of the parties and other circumstances. Having regard to those matters I must then decide whether the order of the LVT that Veena's costs should not be included in the service charge was just and equitable in the circumstances (paragraph 28 of Sherbani).

I look first at the decision of the LVT. The applicants were the tenants of Flats 12 and 31. Service charge expenditure under eleven heads was challenged on the grounds that the expenditure had not been reasonably incurred. The LVT found that expenditure under eight heads had been reasonably incurred, although they reduced the figures put forward by Veena under three heads by insignificant amounts. Under the other five heads Veena's figures were accepted without adjustment. The tenants were successful on three items: porterage and cleaning where Veena's figure of £61,585 was reduced to £27,000 compared to the tenants' figure of £20,000; management fees where Veena's figure of £13,108 was reduced to £4,464 compared to the tenants' figure of nil; and audit and accountancy costs where Veena's figure of £1,264 was reduced to £500 compared to the tenants' figure of nil. The tenants put forward nil figures for seven heads and expenditure was allowed as reasonably incurred by the LVT, in four cases at Veena's figures. Overall, the figures were £30,280 for the tenants compared to Veena's overall figure of £110,923 and the determination of the LVT of £65,073.

Veena were successful in establishing as expenditure reasonably incurred £34,793 of service charge expenditure which the tenants claimed had not been reasonably incurred. On the other hand, the tenants were successful in establishing that £45,850 of expenditure which Veena wished to include in the service charge was not reasonably incurred. The above figures do not match exactly the figures put forward by Mr Sefton in his closing submissions but they are very close and show the same overall pattern. It is the figure of £45,850 which, in my judgment, is crucial. Despite the apparent success by Veena in individual heads of claim it was found by the LVT that only £65,073 of the total service charge expenditure claimed of £110,923 had been reasonably incurred, about 59% of the total. The overall picture is that the tenants were successful in the LVT by establishing that £45,850 (or 41%) of the total service expenditure had not been reasonably incurred. In my view they were justified in bringing the proceedings. A landlord levying a service charge should ensure that the expenditure included is reasonable. In Yorkbook Investment Limited, Wood J, giving the decision of the Court of Appeal, referred to the burden of proof at first instance (at 102L set out in paragraph 32 above). The effect is that the landlord "will no doubt succeed, unless a defence is served saying that the … costs are unreasonable." Then "if the tenant gives evidence establishing a prima facie case, then it will be for the landlord to meet those allegations …". In my judgment the effect of the LVT decision is that Veena did not succeed in proving that £45,850 (or 59%) of the disputed service charge expenditure had been reasonably incurred. Of the £80,643 disputed expenditure, Veena only proved that £34,793 of that figure was reasonably incurred. The tenants proved that £45,850 of the disputed service charge was unreasonably incurred. The LVT decided that 41% of the service charge expenditure had not been reasonably incurred and I reach the conclusion that the landlords were unsuccessful overall in the LVT. Having regard to the guidance in Iperion at 49F and H it would, in my view, having regard to the decision of the LVT, not be just and equitable in the circumstances for Veena's costs of the LVT proceedings to be taken into account in determining the service charge.

That is my decision looking solely at the determination of the LVT. I must now consider whether the parties' conduct or other circumstances should persuade me to alter that decision. I can find none. Mr Sefton's submissions concentrate on the LVT decision; he does not refer to the conduct of the parties and I do not have any material on which I can say that their conduct in the LVT proceedings should alter my decision. Mr Sefton does, however, refer to the observations of Judge Rich in Sherbani (paragraph 32) set out in paragraph 121 above. I have no evidence of oppressive or unreasonable behaviour by the tenants in the proceedings in the LVT. I do not think that challenging service charge expenditure and succeeding in obtaining an overall determination from the LVT that £45,850 or 41% of the expenditure had not been reasonably incurred can be said to be oppressive or unreasonable behaviour in relation to the landlords. It is true that a section 20C order removes a landlord's right to include the costs of LVT proceedings in a service charge, where allowed by the lease and provided the amounts have been reasonably incurred under section 19 of the 1985 Act. This is an interference with a property right under the lease and should not be used as "an instrument of oppression." Parliament has, however, given this power of interference with a contractual property right to LVTs and this Tribunal subject to the order being "just and equitable in all the circumstances."

I am not persuaded that the decision of the LVT under section 20C, that Veena's costs of the LVT proceedings are not to be regarded as relevant costs to be taken into account in determining the amount of any service charge payable, is wrong. The appeal against this part of the decision of the LVT is dismissed. I have found against Veena on both parts of their appeal.

MR CHEONG'S CROSS-APPEAL

Mr Cheong's case

Mr Cheong's cross-appeal originally referred to the cost of the replacement of an extractor fan and electricity costs for operating extractors or such plant. During the hearing Mr K Cheong withdrew the appeal regarding electricity costs. Mr Cheong also sought an order under section 20C of the 1985 Act regarding Veena's costs of the proceedings in this Tribunal. This will be dealt with by written submissions after the issue of this decision on the appeals (see Addendum).

In giving evidence Mr K Cheong said that Veena have denied him access to the extractor fans located on the roof. He understood that none of them work. According to the building drawings one of the fans was intended to serve the restaurant toilets. The cost of £348.15 was reasonable: Mr Cheong challenges the need for replacement. The main ground of appeal is that the LVT and Mr Cheong were not given access to the fans. The invoice does not say which fan was replaced. It could relate to a fan serving the flats or the basement. Mr Cheong said that it is not possible for him to prove that it relates to the fan serving the basement.

In his closing submissions Mr Cheong referred to this invoice and said that it does not refer to a model number and there is no proof that the fan served the flats. Access to the plant room is a continuing problem. There are three extractors on the roof but only one is working and this relates to the restaurant kitchens. The building drawings show two Nuaire extractors, one serves the flats and the other the restaurant.

The evidence in support of the cross-appeal is not speculative as Veena claim but a consistent accumulation of evidence. This is sufficient to establish a prima facie case and is not balanced or outweighed by evidence from Veena. The LVT applied the wrong burden of proof. Faced with an inconclusive invoice, the inability of Veena to explain the fault or the location of the extractor and the refusal of access, the LVT did not properly weigh the evidence, taking into account other relevant matters. On a correct application of the burden of proof at first instance, the LVT should not have allowed the cost of the replacement of the extractor fan. Given the informational and knowledge imbalance to put the tenant to the more onerous burden of proof on appeal has made it impossible to obtain justice. This cannot be the correct application of the 1985 Act: otherwise the Act would have no purposive effect.

Mr Cheong also made submissions on the written evidence in Mr Rushd's statement regarding the extractor fans. This evidence was not given at the hearing and is not therefore before me. Mr Cheong also made submissions on the electricity charges although he withdrew this ground of appeal at the hearing. I have not recorded these submissions nor taken them into consideration.

Veena's case

Mr Sefton did not call any evidence in the cross-appeal. He made the following submissions. He referred to Mr Cheong's withdrawal of the cross-appeal regarding electricity charges and said that the challenge to the cost of the replacement of the extractor fan is not that the cost was unreasonable but that the fan serves the restaurant and not the flats. It was agreed by the appellant tenant (and determined by the Tribunal) at the start of the hearing that it is for the appellant tenant to prove that the amount challenged was not reasonable in amount or not reasonably incurred. The evidence adduced is that there were three fans on the roof, one serving the flats and the other two the basement. Mr Cheong accepted in cross-examination that it has not been possible to prove that the disputed fan serves only the basement. The cross-appeal has not therefore been made out.

Decision

Under clause 4(ii) and paragraph 11 of the Fourth Schedule to the lease of Flat 31 the tenant is required to pay a rateable proportion of "the cost of the supply and maintenance of a suitable air-conditioning plant for the Demised Premises and for the common areas of the Building." Under the order of Mr Recorder Nicholl of 25 October 1996 this obligation is without prejudice to the right of Mr K Cheong to argue that the terms have been varied or suspended and that the costs of operating the air conditioning plant relate only to the flat.

The decision of the LVT regarding the replacement of an extractor fan was as follows:-

"35. Mr Cheong argued that the cost of the replacement of an extractor fan - £348.15 was not recoverable within the terms of his lease. Mr Letman said that the invoice was available and the cost was reasonable.

36. The Tribunal although surprised that Mr Rushd was unable to identify the location of the replaced fan or, indeed, the original fault diagnosed, considered on the basis of the invoice that the costs had been reasonably incurred. In this context the Tribunal noted that access to the roof had not been made available on the day of the inspection despite a specific request by the applicant at the hearing on the previous day."

The invoice referred to is dated 9 March 1994 and is from Laser Electrical Services to Mr Rushd, then of Erida Property Services. It is for £348.15. The works are briefly described: "Disconnected and removed fan unit. Supplied and installed one no. Nuaire extractor fan unit." The invoice also contains the words "S/A 37 Clarges Street, W1", presumably a reference to the site address.

At the hearing before me Mr Cheong accepted that the cost was reasonable and did not dispute a need to replace the fan. Mr Cheong's case is not entirely clear but it appears that he challenges the decision of the LVT on three grounds. First, he says that access was denied to the roof to inspect the fans. This is referred to in paragraph 36 of the tribunal's decision. In my judgment lack of access (although regrettable) does not necessarily mean that the LVT's decision is wrong. Even if the LVT had been able to inspect the fan I think it unlikely that they would have been able to test it or determine whether it served the flats or the restaurant. Second, Mr Cheong says that the LVT did not weigh the evidence properly or applied the wrong burden of proof. As I decided at the start of the hearing, I would proceed by way of a rehearing and not a review of the LVT's decision (see paragraph 33 above). This challenge to the LVT's decision might be appropriate to a review but it is not appropriate for a rehearing where the decision of the LVT stands unless it is shown to be wrong by the evidence at the hearing before this Tribunal. Third, Mr Cheong said that the invoice is not clear and may relate to a fan serving the restaurant. I agree that this is a possibility. There is some confusion in the evidence as to the number of fans and the parts of the building which they serve. It is not clear from the invoice whether the replacement fan serves the flats or the restaurant. But, even having regard to this uncertain position, I cannot say that the LVT's decision is necessarily wrong. The burden of proof in this cross-appeal is on the appellant tenant to show that the decision of the LVT is wrong. This must be proved on the balance of probabilities by the evidence at the rehearing before this Tribunal. I am not persuaded by Mr Cheong's evidence or submissions that, on the balance of probabilities, the decision of the LVT is necessarily wrong. It might be right or it might be wrong but I cannot be certain that it is wrong. Mr Cheong has not discharged the burden of proof to show that the decision is wrong and therefore it must stand. For the reasons given the cross-appeal is dismissed.

CONCLUSION

I have dismissed the appeal by Veena from the decision of the LVT relating to the costs of porterage and cleaning and the order under section 20C of the 1985 Act (LRX/45/2000). A cross-appeal by the tenant (Mr E Cheong) regarding electricity costs was withdrawn at the hearing. I have dismissed the cross-appeal from the decision of the LVT relating to the cost of the replacement of an extractor fan (LRX/20/2002). Both appeals are dismissed.

No restriction on costs was imposed when leave to appeal was granted. This decision concludes my determination of the substantive issues in this case. It will take effect as a decision when the question of costs and the outstanding application under section 20C have been decided and at that point, but not before, the provisions relating to the right of appeal in section 3(4) of the Lands Tribunal Act 1949 and Order 61 Rule 1(1) of the Civil Procedure Rules will come into operation. The parties are invited to make submissions as to the costs of this reference and a letter accompanying this decision sets out the procedure for submissions in writing. Mr Cheong in his cross-appeal has applied under section 20C of the 1985 Act for an order that Veena's costs in the Lands Tribunal should not be regarded as relevant costs in determining the amount of any service charge. Written representations in support of this application and any response thereto should be made within the time limited for representations on costs.

DATED: 20 February 2003

(Signed) P H Clarke

ADDENDUM

I have received written representations on costs and in respect of a section 20C order relating to the Tribunal proceedings.

Costs

I look first at the question of costs. The appeal by Veena and the cross-appeal by Mr E Cheong were consolidated by the Registrar. At the start of the hearing I agreed with the parties that it should take the form of consecutive hearings, the appeal and then the cross-appeal.

Veena seek separate costs orders for the appeal and cross-appeal respectively and refer to Phonographic Performance Ltd v AEI Rediffusion Music Ltd [1999] 2 All ER 299 at 313j. Mr Cheong appears to disagree (without stating that he is seeking a single costs order) and seeks to distinguish the Phonographic decision. I agree with Veena that there should be separate orders for costs in each appeal. Both appeals failed. Each appeal dealt with different items of service charge. It is possible to make separate orders and, in my view, although there will inevitably be some overlap in preparation for the hearing of the appeal and cross-appeal, it is expedient to do so. If I were to make one order for both appeals, where each party could claim some success, it would lead to difficulties in apportioning costs, difficulties which are much less with separate orders.

I turn now to Veena's appeal, which was dismissed. Mr Cheong seeks his costs. Veena make no representations as to the costs of this appeal. In my judgment, costs should follow the event and I award Mr Cheong his costs in this appeal. I should add that, notwithstanding his success, Mr K Cheong's conduct of this appeal is not without criticism, due to its excessive length, relevance and unnecessary complications, but I do not think that I should deprive the respondent tenant of any part of his costs for this reason.

As to the cross-appeal by Mr Cheong, this was dismissed. Veena seek their costs. Mr Cheong asks that no order for costs should be made due to special factors.

On 14 December 2001 Mr Cheong made an offer to settle but all I have in support is a table headed "disputed amounts for porter and cleaner" for the years 1995-1997. A second offer was made by Mr Cheong on 24 October 2002 and lodged with the Tribunal as a sealed offer. This covered the appeal and cross-appeal. It offered to settle the porterage and cleaning costs at higher figures than determined by the LVT and confirmed by this Tribunal by the dismissal of the appeal, and to withdraw the cross-appeal, each party bearing their own costs. The offer did not refer to the section 20C order made by the LVT and appealed by Veena to this Tribunal. I subsequently dismissed this part of Veena's appeal. It is clear therefore that Veena have not achieved more by refusing this offer and proceeding with their appeal and response to the cross-appeal. I have already ordered them to pay Mr Cheong's costs of their unsuccessful appeal and, prima facie, I should order them to pay Mr Cheong's costs of the cross-appeal after the date of the offer (see Tramountana Armadora SA v Atlantic Shipping Co SA [1978] 2 All ER 870 at 877g-878a). Mr Cheong, however, asks that there should be no order of costs in the cross-appeal and Veena ask for all their costs. I must consider whether Mr Cheong, who was unsuccessful in the cross-appeal, should pay Veena's costs incurred before the date of the offer. Mr Cheong says that he tried to settle the dispute and it could be argued that the respondent tenant should recover all his costs (see Phyllis Trading Ltd v 86 Lordship Road Ltd [2001] EWCA Civ 350 at para 28). In reply to this part of Mr Cheong's case, Veena assert that the initiative towards a settlement originally came from Veena in a letter dated 18 October 2002 which was rejected by Mr Cheong and, say Veena, efforts to reach a settlement over 2 and 3 November 2002 between Mr Croft, the managing agent for Mr Cheong, and Mr Chevalier, solicitor for Veena, failed due to Mr K Cheong's frequent unavailability and his repeated changes of requirement. I have not been supplied with a copy of the letter of 18 October 2002 and I note from Veena's submissions that it dealt with matters outside the appeal and cross-appeal. I do not take this letter into account.

Mr Cheong puts forward other points in support of his costs submissions. He says that Veena should not be able to recover the costs of preparing evidence that was not given at the cross-appeal hearing. This is, in my view, a matter for the assessment of costs. Other points made by Mr Cheong can be considered under the general hearing of Veena's conduct. First, Mr Cheong says that Veena refused to agree facts following service of a notice to admit facts. Second, that the cross-appeal was made necessary by Veena's conduct before and during the LVT hearing, particularly with regard to access to the roof. Third, Veena did not co-operate regarding the electricity charges and this made the cross-appeal necessary. Finally, Veena complicated the cross-appeal by objecting to part of the electricity charges issue at the start of the hearing.

It is impossible to discover the truth in these allegations. Overall, my impression is that Veena have not been entirely straightforward in their management of 37/38 Clarges Street and in their conduct of these appeals. I do not make any criticism of Mr Sefton in his presentation of their case. But, on the other hand, Mr K Cheong has not been an easy opponent and, as stated above, his conduct before and at the hearing can be criticised, even when allowance is made for his position as a lay advocate. His presentation of the tenant's case was unduly long, much of it irrelevant, nearly all of it unnecessarily complicated. The cross-appeal was particularly unsatisfactory: he withdrew the appeal regarding electricity costs (which was entirely lacking in supporting evidence) and his case regarding the extractor fans failed due to lack of evidence. Having regard to all the circumstances I do not think that I should deprive Veena of their costs in the cross-appeal before the date of the offer on 24 October 2002.

Accordingly, I order Veena to pay Mr Cheong's costs of the appeal (LRX/45/2000) and Mr Cheong to pay Veena's costs of the cross-appeal (LRX/20/2002) up to 24 October 2002 and Veena to pay Mr Cheong's costs of the cross-appeal from that date, all such costs, if not agreed, to be the subject of a detailed assessment on the standard basis by the Registrar of the Lands Tribunal.

Section 20C order

Mr Cheong has applied under section 20C of the 1985 Act for an order that Veena's costs in this Tribunal should not be regarded as relevant costs in determining the amount of any service charge. He gives two reasons for this application. First, litigation costs cannot be recovered under the service charge. Second, the Lands Tribunal has power to award costs against an unsuccessful party and a section 20C order should be granted to prevent the recovery of costs which were not awarded. Veena acknowledge that such an order should be made in respect of the unsuccessful appeal but not in the cross-appeal where they were successful.

In the appeal Veena have conceded that a section 20C order should be made. I agree. In the cross-appeal, however, they say that they were successful and their costs should not be subject to a section 20C order. I do not agree. I have awarded Veena their costs in the cross-appeal up to the offer of 24 October 2002, recoverable from the appellant tenant, Mr E Cheong. It would, in my view, be wrong for those costs and the other costs to be borne by Veena to be recoverable under the service charge. This would not be just and equitable in the circumstances. In Sherbani the member said (para 29):-

"I think that it can be derived from the decision of the Court of Appeal in the Iperion Case that where a Court has power to award costs, and exercises such power, it should also exercise its power under s.20C, in order to ensure that its decision on costs is not subverted by the effect of the service charge."

Accordingly, I order that the costs incurred by Veena in connection with the appeal (LRX/45/00) and the cross-appeal (LRX/20/02) are not to be regarded as relevant costs to be taken into account in determining the amount of any service charge payable in respect of 37/38 Clarges Street, London W1.

DATED: 31 March 2003

(Signed) P H Clarke

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